☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the quarterly period ended March 31, 2020
2021
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the transition period from to
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Delaware | 52-1984749 | |||||||
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1040 Spring Street, |
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Common Stock, |
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Consolidated Financial Statements March 31, December 31, 2020 2019 (Unaudited) Assets Current assets: Cash and cash equivalents $ 875.2 $ 738.4 Marketable investments 669.3 747.5 Accounts receivable, 0 allowance for 2020 and 2019 149.6 151.4 Inventories, net 92.0 93.4 Other current assets 60.2 133.8 Total current assets 1,846.3 1,864.5 Marketable investments 868.0 767.5 Goodwill and other intangible assets, net 158.3 158.3 Property, plant, and equipment, net 739.2 738.5 Deferred tax assets, net 246.1 230.0 Other non-current assets 168.0 154.6 Total assets $ 4,025.9 $ 3,913.4 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable and accrued expenses $ 130.3 $ 148.4 Line of credit (current) — 250.0 Share tracking awards plan 32.0 25.0 Other current liabilities 45.0 39.6 Total current liabilities 207.3 463.0 Line of credit (non-current) 800.0 600.0 Other non-current liabilities 70.1 70.0 Total liabilities 1,077.4 1,133.0 Commitments and contingencies Stockholders’ equity: Preferred stock, par value $.01, 10,000,000 shares authorized, 0 shares issued — — Series A junior participating preferred stock, par value $.01, 100,000 shares authorized, 0 shares issued — — Common stock, par value $.01, 245,000,000 shares authorized, 70,621,284 and 70,503,775 shares issued, and 44,002,068 and 43,884,559 shares outstanding at March 31, 2020 and December 31, 2019, respectively 0.7 0.7 Additional paid-in capital 2,068.4 2,047.9 Accumulated other comprehensive loss (3.5) (14.2) Treasury stock, 26,619,216 shares at March 31, 2020 and December 31, 2019 (2,579.2) (2,579.2) Retained earnings 3,462.1 3,325.2 Total stockholders’ equity 2,948.5 2,780.4 Total liabilities and stockholders’ equity $ 4,025.9 $ 3,913.4 Three Months Ended March 31, 2020 2019 (Unaudited) Revenues: Net product sales $ 356.3 $ 362.6 Total revenues 356.3 362.6 Operating expenses: Cost of product sales 23.4 29.1 Research and development 73.2 897.4 Selling, general, and administrative 93.0 92.0 Total operating expenses 189.6 1,018.5 Operating income (loss) 166.7 (655.9) Interest income 10.0 9.8 Interest expense (8.2) (10.3) Other income, net 8.7 5.8 Impairments of investments in privately-held companies (5.6) — Total other income, net 4.9 5.3 Income (loss) before income taxes 171.6 (650.6) Income tax (expense) benefit (33.9) 156.0 Net income (loss) $ 137.7 $ (494.6) Net income (loss) per common share: Basic $ 3.14 $ (11.32) Diluted $ 3.12 $ (11.32) Weighted average number of common shares outstanding: Basic 43.9 43.7 Diluted 44.1 43.7 Three Months Ended March 31, 2020 2019 (Unaudited) Net income (loss) $ 137.7 $ (494.6) Other comprehensive income: Defined benefit pension plan: Actuarial gain arising during period, net of tax 0.2 — Amortization of actuarial gain and prior service cost included in net periodic pension cost, net of tax 0.3 0.1 Total defined benefit pension plan, net of tax 0.5 0.1 Unrealized gains on available-for-sale securities, net of tax 10.2 2.6 Other comprehensive income, net of tax 10.7 2.7 Comprehensive income (loss) $ 148.4 $ (491.9) Three Months Ended March 31, 2020 (Unaudited) Accumulated Additional Other Common Stock Paid-in Comprehensive Treasury Retained Stockholders’ Shares Amount Capital Loss Stock Earnings Equity Balance, January 1, 2020 70.5 $ 0.7 $ 2,047.9 $ (14.2) $ (2,579.2) $ 3,325.2 $ 2,780.4 Net income — — — — — 137.7 137.7 Unrealized gains on available-for-sale securities — — — 10.2 — — 10.2 Defined benefit pension plan — — — 0.5 — — 0.5 Shares issued under employee stock purchase plan — — 2.5 — — — 2.5 Restricted stock units withheld for taxes — — (3.4) — — — (3.4) Common stock issued for RSUs vested 0.1 — — — — — — Exercise of stock options — — 0.7 — — — 0.7 Share-based compensation — — 20.7 — — — 20.7 Cumulative effect of accounting change — — — — — (0.8) (0.8) Balance, March 31, 2020 70.6 $ 0.7 $ 2,068.4 $ (3.5) $ (2,579.2) $ 3,462.1 $ 2,948.5 Three Months Ended March 31, 2019 (Unaudited) Accumulated Additional Other Common Stock Paid-in Comprehensive Treasury Retained Stockholders’ Shares Amount Capital Loss Stock Earnings Equity Balance, January 1, 2019 70.2 $ 0.7 $ 1,940.2 $ (7.9) $ (2,579.2) $ 3,434.8 $ 2,788.6 Net loss — — — — — (494.6) (494.6) Unrealized gains on available-for-sale securities — — — 2.6 — — 2.6 Defined benefit pension plan — — — 0.1 — — 0.1 Shares issued under employee stock purchase plan — — 2.2 — — — 2.2 Restricted stock units withheld for taxes — — (1.9) — — — (1.9) Exercise of stock options 0.2 — 8.8 — — — 8.8 Share-based compensation — — 18.3 — — — 18.3 Cumulative effect of accounting change — — — — — (5.1) (5.1) Balance, March 31, 2019 70.4 $ 0.7 $ 1,967.6 $ (5.2) $ (2,579.2) $ 2,935.1 $ 2,319.0 Three Months Ended March 31, 2020 2019 (Unaudited) Cash flows from operating activities: Net income (loss) $ 137.7 $ (494.6) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 12.4 10.3 Share-based compensation expense 30.8 29.2 Impairments of investments in privately-held companies 5.6 — Other (22.8) 6.7 Changes in operating assets and liabilities: Accounts receivable 1.7 16.0 Inventories 6.1 1.7 Accounts payable and accrued expenses (18.8) (27.7) Other assets and liabilities 61.9 (169.0) Net cash provided by (used in) operating activities 214.6 (627.4) Cash flows from investing activities: Purchases of property, plant, and equipment (13.0) (25.1) Sales/maturities of held-to-maturity investments — 37.4 Purchases of available-for-sale investments (479.2) (379.5) Sales/maturities of available-for-sale investments 451.4 313.9 Sales of investments in equity securities 13.2 — Purchase of investments in privately-held companies — (7.0) Net cash used in investing activities (27.6) (60.3) Cash flows from financing activities: Proceeds from line of credit — 800.0 Repayment of line of credit (50.0) — Proceeds from the exercise of stock options 0.7 8.8 Proceeds from the issuance of stock under employee stock purchase plan 2.5 2.2 Restricted stock units withheld for taxes (3.4) (1.9) Net cash (used in) provided by financing activities (50.2) 809.1 Net increase in cash and cash equivalents 136.8 121.4 Cash and cash equivalents, beginning of period 738.4 669.2 Cash and cash equivalents, end of period $ 875.2 $ 790.6 Supplemental cash flow information: Cash paid for interest $ 7.5 $ 9.2 Cash (received) paid for income taxes $ (8.7) $ 0.9 Non-cash investing and financing activities: Non-cash additions to property, plant, and equipment $ 5.4 $ 5.8 2021 (Unaudited) 24, 2021. In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, Simplifying the Accounting for Income Taxes Gross Gross Amortized Unrealized Unrealized Fair As of March 31, 2020 Cost Gains Losses Value U.S. government and agency securities $ 1,251.2 $ 17.9 $ (0.1) $ 1,269.0 Corporate debt securities 244.7 0.7 (0.9) 244.5 Total $ 1,495.9 $ 18.6 $ (1.0) $ 1,513.5 Reported under the following captions on our consolidated balance sheets: Current marketable investments 645.5 Non-current marketable investments 868.0 Total $ 1,513.5 Gross Gross Amortized Unrealized Unrealized Fair As of December 31, 2019 Cost Gains Losses Value U.S. government and agency securities $ 1,225.2 $ 2.9 $ (0.2) $ 1,227.9 Corporate debt securities 222.4 1.7 — 224.1 Total $ 1,447.6 $ 4.6 $ (0.2) $ 1,452.0 Reported under the following captions on our consolidated balance sheets: Current marketable investments 684.5 Non-current marketable investments 767.5 Total $ 1,452.0 Part I. Financial Information As of March 31, 2020 Amortized Fair Cost Value Due within one year $ 641.3 $ 645.5 Due in one to three years 854.6 868.0 Total $ 1,495.9 $ 1,513.5 As of December 31, 2019 Amortized Fair Cost Value Due within one year $ 683.3 $ 684.5 Due in one to three years 764.3 767.5 Total $ 1,447.6 $ 1,452.0 . Actual maturities may differ from contractual maturities because the issuers of certain of these debt securities have the right to call the securities or prepay their obligations under the securities with or without penalties. Variable Interest Entity As of March 31, 2020 Level 1 Level 2 Level 3 Balance Assets Money market funds(1) $ 383.5 $ — $ — $ 383.5 Time deposits(2) — 87.8 — 87.8 U.S. government and agency securities(3) — 1,269.0 — 1,269.0 Corporate debt securities(3) — 244.5 — 244.5 Equity securities(4) 43.8 — — 43.8 Total assets $ 427.3 $ 1,601.3 $ — $ 2,028.6 Liabilities Contingent consideration(5) — — 13.6 13.6 Total liabilities $ — $ — $ 13.6 $ 13.6 As of December 31, 2019 Level 1 Level 2 Level 3 Balance Assets Money market funds(1) $ 270.0 $ — $ — $ 270.0 Time deposits(2) — 87.3 — 87.3 U.S. government and agency securities(3) — 1,227.9 — 1,227.9 Corporate debt securities(3) — 224.1 — 224.1 Equity securities(4) 63.0 — — 63.0 Total assets $ 333.0 $ 1,539.3 $ — $ 1,872.3 Liabilities Contingent consideration(5) — — 13.4 13.4 Total liabilities $ — $ — $ 13.4 $ 13.4CONSOLIDATED FINANCIAL STATEMENTSUNITED THERAPEUTICS CORPORATIONCONSOLIDATED BALANCE SHEETS
(In millions, except share data) March 31, 2021 December 31, 2020 (Unaudited) Assets Current assets: Cash and cash equivalents $ 832.3 $ 738.7 Marketable investments 899.0 1,096.3 Accounts receivable, 0 allowance for 2021 and 2020 141.1 157.4 Inventories, net 92.2 86.5 Other current assets 49.7 88.3 Total current assets 2,014.3 2,167.2 Marketable investments 1,433.5 1,149.6 Goodwill and other intangible assets, net 44.7 158.1 Property, plant, and equipment, net 713.7 731.6 Deferred tax assets, net 263.6 238.6 Other non-current assets 171.2 169.9 Total assets $ 4,641.0 $ 4,615.0 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable and accrued expenses $ 165.0 $ 187.0 Share tracking awards plan 107.1 96.8 Other current liabilities 30.3 39.5 Total current liabilities 302.4 323.3 Line of credit (non-current) 800.0 800.0 Other non-current liabilities 93.2 96.5 Total liabilities 1,195.6 1,219.8 Commitments and contingencies Stockholders’ equity: Preferred stock, par value $.01, 10,000,000 shares authorized, 0 shares issued 0 0 0.7 0.7 Additional paid-in capital 2,173.2 2,148.7 Accumulated other comprehensive loss (16.8) (14.2) Treasury stock, 26,619,216 shares at March 31, 2021 and December 31, 2020 (2,579.2) (2,579.2) Retained earnings 3,867.5 3,839.2 Total stockholders’ equity 3,445.4 3,395.2 Total liabilities and stockholders’ equity $ 4,641.0 $ 4,615.0 3Quarterly Report 3
(In millions, except per share data) Three Months Ended
March 31, 2021 2020 (Unaudited) Revenues: Net product sales $ 379.1 $ 356.3 Total revenues 379.1 356.3 Operating expenses: Cost of product sales 23.0 23.4 Research and development 303.7 73.2 Selling, general, and administrative 117.2 93.0 Total operating expenses 443.9 189.6 Operating (loss) income (64.8) 166.7 Interest income 4.7 10.0 Interest expense (4.6) (8.2) Other income, net 97.2 8.7 Impairments of investments in privately-held companies 0 (5.6) Total other income, net 97.3 4.9 Income before income taxes 32.5 171.6 Income tax expense (4.2) (33.9) Net income $ 28.3 $ 137.7 Net income per common share: Basic $ 0.63 $ 3.14 Diluted $ 0.61 $ 3.12 Weighted average number of common shares outstanding: Basic 44.6 43.9 Diluted 46.4 44.1 44 United Therapeutics
(In millions) Three Months Ended
March 31, 2021 2020 (Unaudited) Net income $ 28.3 $ 137.7 Other comprehensive income: Defined benefit pension plan: Actuarial gain arising during period, net of tax 0.2 0.2 Amortization of prior service cost included in net periodic pension cost, net of tax 0.1 0.3 Total defined benefit pension plan, net of tax 0.3 0.5 Unrealized (loss) gain on available-for-sale securities, net of tax (2.9) 10.2 Other comprehensive (loss) income, net of tax (2.6) 10.7 Comprehensive income $ 25.7 $ 148.4 5Quarterly Report 5 Three Months Ended March 31, 2021 (Unaudited) Common Stock Additional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossTreasury
StockRetained Earnings Stockholders’ Equity Shares Amount Balance, January 1, 2021 71.1 $ 0.7 $ 2,148.7 $ (14.2) $ (2,579.2) $ 3,839.2 $ 3,395.2 Net income — — — — — 28.3 28.3 Unrealized losses on available-for-sale securities — — — (2.9) — — (2.9) Defined benefit pension plan — — — 0.3 — — 0.3 Shares issued under employee stock
purchase plan0.1 — 2.8 — — — 2.8 — — (10.2) — — — (10.2) Common stock issued for RSUs vested 0.1 — — — — — — Exercise of stock options 0.1 — 17.5 — — — 17.5 Share-based compensation — — 14.4 — — — 14.4 Balance, March 31, 2021 71.4 $ 0.7 $ 2,173.2 $ (16.8) $ (2,579.2) $ 3,867.5 $ 3,445.4 Three Months Ended March 31, 2020 (Unaudited) Common Stock Additional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossTreasury
StockRetained Earnings Stockholders’ Equity Shares Amount Balance, January 1, 2020 70.5 $ 0.7 $ 2,047.9 $ (14.2) $ (2,579.2) $ 3,325.2 $ 2,780.4 Net income — — — — — 137.7 137.7 Unrealized gains on available-for-sale securities — — — 10.2 — — 10.2 Defined benefit pension plan — — — 0.5 — — 0.5 Shares issued under employee stock
purchase plan— — 2.5 — — — 2.5 RSUs withheld for taxes — — (3.4) — — — (3.4) Common stock issued for RSUs vested 0.1 — — — — — — Exercise of stock options — — 0.7 — — — 0.7 Share-based compensation — — 20.7 — — — 20.7 Cumulative effect of accounting change — — — — — (0.8) (0.8) Balance, March 31, 2020 70.6 $ 0.7 $ 2,068.4 $ (3.5) $ (2,579.2) $ 3,462.1 $ 2,948.5 66 United Therapeutics Three Months Ended March 31, 2021 2020 (Unaudited) Cash flows from operating activities: Net income $ 28.3 $ 137.7 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12.5 12.4 Share-based compensation expense 40.1 30.8 Impairments of investments in privately-held companies 0 5.6 Intangible asset impairment charges 113.4 0 Impairments of property, plant, and equipment 17.0 0 Realized gain on sale of equity securities (91.9) (2.0) Other (8.5) (22.8) Changes in operating assets and liabilities: Accounts receivable 16.3 1.7 Inventories (2.2) 6.1 Accounts payable and accrued expenses (25.0) (18.8) Other assets and liabilities (10.2) 63.9 Net cash provided by operating activities 89.8 214.6 Cash flows from investing activities: Purchases of property, plant, and equipment (10.6) (13.0) Purchases of available-for-sale investments (559.0) (479.2) Maturities of available-for-sale investments 454.4 435.4 Sales of available-for-sale investments 0 16.0 Sales of investments in equity securities 108.9 13.2 Net cash used in investing activities (6.3) (27.6) Cash flows from financing activities: Repayment of line of credit 0 (50.0) Proceeds from the exercise of stock options 17.5 0.7 Proceeds from the issuance of stock under employee stock purchase plan 2.8 2.5 Restricted stock units withheld for taxes (10.2) (3.4) Net cash provided by (used in) financing activities 10.1 (50.2) Net increase in cash and cash equivalents $ 93.6 $ 136.8 Cash and cash equivalents, beginning of period 738.7 738.4 Cash and cash equivalents, end of period $ 832.3 $ 875.2 Supplemental cash flow information: Cash paid for interest $ 4.0 $ 7.5 Cash received for income taxes $ (1.6) $ (8.7) Non-cash investing and financing activities: Non-cash additions to property, plant, and equipment $ 5.1 $ 5.4 7Quarterly Report 7 2020(UNAUDITED)(FDA)(FDA) to market the following therapies: Remodulin® (treprostinil) Injection (Remodulin)(Remodulin), Tyvaso® (treprostinil) Inhalation Solution (Tyvaso)(Tyvaso), Orenitram® (treprostinil) Extended-Release Tablets (Orenitram)(Orenitram), Unituxin® (dinutuximab) Injection (Unituxin)(Unituxin), and Adcirca® (tadalafil) Tablets (Adcirca)(Adcirca). Our only significant revenues outside the United States are derived from sales of Remodulin in Europe.“we”“we”, “us”“us”, “our”“our”, and similar terms refer to United Therapeutics Corporation and its consolidated subsidiaries.(SEC)(SEC) for interim financial information. Accordingly, they do not include all of the information required by U.S. generally accepted accounting principles (GAAP)(GAAP) for complete financial statements. Certain prior year amounts have been reclassified to conform to the current year presentation. In the operating activities section of our consolidated statements of cash flows, we reclassified a portion of the prior period amount within other assets and liabilities to the line item realized gain on sale of equity securities to conform with the current period presentation. In the investing activities section of our consolidated statements of cash flows, we reclassified the prior period amount within sales/maturities of available-for-sale investments to the line items maturities of available-for-sale investments and sales of available-for-sale investments to conform with the current period presentation. These consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the accompanying notes to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, as filed with the SEC on February 26, 2020.20202021 and December 31, 2019,2020, and our statements of operations, comprehensive income, stockholders’ equity, and cash flows for the three-month periods ended March 31, 20202021 and 2019.2020. Interim results are not necessarily indicative of results for an entire year.In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which introduces new guidance for estimating credit losses on certain types of financial instruments based on expected losses and the timing of the recognition of such losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. We adopted this standard on January 1, 2020 using the modified retrospective method for financial assets measured at amortized cost, including our net investment in a sales-type lease, financing receivables, and trade receivables. Upon adoption of the new standard, we recorded an allowance for credit losses of $1.1 million related to our net investment in a lease using an estimated default rate for the lessee over the lease term. The cumulative-effect adjustment resulted in a decrease to retained earnings of $0.8 million, which is net of a tax benefit. During the quarter ended March 31, 2020, we recognized an impairment charge of $1.5 million on a note receivable due to the expected loss from future payments as a result of economic uncertainty arising from the negative effects which the COVID-19 pandemic has had on the global economy and financial markets. We recorded this impairment charge within “other income, net” on our consolidated statements of operations.In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment (ASU 2017-04), which simplifies how an entity is required to test goodwill for impairment. ASU 2017-04 requires that a goodwill impairment be measured by the amount by which a reporting unit’s carrying value exceeds its fair value, with the amount of impairment not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, and must be adopted on a prospective basis. We adopted the new standard on January 1, 2020, with no material impact on our financial statements.8In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which eliminates, adds, and modifies certain disclosure requirements for fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019. We adopted the new standard on January 1, 2020, with no material impact on our financial statements.Accounting Standards Not Yet AdoptedIn August 2018, the FASB issued ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Topic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14). The standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. ASU 2018-14 is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our financial statements. (ASU 2019-12)(ASU 2019-12), which simplifies the accounting for income taxes by removing certain exceptions to the general principles of Topic 740, Income Taxes, and also improves consistency of application by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020,2020. We adopted the new standard on January 1, 2021, with early adoption permitted. We are currently evaluating theno material impact of this guidance on our financial statements.2020,2020. We adopted the new standard on January 1, 2021, with early adoption permitted. We do not expect the adoption of this guidance to have ano material impact on our financial statements.8 United Therapeutics incomeloss in stockholders’ equity, until realized. Available-for-sale debt securities consisted of the following (in millions):9As of March 31, 2021 Amortized
CostGross
Unrealized
GainsGross
Unrealized
LossesFair
ValueU.S. government and agency securities $ 1,911.5 $ 7.5 $ (0.4) $ 1,918.6 Corporate debt securities 345.6 2.1 (0.1) 347.6 Total $ 2,257.1 $ 9.6 $ (0.5) $ 2,266.2 Reported under the following captions on our consolidated balance sheets: Current marketable investments $ 832.7 Non-current marketable investments 1,433.5 Total $ 2,266.2 As of December 31, 2020 Amortized
CostGross
Unrealized
GainsGross
Unrealized
LossesFair
ValueU.S. government and agency securities $ 1,902.4 $ 9.8 $ (0.1) $ 1,912.1 Corporate debt securities 331.2 3.2 0 334.4 Total $ 2,233.6 $ 13.0 $ (0.1) $ 2,246.5 Reported under the following captions on our consolidated balance sheets: Cash and cash equivalents $ 79.0 Current marketable investments 1,017.9 Non-current marketable investments 1,149.6 Total $ 2,246.5 Quarterly Report 9 marketable investmentsdebt securities (in millions): As of March 31, 2021 Amortized Cost Fair Value Due within one year $ 829.1 $ 832.7 Due in one to three years 1,428.0 1,433.5 Total $ 2,257.1 $ 2,266.2 $43.8$66.3 million and $63.0$78.4 million as of March 31, 20202021 and December 31, 2019,2020, respectively, which are included in current marketable investments on our consolidated balance sheets. Changes in the fair value of publicly traded equity securities are recorded on our consolidated statements of operations within “otherother income, net”net. Refer to Note 4—Fair Value InvestmentsMeasurements.20202021 and December 31, 2019,2020, we maintained non-controlling equity investments in privately-held companies of $102.9$84.8 million, and $86.0 million, respectively, in the aggregate. We measure these investments using the measurement alternative because the fair values of these investments are not readily determinable. Under this alternative, the investments are measured at cost, less any impairment, and adjusted for any observable price changes. We include our investments in privately-held companies within other non-current assets on our consolidated balance sheets. These investments are subject to a periodic impairment review and, if impaired, the investment is measured and recorded at fair value in accordance with ASC 820, Fair Value Measurements.quarterthree months ended March 31, 2020, one of these privately-held companies raised additional capital by issuing equity securities similar to oursthe security that we hold at an increased valuation, which resulted in an increase of $22.5 million in the value of our investment. The gain was recorded within “otherother income, net”net on our consolidated statements of operations for the three months ended March 31, 2020.quarterthree months ended March 31, 2020, we observed an indicator of impairment for our investments in two2 of these companies, which caused us to recognize impairment charges of $5.6 million. One of these companies suspended operations during the quarter ended March 31, 2020, which caused us to recognize an impairment charge equal to the entire value of our investment in this company. The other company experienced a decline in its business arising from the negative effects of the COVID-19 pandemic during the quarter ended March 31, 2020, which caused us to recognize an impairment charge equal to a portion of the value of our investment in this company. These impairment charges were recorded within impairments of investments in privately-held companies on our consolidated statements of operations for the three months ended March 31, 2020.10 (VIE)AugustNovember 2019, we entered into a supply agreement with an operatingaffiliate of DEKA Research & Development Corporation (DEKA) to manufacture and supply the Remunity® Pump to us. Under the terms of the supply agreement, we will reimburse all of the affiliate’s costs to manufacture and trust agreement related tosupply the expected contribution of an asset toRemunity Pump. We determined that the affiliate is a newly created trust of whichvariable interest entity as we are currently the beneficiary. The trust was created for legal and administrative purposes and is not expected to make future purchases. As the operatoronly customer of the asset, we are required to incur all future expenses related toaffiliate and the operation and maintenance of the asset. Accordingly, the trust is deemed a VIE because itaffiliate currently relies on our capitalreimbursement of its costs to pay future operating expenses.sustain its operations. We have determined we are deemednot the primary beneficiary of the VIE becauseaffiliate as we aredo not have the sole providerpower to direct or control its significant activities related to the manufacturing of financial support and can unilaterally remove the trustee without cause.medical devices. Accordingly, we consolidatehave not consolidated the VIE’s balance sheet andaffiliate’s results of operations.operations and financial position with ours. As of March 31, 2021 and December 31, 2020, our consolidated balance sheets included $12.3 million and $11.7 million of assets, respectively, related to the supply agreement. As of March 31, 2021 and December 31, 2020, our consolidated balance sheets included a $56.0$4.6 million asset within “property, plant, and equipment, net” due$24.0 million liability, respectively, for our obligation to reimburse costs related to the consolidationsupply agreement. While the terms of this VIE.the supply agreement expose us to various future risks of loss given our responsibility to reimburse all costs incurred by the affiliate to manufacture and supply the Remunity Pump, we believe that our maximum exposure to loss as of March 31, 2021 as a result of our involvement with the affiliate is $12.3 million, the amount of assets related to the supply agreement noted above.10 United Therapeutics As of March 31, 2021 Level 1 Level 2 Level 3 Balance Assets $ 390.2 $ 0 $ 0 $ 390.2 88.0 0 0 88.0 0 1,918.6 0 1,918.6 0 347.6 0 347.6 66.3 0 0 66.3 0 0 6.0 6.0 Total assets $ 544.5 $ 2,266.2 $ 6.0 $ 2,816.7 Liabilities 0 0 15.1 15.1 Total liabilities $ 0 $ 0 $ 15.1 $ 15.1 As of December 31, 2020 Level 1 Level 2 Level 3 Balance Assets $ 323.1 $ 0 $ 0 $ 323.1 0 1,912.1 0 1,912.1 0 334.4 0 334.4 78.4 0 0 78.4 0 0 4.1 4.1 Total assets $ 401.5 $ 2,246.5 $ 4.1 $ 2,652.1 Liabilities 0 0 17.1 17.1 Total liabilities $ 0 $ 0 $ 17.1 $ 17.1 (1)Included in (1)Included in cash and cash equivalents on our consolidated balance sheets.Quarterly Report(2)Included in cash and cash equivalents and current marketable investments on our consolidated balance sheets. The fair value of these securities is principally measured or corroborated by trade data for identical securities in which related trading activity is not sufficiently frequent to be considered a Level 1 input or comparable securities that are more actively traded.(3)Included in cash and cash equivalents and current and non-current marketable investments on our consolidated balance sheets. Refer to Note 3—Investments—Available-for-Sale Debt Securities for further information. The fair value of these securities is principally measured or corroborated by trade data for identical securities for which related trading activity is not sufficiently frequent to be considered a Level 1 input or comparable securities that are more actively traded.1111(4)Included in current marketable investments on our consolidated balance sheets. The fair value of these securities is based on quoted market prices for identical instruments in active markets. During the three months ended March 31, 2020, we recognized $6.1 million of net unrealized and realized losses on these securities and recorded these losses on our consolidated statements of operations within “other income, net”. Refer to Note 3—Investments—Investments in Equity Securities with Readily Determinable Fair Values.
Part I. Financial Information(5)Included in non-current liabilities on our consolidated balance sheets. The fair value of our contingent consideration obligations has been estimated using probability-weighted discounted cash flow models (DCFs). The DCFs incorporate Level 3 inputs including estimated discount rates that we believe market participants would consider relevant in pricing and the projected timing and amount of cash flows, which are estimated and developed, in part, based on the requirements specific to each acquisition agreement. The change in the fair value of our contingent consideration obligations for the three months ended March 31, 2020 was not material.
Fair Value of Financial Instruments
| | | | | | |
|
| March 31, |
| December 31, | ||
| | 2020 | | 2019 | ||
Raw materials | | $ | 20.1 | | $ | 21.1 |
Work-in-progress | |
| 28.1 | |
| 29.1 |
Finished goods | |
| 43.8 | |
| 43.2 |
Total inventories | | $ | 92.0 | | $ | 93.4 |
| March 31, 2021 | December 31, 2020 | ||||||||||
| Raw materials | $ | 16.0 | $ | 18.4 | |||||||
| Work-in-progress | 31.2 | 29.5 | |||||||||
| Finished goods | 45.0 | 38.6 | |||||||||
| Total inventories | $ | 92.2 | $ | 86.5 | |||||||
| As of March 31, 2021 | As of December 31, 2020 | ||||||||||||||||||||||||||||||||||
| Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||
| Goodwill | $ | 28.0 | $ | — | $ | 28.0 | $ | 28.0 | $ | — | $ | 28.0 | |||||||||||||||||||||||
| Other intangible assets: | |||||||||||||||||||||||||||||||||||
| Technology, patents, and trade names | 6.7 | (5.5) | 1.2 | 6.7 | (5.5) | 1.2 | |||||||||||||||||||||||||||||
In-process research and development(1) (2) | 15.5 | — | 15.5 | 128.9 | — | 128.9 | |||||||||||||||||||||||||||||
| Total | $ | 50.2 | $ | (5.5) | $ | 44.7 | $ | 163.6 | $ | (5.5) | $ | 158.1 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
| | As of March 31, 2020 | | As of December 31, 2019 | ||||||||||||||
|
| | |
| Accumulated |
| | |
| | |
| Accumulated |
| | | ||
| | Gross | | Amortization | | Net | | Gross | | Amortization | | Net | ||||||
Goodwill | | $ | 28.0 | | $ | — | | $ | 28.0 | | $ | 28.0 | | $ | — | | $ | 28.0 |
Other intangible assets: | |
|
| |
|
| |
|
| |
| | |
|
| |
| |
Technology, patents, and trade names | |
| 6.7 | |
| (5.3) | |
| 1.4 | |
| 6.7 | |
| (5.3) | |
| 1.4 |
In-process research and development(1) | |
| 128.9 | |
| — | |
| 128.9 | |
| 128.9 | |
| — | |
| 128.9 |
Total | | $ | 163.6 | | $ | (5.3) | | $ | 158.3 | | $ | 163.6 | | $ | (5.3) | | $ | 158.3 |
In March 2021, we decided to discontinue the U.S. development of Trevyent
| March 31, 2021 | December 31, 2020 | ||||||||||
| Land and land improvements | $ | 75.0 | $ | 74.9 | |||||||
| Buildings, building improvements, and leasehold improvements | 601.7 | 593.6 | |||||||||
| Buildings under construction | 45.6 | 47.4 | |||||||||
| Furniture, equipment, and vehicles | 308.6 | 325.0 | |||||||||
| Subtotal | 1,030.9 | 1,040.9 | |||||||||
| Less—accumulated depreciation | (317.2) | (309.3) | |||||||||
| Property, plant, and equipment, net | $ | 713.7 | $ | 731.6 | |||||||
| 12 | |||||
12
Unsecured Revolving
Agreement
December 2025.
As of March 31, 2021 and December 31, 2019,2020, our outstanding aggregate principal balance was $850.0 million, of which $250.0 million was classified as a current liability because, as of such date, we intended to repay that amount within one year. During the three months ended March 31, 2020, we paid down $50.0 million of our balance under the Credit Agreement. This brought our aggregate outstanding balance toAgreement was $800.0 million, as of March 31, 2020, all of which was classified as a non-current liability because we no longerdo not intend to repay any portion of this amount within one year. We decided not to repay a portion of the loan within one year out of an abundance of caution given the uncertainty surrounding the current COVID-19 pandemic and its potential impact on our business.
During
8.
13
In 2012, our shareholders approved the United Therapeutics Corporation Employee Stock Purchase Plan (ESPP)(ESPP), which is structured to comply with Section 423 of the Internal Revenue Code. Refer to the section entitled Employee Stock Purchase Planbelow.
| Quarterly Report | 13 | ||||
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2020 |
| 2019 | ||
Stock options | | $ | 16.4 | | $ | 15.7 |
Restricted stock units | |
| 4.0 | |
| 2.2 |
STAP awards | |
| 10.1 | |
| 11.0 |
Employee stock purchase plan | |
| 0.3 | |
| 0.3 |
Total share-based compensation expense before tax | | $ | 30.8 | | $ | 29.2 |
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Stock options | $ | 8.3 | $ | 16.4 | |||||||||||||||||||
| Restricted stock units | 5.7 | 4.0 | |||||||||||||||||||||
| STAP awards | 25.7 | 10.1 | |||||||||||||||||||||
| Employee stock purchase plan | 0.4 | 0.3 | |||||||||||||||||||||
| Total share-based compensation expense before tax | $ | 40.1 | $ | 30.8 | |||||||||||||||||||
| | | | | |
|
| March 31, |
| March 31, | |
|
| 2020 |
| 2019 | |
Expected term of awards (in years) |
| 6.0 | | 5.8 | |
Expected volatility |
| 32.4 | % | 33.9 | % |
Risk-free interest rate |
| 0.8 | % | 2.4 | % |
Expected dividend yield |
| — | % | — | % |
2020:
| March 31, 2021 | March 31, 2020 | ||||||||||
| Expected term of awards (in years) | 6.0 | 6.0 | |||||||||
| Expected volatility | 32.7 | % | 32.4 | % | |||||||
| Risk-free interest rate | 1.1 | % | 0.8 | % | |||||||
| Expected dividend yield | 0 | % | 0 | % | |||||||
| | | | | | | | | | |
| | | | | | | Weighted | | | |
| | |
| Weighted |
| Average |
| Aggregate | ||
| | |
| Average |
| Remaining | | Intrinsic | ||
| | Number of | | Exercise | | Contractual | | Value | ||
|
| Options |
| Price |
| Term (in Years) |
| (in millions) | ||
Outstanding at January 1, 2020 |
| 8,088,680 | | $ | 123.34 | | | | | |
Granted |
| 16,599 | |
| 91.91 | | | | | |
Exercised |
| (13,500) | |
| 51.77 | | | | | |
Forfeited/canceled |
| (3,186) | |
| 137.36 | | | | | |
Outstanding at March 31, 2020 |
| 8,088,593 | | $ | 123.39 |
| 6.1 | | $ | 15.6 |
Exercisable at March 31, 2020 |
| 5,219,099 | | $ | 124.25 |
| 5.4 | | $ | 14.3 |
Unvested at March 31, 2020 |
| 2,869,494 | | $ | 121.84 |
| 7.3 | | $ | 1.3 |
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in Years) | Aggregate Intrinsic Value (in millions) | ||||||||||||||||||||
| Outstanding at January 1, 2021 | 7,680,194 | $ | 126.27 | ||||||||||||||||||||
| Granted | 14,603 | 164.10 | |||||||||||||||||||||
| Exercised | (132,789) | 131.83 | |||||||||||||||||||||
| Forfeited/canceled | (213) | 146.03 | |||||||||||||||||||||
| Outstanding at March 31, 2021 | 7,561,795 | $ | 126.24 | 5.4 | $ | 311.5 | |||||||||||||||||
| Exercisable at March 31, 2021 | 5,801,938 | $ | 125.75 | 5.1 | $ | 242.2 | |||||||||||||||||
| Unvested at March 31, 2021 | 1,759,857 | $ | 127.88 | 6.1 | $ | 69.3 | |||||||||||||||||
14
| 14 | United Therapeutics | ||||
| | | | | | |
| | Three Months Ended | ||||
|
| March 31, | ||||
|
| 2020 |
| 2019 | ||
Cost of product sales | | $ | 0.2 |
| $ | 0.2 |
Research and development | |
| 0.9 |
| | 0.9 |
Selling, general, and administrative | |
| 15.3 |
| | 14.6 |
Share-based compensation expense before taxes | |
| 16.4 |
| | 15.7 |
Related income tax benefit | |
| (3.7) |
| | (3.5) |
Share-based compensation expense, net of taxes | | $ | 12.7 |
| $ | 12.2 |
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Cost of product sales | $ | 0.1 | $ | 0.2 | |||||||||||||||||||
| Research and development | 0.2 | 0.9 | |||||||||||||||||||||
| Selling, general, and administrative | 8.0 | 15.3 | |||||||||||||||||||||
| Share-based compensation expense before taxes | 8.3 | 16.4 | |||||||||||||||||||||
| Related income tax benefit | (0.3) | (3.7) | |||||||||||||||||||||
| Share-based compensation expense, net of taxes | $ | 8.0 | $ | 12.7 | |||||||||||||||||||
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2020 |
| 2019 | ||
Number of options exercised |
| | 13,500 |
| | 166,508 |
Cash received | | $ | 0.7 | | $ | 8.8 |
Total intrinsic value of options exercised | | $ | 0.6 | | $ | 10.3 |
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Number of options exercised | 132,789 | 13,500 | |||||||||||||||||||||
| Cash received | $ | 17.5 | $ | 0.7 | |||||||||||||||||||
| Total intrinsic value of options exercised | $ | 4.7 | $ | 0.6 | |||||||||||||||||||
| | | | | | | | | | |
|
| |
| | |
| Weighted |
| | |
|
| |
| Weighted |
| Average |
| Aggregate | ||
|
| Number of |
| Average |
| Remaining |
| Intrinsic | ||
| | Restricted |
| Grant Date |
| Contractual |
| Value | ||
| | Stock Units | | Fair Value |
| Term (in Years) | | (in millions) | ||
Unvested at January 1, 2020 |
| 310,725 | | $ | 112.24 |
|
|
| |
|
Granted |
| 257,045 | |
| 92.14 |
|
|
| |
|
Vested |
| (104,818) | |
| 114.92 |
|
|
| |
|
Forfeited/canceled |
| (3,198) | |
| 110.36 |
|
|
| |
|
Unvested at March 31, 2020 |
| 459,754 | | $ | 100.40 |
| 9.4 | | $ | 43.6 |
| Number of Restricted Stock Units | Weighted Average Grant Date Fair Value | ||||||||||
| Unvested at January 1, 2021 | 440,528 | $ | 102.40 | ||||||||
| Granted | 171,244 | 164.16 | |||||||||
| Vested | (181,297) | 104.68 | |||||||||
| Forfeited/canceled | (6,311) | 116.70 | |||||||||
| Unvested at March 31, 2021 | 424,164 | $ | 126.15 | ||||||||
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2020 |
| 2019 | ||
Cost of product sales |
| $ | 0.3 | | $ | 0.2 |
Research and development | |
| 1.4 | |
| 0.7 |
Selling, general, and administrative | |
| 2.3 | |
| 1.3 |
Share-based compensation expense before taxes | |
| 4.0 | |
| 2.2 |
Related income tax benefit | |
| (0.9) | |
| (0.5) |
Share-based compensation expense, net of taxes | | $ | 3.1 | | $ | 1.7 |
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Cost of product sales | $ | 0.5 | $ | 0.3 | |||||||||||||||||||
| Research and development | 1.8 | 1.4 | |||||||||||||||||||||
| Selling, general, and administrative | 3.4 | 2.3 | |||||||||||||||||||||
| Share-based compensation expense before taxes | 5.7 | 4.0 | |||||||||||||||||||||
| Related income tax benefit | (1.3) | (0.9) | |||||||||||||||||||||
| Share-based compensation expense, net of taxes | $ | 4.4 | $ | 3.1 | |||||||||||||||||||
15
| Quarterly Report | 15 | ||||
June 2015.
| | | | | |
|
| March 31, |
| March 31, |
|
|
| 2020 |
| 2019 | |
Expected term of awards (in years) |
| 2.0 |
| 2.4 | |
Expected volatility |
| 32.5 | % | 29.3 | % |
Risk-free interest rate |
| 0.2 | % | 2.2 | % |
Expected dividend yield |
| — | % | — | % |
| March 31, 2021 | March 31, 2020 | ||||||||||
| Expected term of awards (in years) | 1.6 | 2.0 | |||||||||
| Expected volatility | 33.3 | % | 32.5 | % | |||||||
| Risk-free interest rate | 0.2 | % | 0.2 | % | |||||||
| Expected dividend yield | 0 | % | 0 | % | |||||||
2020.
| | | | | | | | | | |
|
| |
| | |
| Weighted |
| | |
|
| |
| | |
| Average |
| | |
| | |
| Weighted |
| Remaining |
| Aggregate | ||
| | |
| Average |
| Contractual |
| Intrinsic | ||
| | Number of | | Exercise |
| Term | | Value | ||
| | Awards | | Price |
| (in Years) | | (in millions) | ||
Outstanding at January 1, 2020 |
| 2,622,328 | | $ | 109.10 |
|
|
| |
|
Granted |
| — | |
| — |
|
|
| |
|
Exercised |
| (91,189) | |
| 57.83 |
|
|
| |
|
Forfeited/canceled |
| (5,875) | |
| 103.88 |
|
|
| |
|
Outstanding at March 31, 2020 |
| 2,525,264 | | $ | 110.96 |
| 3.9 | | $ | 33.5 |
Exercisable at March 31, 2020 |
| 2,515,264 | | $ | 111.20 |
| 3.9 | | $ | 33.1 |
Unvested at March 31, 2020 |
| 10,000 | | $ | 52.57 |
| 2.7 | | $ | 0.4 |
16
| Number of Awards | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in Years) | Aggregate Intrinsic Value (in millions) | ||||||||||||||||||||
| Outstanding at January 1, 2021 | 2,121,860 | $ | 118.48 | ||||||||||||||||||||
| Granted | 0 | 0 | |||||||||||||||||||||
| Exercised | (194,933) | 90.06 | |||||||||||||||||||||
| Forfeited/canceled | (562) | 145.30 | |||||||||||||||||||||
| Outstanding at March 31, 2021 | 1,926,365 | $ | 121.35 | 3.2 | $ | 88.6 | |||||||||||||||||
| Exercisable at March 31, 2021 | 1,916,365 | $ | 121.71 | 3.2 | $ | 87.4 | |||||||||||||||||
| Unvested at March 31, 2021 | 10,000 | $ | 52.57 | 1.7 | $ | 1.2 | |||||||||||||||||
Share-based compensation expense recognized in connection with STAP awards is as follows (in millions):
| | | | | | |
| | Three Months Ended | ||||
|
| March 31, | ||||
|
| 2020 |
| 2019 | ||
Cost of product sales | | $ | 0.7 | | $ | 0.7 |
Research and development | |
| 2.2 | |
| 1.9 |
Selling, general, and administrative | |
| 7.2 | |
| 8.4 |
Share-based compensation expense before taxes | | | 10.1 | | | 11.0 |
Related income tax benefit | |
| (2.3) | |
| (2.5) |
Share-based compensation expense, net of taxes | | $ | 7.8 | | $ | 8.5 |
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Cost of product sales | $ | 1.1 | $ | 0.7 | |||||||||||||||||||
| Research and development | 4.3 | 2.2 | |||||||||||||||||||||
| Selling, general, and administrative | 20.3 | 7.2 | |||||||||||||||||||||
| Share-based compensation expense before taxes | 25.7 | 10.1 | |||||||||||||||||||||
| Related income tax benefit | (4.9) | (2.3) | |||||||||||||||||||||
| Share-based compensation expense, net of taxes | $ | 20.8 | $ | 7.8 | |||||||||||||||||||
| 16 | United Therapeutics | ||||
In June 2012, our shareholders approved the ESPP, which is structured to comply with Section 423 of the Internal Revenue Code.
9.
17
For the three months ended March 31, 2019, we had a net loss, and as such, all outstanding stock options, restricted stock units, and shares issuable under the ESPP were excluded from our calculation of diluted loss per share. The components of basic and diluted earnings (loss) per common share comprised the following (in millions, except per share amounts):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | 28.3 | $ | 137.7 | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average outstanding shares — basic | 44.6 | 43.9 | |||||||||||||||||||||
Effect of dilutive securities(1): | |||||||||||||||||||||||
| Stock options, restricted stock units, and employee stock purchase plan | 1.8 | 0.2 | |||||||||||||||||||||
Weighted average shares — diluted(2) | 46.4 | 44.1 | |||||||||||||||||||||
| Net income per common share: | |||||||||||||||||||||||
| Basic | $ | 0.63 | $ | 3.14 | |||||||||||||||||||
| Diluted | $ | 0.61 | $ | 3.12 | |||||||||||||||||||
Stock options and restricted stock units excluded from calculation(2) | 0.2 | 7.6 | |||||||||||||||||||||
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2020 |
| 2019 | ||
Numerator: | | | | | | |
Net income (loss) | | $ | 137.7 | | $ | (494.6) |
Denominator: | | | | | | |
Weighted average outstanding shares — basic | |
| 43.9 | |
| 43.7 |
Effect of dilutive securities(1): | | | | | | |
Stock options, restricted stock units and employee stock purchase plan | | | 0.2 | | | — |
Weighted average shares — diluted(2) | |
| 44.1 | |
| 43.7 |
Net income (loss) per common share: | | | | | | |
Basic | | $ | 3.14 | | $ | (11.32) |
Diluted | | $ | 3.12 | | $ | (11.32) |
| | | | | | |
Stock options and restricted stock units excluded from calculation(2) | |
| 7.6 | |
| 5.3 |
Net product sales, cost of product sales, and gross profit for each of our commercial products were as follows (in millions): Three Months Ended March 31, 2020 Remodulin Tyvaso Orenitram Unituxin Adcirca Total Net product sales $ 145.3 $ 102.9 $ 69.0 $ 26.6 $ 12.5 $ 356.3 Cost of product sales 6.0 5.1 4.7 2.3 5.3 23.4 Gross profit $ 139.3 $ 97.8 $ 64.3 $ 24.3 $ 7.2 $ 332.9 2019 Net product sales $ 155.5 $ 103.8 $ 58.4 $ 24.9 $ 20.0 $ 362.6 Cost of product sales 6.1 4.4 4.8 5.1 8.7 29.1 Gross profit $ 149.4 $ 99.4 $ 53.6 $ 19.8 $ 11.3 $ 333.5 Three Months Ended March 31, 2020 2019 United States $ 326.7 $ 329.5 Rest-of-World(1) 29.6 33.1 Total $ 356.3 $ 362.610.(ETR)(ETR) for the three months ended March 31, 2021 and 2020 was 13 percent and 20 percent, respectively. Our ETR for the three months ended March 31, 2021 decreased compared to the ETR for the three months ended March 31, 2020 primarily due to excess tax benefits from share-based compensation recognized as a discrete item relative to the amount of pretax income, and 2019 was 20 percent and 24 percent, respectively. For the three months ended March 31, 2020, anticipated tax credits, state audit adjustments, and the foreign sales deduction,a decrease in valuation allowance, partially offset by non-deductible compensation andan increase in state tax expense, decreased our ETR. For the three months ended March 31, 2019, anticipated tax credits and the foreign sales deduction, partially offset by non-deductible compensation and state tax expense, increased our ETR due to the pre-tax loss that resulted primarily from the $800.0 million upfront payment under our license agreement with Arena Pharmaceuticals, Inc.As of March 31, 2020 and December 31, 2019, we had 0 unrecognized tax benefits. expense.20202021 and December 31, 2019, we have not accrued any material2020, our total liability for unrecognized tax benefits, including related interest, expense relatedwas approximately $5.0 million and $4.9 million, respectively. The total amount of unrecognized tax benefits relating to uncertainour tax positions. We are unaware of any material positions for whichis subject to change based on future events and it is reasonably possible that the total amountsbalance could change significantly over the next 12 months. Given the uncertainty of future events, we are unable to reasonably estimate the range of possible adjustments to the balance of our unrecognized tax benefits will significantly increase within the next twelve months.On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide certain relief as a resultbenefits.Quarterly Report 17 currently operate as 1 operating segment with a focus on the development and commercialization of products to address the unmet needs of patients with chronic and life-threatening conditions. Our Chief Executive Officer, as our chief operating decision maker, manages and allocates resources to the operations of our company on a consolidated basis. This enables our Chief Executive Officer to assess our overall level of available resources and determine how best to deploy these resources across functions, therapeutic areas, and research and development projects in line with our long-term company-wide strategic goals.18Three Months Ended March 31, 2021 Orenitram Unituxin Adcirca Total Net product sales $ 130.2 $ 123.0 $ 72.4 $ 43.9 $ 9.6 $ 379.1 Cost of product sales 8.2 3.1 4.1 3.6 4.0 23.0 Gross profit $ 122.0 $ 119.9 $ 68.3 $ 40.3 $ 5.6 $ 356.1 2020 Net product sales $ 145.3 $ 102.9 $ 69.0 $ 26.6 $ 12.5 $ 356.3 Cost of product sales 6.0 5.1 4.7 2.3 5.3 23.4 Gross profit $ 139.3 $ 97.8 $ 64.3 $ 24.3 $ 7.2 $ 332.9 Three Months Ended March 31, 2021 2020 United States $ 354.3 $ 326.7 Rest-of-World 24.8 29.6 Total $ 379.1 $ 356.3 (1)Primarily Europe.
We recorded revenue from 23 distributors in the United States that exceeded 10 percent of total revenues. Revenue from these 23 distributors as a percentage of total revenues is as follows:
| | | | | |
| | Three Months Ended March 31, | | ||
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| 2020 |
| 2019 |
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Distributor 1 |
| 55 | % | 58 | % |
Distributor 2 |
| 25 | % | 20 | % |
On April 16, 2019, Sandoz Inc. On March 30, 2020, the plaintiffs filed an amended complaint We believe plaintiffs’ claims to be meritless and intend to vigorously defend the litigation. However, due to the uncertainty inherent in any litigation, we cannot guarantee that an adverse outcome will not result. Any litigation of this nature could involve substantial cost, and an adverse outcome could result in substantial monetary damages and/or injunctive relief adverse to our business. We currently are not able to reasonably estimate a range of potential losses due to the early stage of the litigation. On March 30, 2020, Liquidia Technologies, Inc. In January 2020, Liquidia submitted an NDA to the FDA for approval of LIQ861, a dry powder inhalation formulation of treprostinil. This NDA was submitted under the 505(b)(2) regulatory pathway with Tyvaso as the reference listed drug. On April 8, 2020, Liquidia announced that the FDA had accepted its NDA and set a Prescription Drug User Fee Act On November 25, 2020, Liquidia issued a press release stating that the FDA issued a complete response letter for its NDA identifying “the need for additional information and clarification on chemistry, manufacturing and controls (CMC) data pertaining to the drug product and device biocompatibility.” According to Liquidia, it does not anticipate the complete response letter will affect its projected launch timing of LIQ861 in the second half of 2022. In April 2020, we received a Paragraph IV Certification Notice Letter sale of LIQ861. ’793 patent), expires May 14, 2027, and is listed in the Orange Book for Tyvaso. On July 22, 2020, we filed an amended complaint against Liquidia to include a claim for infringement of the ’793 patent. The ’793 patent relates to a method of administering treprostinil via inhalation and includes claims covering the dosing regimen used to administer Tyvaso. On August 5, 2020, Liquidia filed an answer to our amended complaint that repeated its defenses and counterclaims and added new defenses and counterclaims related to the ’793 patent. On August 26, 2020, we filed a motion to dismiss Liquidia’s invalidity defenses with respect to the ’793 patent based on assignor estoppel. The court denied our motion, finding that it is too early in the case to conclusively resolve the issue given the fact-intensive inquiry that is necessary. We can continue to assert an assignor estoppel defense and raise it for resolution later in the case, whether at trial or in a dispositive pre-trial motion. The court set a schedule for the case, including a trial commencing on March 28, 2022. Management’s Discussion and Analysis of Financial Condition and Results of Operations For Our net product sales consist of sales of the five commercial products noted above. We have entered into separate, non-exclusive distribution agreements with Accredo Health Group, Inc. and its affiliates Generic Competition and Challenges to our Intellectual Property Rights As a result of our settlements with Watson and Actavis, we expect to see generic competition for Tyvaso and Orenitram in the United States beginning as early as 2026 and 2027, respectively. Competition from these generic companies could reduce our net product sales and profits. We recently filed a patent infringement action against ANI based on its ANDA seeking FDA approval to market a generic version of Orenitram. The litigation is in its very early stages, and we do not yet have a case schedule. If ANI is successful in the pending litigation, it could accelerate the launch of generic competition for Orenitram, which could reduce our net sales and profits. We intend to vigorously enforce our intellectual property rights related to our products. However, we cannot assure you that we will prevail in defending our patent rights, or that additional challenges from other ANDA filers or other challengers will not surface with respect to our products. Our patents could be invalidated, found unenforceable, or found not to cover one or more generic forms of our products. If any ANDA filer or filer of a 505(b)(2) NDA for a branded treprostinil product were to receive approval to sell its treprostinil product and/or prevail in any patent litigation, our affected product(s) would become subject to increased competition. Patent expiration, patent litigation, and competition from generic or other branded treprostinil manufacturers could have a significant, adverse impact on our treprostinil-based product revenues — including the anticipated revenues from products currently under development, such as Our operating expenses include the costs described below. Share-Based Compensation Although we no longer grant STAP awards, we still had approximately Near-Term Pipeline Programs Indication Current Status Our Territory Tyvaso (treprostinil) Pulmonary hypertension associated with Phase 3 INCREASE study successful; Implantable System for Remodulin Continuous intravenous via implantable pump FDA approval received July 30, 2018; U.S. launch pending satisfaction of further regulatory requirements by Medtronic United States, United Kingdom, Canada, France, Germany, Italy, and Japan Inhaled dry powder Medium-Term Pipeline Programs Indication Our Territory Tyvaso (treprostinil) Pulmonary hypertension associated with chronic obstructive pulmonary disease (WHO Group 3) RemoPro™ Continuous subcutaneous Ralinepag (IP receptor agonist) Worldwide, subject to out-licenses granted in the People’s Republic of China and certain other Asian territories United States Medtronic is entirely responsible for regulatory approvals and all manufacturing and quality systems related to its infusion pump and related components. Medtronic entered into a consent decree with the FDA in April 2015, which required Medtronic to complete certain corrections and enhancements to the SynchroMed II pump and the associated quality system. The consent decree restricted Medtronic’s ability to manufacture and distribute the SynchroMed II infusion system, unless specific conditions were met, including retention of a third-party expert to inspect the affected quality system and certify that the quality system complies with the requirements of the consent decree. Medtronic completed the third-party certification audits in January 2017 and successfully completed an FDA inspection in June 2017. After the inspection, the FDA lifted the consent decree restrictions on manufacturing, distribution, and design in September 2017. Pump disposable cartridges pre-filled exclusively with Remodulin. We are also developing a version of the system that will include disposable components that are In February We are also conducting a phase pulmonary hypertension associated with chronic obstructive pulmonary disease (PH-COPD). There are presently no FDA approved therapies indicated for the treatment of States. We are evaluating whether the INCREASE results could support marketing applications for Tyvaso outside the United States. extended release formulations of OreniPro. bronchopulmonary dysplasia ( Under our Biologics License Application approval for Unituxin, the FDA imposed certain post-marketing requirements and post-marketing commitments on us. We result, we discontinued these label expansion efforts. results of the Platform Tyvaso (inhaled treprostinil) Orenitram (oral treprostinil) New Chemical Entities and New Biologics Ralinepag, Organ Manufacturing and Transplantation Xenotransplantation, three-dimensional organ printing, regenerative medicine, ex-vivo lung perfusion We believe this diverse portfolio of Development. 2020 Three Months Ended March 31, Percentage 2020 2019 Change Net product sales: Remodulin $ 145.3 $ 155.5 (7) % Tyvaso 102.9 103.8 (1) % Orenitram 69.0 58.4 18 % Unituxin 26.6 24.9 7 % Adcirca 12.5 20.0 (38) % Total revenues $ 356.3 $ 362.6 (2) % 2020. Tyvaso net product sales for the three months ended March 31, patients. Three Months Ended March 31, 2020 Rebates & Prompt Pay Allowance for Distributor Chargebacks Discounts Sales Returns Fees Total Balance, January 1, 2020 $ 51.7 $ 2.6 $ 14.2 $ 4.1 $ 72.6 Provisions attributed to sales in: Current period 44.8 7.5 — 5.0 57.3 Prior periods 1.1 — — — 1.1 Payments or credits attributed to sales in: Current period (9.9) (5.0) — (1.3) (16.2) Prior periods (34.5) (2.5) (0.6) (3.4) (41.0) Balance, March 31, 2020 $ 53.2 $ 2.6 $ 13.6 $ 4.4 $ 73.8 Three Months Ended March 31, 2019 Rebates & Prompt Pay Allowance for Distributor Chargebacks Discounts Sales Returns Fees Total Balance, January 1, 2019 $ 54.7 $ 3.2 $ 22.4 $ 4.8 $ 85.1 Provisions attributed to sales in: Current period 45.5 7.6 0.9 3.8 57.8 Prior periods 0.4 — — — 0.4 Payments or credits attributed to sales in: Current period (4.3) (4.8) — (1.2) (10.3) Prior periods (40.7) (3.0) (0.5) (4.5) (48.7) Balance, March 31, 2019 $ 55.6 $ 3.0 $ 22.8 $ 2.9 $ 84.3 Cost of Product Sales Three Months Ended March 31, Percentage 2020 2019 Change Category: Cost of product sales $ 22.2 $ 28.0 (21) % Share-based compensation expense(1) 1.2 1.1 9 % Total cost of product sales $ 23.4 $ 29.1 (20) % discussion. Three Months Ended March 31, Percentage 2020 2019 Change Category: Research and development projects $ 68.6 $ 893.8 (92) % Share-based compensation expense(1) 4.6 3.6 28 % Total research and development expense $ 73.2 $ 897.4 (92) % Research and development expense, excluding share-based compensation.Research and development expense biomechanical lungs. Three Months Ended March 31, Percentage 2020 2019 Change Category: General and administrative $ 55.0 $ 53.9 2 % Sales and marketing 13.0 13.6 (4) % Share-based compensation expense(1) 25.0 24.5 2 % Total selling, general, and administrative expense $ 93.0 $ 92.0 1 % Refer to Share-Based Compensation below for discussion. Three Months Ended March 31, Percentage 2020 2019 Change Category: Stock options $ 16.4 $ 15.7 4 % Restricted stock units 4.0 2.2 82 % STAP awards 10.1 11.0 (8) % Employee stock purchase plan 0.3 0.3 — % Total share-based compensation expense $ 30.8 $ 29.2 5 % Three Months Ended March 31, Percentage 2020 2019 Change Cost of product sales $ 1.2 $ 1.1 9 % Research and development 4.6 3.6 28 % Selling, general, and administrative 25.0 24.5 2 % Total share-based compensation expense $ 30.8 $ 29.2 5 % The increase in Financial Condition, Liquidity, and Capital Resources 2021. March 31, December 31, Percentage 2020 2019 Change Cash and cash equivalents $ 875.2 $ 738.4 19 % Marketable investments—current 669.3 747.5 (10) % Marketable investments—non-current 868.0 767.5 13 % Total cash and cash equivalents and marketable investments $ 2,412.5 $ 2,253.4 7 % Three Months Ended March 31, Percentage 2020 2019 Change Net cash provided by (used in) operating activities $ 214.6 $ (627.4) 134 % Net cash used in investing activities $ (27.6) $ (60.3) 54 % Net cash (used in) provided by financing activities $ (50.2) $ 809.1 (106) % Part I. Financial Information 2020. Report. Quantitative and Qualitative Disclosures About Market Risk Controls and Procedures Legal Proceedings Risks Related to Our Products and Our Operations We cannot predict with certainty Our clinical trials have in the past and may in the future be discontinued, delayed, canceled, or disqualified for various reasons, including: We may not compete successfully with established products. In many markets outside the United States, governments control the prices of prescription pharmaceuticals through the implementation of reference pricing, price cuts, rebates, revenue-related taxes, and profit control. Financial pressures may cause United States government payers to mandate discounts or rebates on our products, limit future price increases, cap reimbursement rates for pharmaceuticals to rates paid internationally, require the automatic substitution of generic products, demand more rigorous requirements for initial coverage for new products or take other similar steps. On November 20, 2020, the Centers for Medicare and Medicaid Services ( products. We face risks and uncertainties related to the COVID-19 pandemic, which could significantly disrupt our operations and/or business for an unknown period of time. Part II. Other Information impacts. We rely on various distributors to market, distribute, and sell Remodulin, Tyvaso, Orenitram, and Unituxin. We rely entirely on third parties to supply pumps and other supplies necessary to deliver Remodulin. There are a limited number of pumps available in the market, and the discontinuation of any particular pump could have a material, adverse impact on our Remodulin revenues if a viable supply of an alternate pump is not available. We rely entirely on Minnetronix Inc. as the sole manufacturer of the Tyvaso Inhalation System. As Tyvaso is a drug-device combination, we cannot sell Tyvaso without the Tyvaso Inhalation System. Remodulin. Supply disruptions caused by COVID-19 have impacted DEKA’s ability to secure certain components and raw materials necessary to manufacture sufficient quantities of Remunity Pumps and accessories to enable us to commence commercial sales. We cannot control when or if those disruptions will be resolved. Finally, we also rely on various sole-source suppliers for manufacturing activities related to ralinepag, RemoLife. For a further discussion of risks created by the use of third-party contract manufacturers, see the risk factor above entitled, Our manufacturing strategy exposes us to significant risks. While physicians may practices. In the United States, the Federal Anti-Kickback Statute prohibits, among other activities, knowingly and willfully offering, paying, soliciting, or receiving The Federal False Claims Act operations. biological payment methodology. Data Privacy agreements. This dependence on intellectual property developed by others involves the following risks: Our intellectual property rights may not effectively deter competitors from developing competing products that, if successful, could have a material adverse effect on our revenues and profits. States. A U.S. patent for Adcirca for the treatment of pulmonary hypertension expired in November 2017, and FDA-conferred regulatory exclusivity expired in May 2018, leading to the launch of a generic version of Adcirca in August 2018. We have no issued patents or pending patent applications covering Unituxin. For further details, please see In June 2020, we filed a patent infringement lawsuit against Liquidia related to its NDA for LIQ861. In January 2021, Liquidia filed an IPR petition for an additional patent that we listed in the Orange Book for Tyvaso and asserted against Liquidia in the pending litigation. We are also engaged in patent litigation with ANI Pharmaceuticals, Inc. related to its ANDA seeking FDA approval to market a generic version of Orenitram. Our Investments If we cannot repay or refinance our debt as it becomes due, we Our portfolio of investments is subject to market, interest, operational, and credit risk that may reduce its value. Part II. Other Information High Low January 1, 2020—March 31, 2020 $ 115.35 $ 79.39 January 1, 2019—December 31, 2019 $ 126.84 $ 74.85 January 1, 2018—December 31, 2018 $ 151.94 $ 101.14 The price of our common stock could decline sharply due to general market conditions as well as the following factors, among others: discourage a merger, tender offer, or proxy contest; the assumption of control by a holder of a large block of our securities; and/or the replacement or removal of current management by our shareholders. For example, our Non-competition and all other restrictive covenants in most of our employment agreements will terminate upon a change of control that is not approved by our Board. Similarly, a change of control, under certain circumstances, could Unregistered Sales of Equity Securities and Use of Proceeds 3.1 The following financial information from our Quarterly Report on Form 10-Q for the Cover Page Interactive Data File (embedded within the iXBRL document) *Filed herewith. By: Martine A. Rothblatt, Ph.D. Title: (Principal Executive Officer) By: James C. Edgemond Title: Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)12.Three Months Ended March 31, 2021 2020 Distributor 1 54 % 55 % Distributor 2 26 % 25 % Distributor 3 11 % 7 % (Sandoz)(Sandoz) and its commercialization collaborator,marketing partner RareGen, LLC (now known as Liquidia PAH, LLC, a subsidiary of Liquidia Corporation) (RareGen), filed a complaint in the U.S. District Court for the District of New Jersey against us and Smiths Medical ASD, Inc. (Smiths Medical)(Smiths Medical), alleging that we and Smiths Medical engaged in anticompetitive conduct in connection with plaintiffs’ efforts to launch their generic version of Remodulin. In particular, the complaint alleges that we and Smiths Medical unlawfully impeded competition by entering into an agreement to produce CADD-MS®3 cartridges specifically for the delivery of subcutaneous Remodulin, without making these cartridges available for the delivery of Sandoz’s generic version of Remodulin. The parties completed expedited discovery in anticipation of a motion filed by the plaintiffs on October 4, 2019, seeking preliminary injunctive relief. We and Smiths Medical filed a motion to dismiss the complaint, and we filed our opposition to plaintiffs’ motion for a preliminary injunction on October 25, 2019. On January 29, 2020, the Court issued a decision denying the request for preliminary injunction sought by Sandoz and RareGen. According to the Court, “[Sandoz and RareGen] have not met their burden of demonstrating a reasonable probability of eventual success in the litigation.” The Court also denied our and Smiths Medical’s motion to dismiss the entire action. Plaintiffs declined to appeal the Court’s denial of their motion for preliminary injunction. The parties are currently engaged in discovery, and we do not anticipate a trial before mid-2021 at the earliest.in which Sandoz addedto add a count alleging that we breached our18 United Therapeutics We filedThe parties have completed fact discovery and are currently engaging in expert discovery, and we do not anticipate a motiontrial before mid-2022 at the earliest.dismiss that count on April 17, 2020.19(Liquidia)(Liquidia) filed 2 petitions for inter partes review (IPR)(IPR) with the Patent Trial and Appeal Board (PTAB)(PTAB) of the U.S. Patent and Trademark Office.Office (USPTO). In its petitions, Liquidia seeks to invalidate U.S. Patent Nos. 9,604,901 (the ’901 patent) and 9,593,066 (the ’066 patent), both of which relate to a method of making treprostinil, the active pharmaceutical ingredient in our Remodulin, Tyvaso, and Orenitram products. These patents were issued in March 2017 and are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations publication, also known as the Orange Book, for Remodulin, Tyvaso, and Orenitram. We have untilIn July 14, 2020, to filewe filed preliminary responses to the petitions, if we choose to file responses, and thereafter,petitions. On October 13, 2020, the PTAB has three months to decide whether to institute IPR proceedings. If the PTAB institutes one or both reviews, the final written decision(s) will be due about a year after the PTAB’s decisiondeclined to institute IPR proceedings and following additional submissions byon the parties.’066 patent because Liquidia failed to establish a reasonable likelihood of prevailing on any claim relating to the ’066 patent. Also on October 13, 2020, the PTAB instituted IPR proceedings on the ’901 patent, finding that Liquidia had established a reasonable likelihood of prevailing on some of the claims of the ’901 patent. We expect the PTAB will issue a final written decision regarding the ’901 patent IPR around October 2021. Any appeals of a PTABthe PTAB’s final written decision would delay any final outcome.(PDUFA)(PDUFA) target action date of November 24, 2020.(Notice Letter)(Notice Letter) from Liquidia, stating that it intends to market LIQ861 before the expiration of all patents currently listed in the Orange Book for Tyvaso. The Notice Letter states that Liquidia’s NDA for LIQ861 contains a Paragraph IV certification alleging that these patents are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of LIQ861.are currently reviewing the Notice Letter. We havefiled our lawsuit within 45 days fromof receipt of notice from Liquidia of its NDA filing. As a result, under the Notice Letter to commence a patent infringement lawsuit against Liquidia to trigger a stay precludingHatch-Waxman Act, the FDA is precluded by regulation from approving Liquidia’s NDA for LIQ861 for up to 30 months or entryuntil the resolution of judgment holdingthe litigation, whichever occurs first. On July 16, 2020, Liquidia filed an answer to our complaint that included counterclaims alleging, among other things, that the patents invalid, unenforceable,at issue in the litigation are not valid and will not be infringed by the commercial manufacture, use or not infringed, whichever occurs first.On July 21, 2020, the USPTO issued a new patent to us related to Tyvaso. The new patent, U.S. Patent No. 10,716,793 (the Quarterly Report 19 Table of Contents13. Arena License AgreementNovember 15, 2018,July 27, 2020, MSP Recovery Claims, Series LLC; MSPA Claims 1, LLC; and Series PMPI, a designated series of MAO-MSO Recovery II, LLC (Plaintiffs) filed a “Class Action Complaint” (the Complaint) against Caring Voices Coalition, Inc. (CVC) and us in the U.S. District Court for the District of Massachusetts. The Complaint alleges that we violated the federal Racketeer Influenced and Corrupt Organizations act and various state laws by coordinating with CVC when making donations to a pulmonary arterial hypertension fund so that those donations would go towards copayment obligations for Medicare patients taking drugs manufactured and marketed by us. Plaintiffs claim to have received assignments from various Medicare Advantage health plans and other insurance entities that allow them to bring this lawsuit on behalf of those entities to recover allegedly inflated amounts they paid for our drugs. On April 6, 2021, the Court granted our motion to transfer the case to the U.S. District Court for the Southern District of Florida. Two members of the putative class, Humana Inc. and UnitedHealthcare Insurance Company, have informed us that they may bring claims directly against us to recover alleged overpayments.U.S. Patent No. Expiration Date 8,252,839 May 2024 9,050,311 May 2024 9,278,901 May 2024 7,544,713 July 2024 7,417,070 July 2026 8,497,393 December 2028 9,604,901 December 2028 9,592,066 December 2028 8,747,897 October 2029 8,410,169 February 2030 8,349,892 January 2031 exclusive license agreement with Arena related to ralinepag,acquire a next-generation, oral, selective, and potent prostacyclin receptor agonist being developedrare pediatric disease priority review voucher for the treatment of PAH. On January 24, 2019, in connection with the$105.0 million. The closing of the transactions contemplated bytransaction was subject to customary closing conditions, including obtaining expiration or early termination of the license agreement: (1) Arena granted to us perpetual, irrevocable, and exclusive rights throughout the universe to develop, manufacture, and commercialize ralinepag; (2) Arena transferred to us certain other assets related to ralinepag, including, among others, related domain names and trademarks, permits, certain contracts, inventory, regulatory documentation, Investigational New Drug (IND) Application No. 109021 (related to ralinepag), and nonclinical, pre-clinical and clinical trial data; (3) we assumed certain limited liabilities from Arena, including, among others, all obligations arising after the closingwaiting period under the assumed contractsHart-Scott-Rodino Antitrust Improvement Act of 1976. On January 21, 2021, we closed the transaction and expensed the IND described above; and (4) we paid Arena an upfront payment of $800.0$105.0 million which was expensed as acquired in-process within research and development and included within research and development expenses on our consolidated statements of operations infor the first quarter of 2019.2021. We will also pay Arena: (1) a one-time paymentredeemed the voucher in connection with our submission of $250.0 millionthe NDA for the first, if any, marketing approval we receiveTyvaso DPI in the United States for an inhaled version of ralinepag to treat PAH; (2) a one-time payment of $150.0 million for the first, if any, marketing approval we receive in any of Japan, France, Italy, the United Kingdom, Spain or Germany for an oral version of ralinepag to treat any indication; and (3) low double-digit, tiered royalties on net sales of any pharmaceutical product containing ralinepag as an active ingredient, subject to certain adjustments for third party license payments.April 2021.2020 United Therapeutics MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS2019,2020 (the 2020Annual Report), and our consolidated financial statements and accompanying notes included inPart I, Item Iof this Quarterly Report on Form 10-Q. All statements in this filing are made as of the date this Quarterly Report on Form 10-Q is filed with the U.S. Securities and Exchange Commission (SEC)(SEC). We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise.Act)Act) and the Private Securities Litigation Reform Act of 1995, including the1995. These statements, listed in the section below entitled Part II, Item 1A—Risk Factors—Forward-Looking Statements. These statementswhich are based on our beliefs and expectations about future outcomes and on information available to us through the date this Quarterly Report on Form 10-Q is filed with the SEC. SEC, include, among others, statements related to the following: on Form 10-K for the year ended December 31, 2019, under the section entitled Part I, Item 1A—Risk Factors;, and factors described in other cautionary statements, cautionary language, and risk factors set forth in our other filings with the SEC.Quarterly Report 21 At this time, it is too earlyIt remains difficult to predict what impact this pandemic, and the associated economic downturn,impacts, will ultimately have on our business. While we remain confident in our prospects over the longer term, there is considerable uncertainty and lack of visibility regarding our near-term revenue growth prospects and product development plans due to the rapidly evolving situation. Therefore, we areExcept as otherwise discussed in this Quarterly Report on Form 10-Q, there have been no longer ablematerial changes to predict whether our full-year 2020 net revenues will grow compared to 2019.Our financial position is strong. We believe our healthy balance sheet makes us well-positioned to endure the impact of this pandemic. With enough cash, cash equivalents, and marketable securitiesCOVID-19 on hand to fund our operations as we conduct them today for at least two years regardlessbusiness since the date of our future revenues, we are able to retain and hire new employees, continue our research and development and commercial activities, subject to2020 Annual Report. Please see the limitations described below, and make new strategic investments. Consequently, we expect to be able to return to “normal” operations rapidly once we are able to do so.We have an ample supplydiscussion of our products. In order to ensure access to our treprostinil-based products, and in accordance with our long-standing inventory policy, we have sufficient inventory of finished treprostinil-based products (Remodulin, Tyvaso, and Orenitram) to supply the market for two years at current levels of demand. In addition, we manufacture our own treprostinil active pharmaceutical ingredient (API) at our Silver Spring, Maryland facility and have three years’ worth of API on hand at any given time. These products and API supplies are all stored at our own warehouses in the United States. Manufacturing of our treprostinil-based products, both internally and at our contract manufacturers, continues mostly as usual, and we do not currently anticipate any supply shortages of our treprostinil-based products.We also have approximately 14 months’ inventory of our Unituxin drug supply, plus raw materials for additional production, and intend to continue manufacturing Unituxin in quantities sufficient to meet current patient demand. Unlike our treprostinil-based products, Unituxin is a biologic with a shorter shelf life, so our ability to maintain longer-term inventories is limited; however, we do not currently anticipate any supply shortages of Unituxin.We have redundant qualified manufacturing sites for our two current best-selling products: Remodulin and Tyvaso. Should either site be impacted by an outbreak, production activities could be diverted to the other qualified site, each of which is capable of supplying the worldwide market. Our internal manufacturing and packaging operations are independently staffed and physically segregated by technical capability (e.g., oral solid dose, aseptic vial filling, etc.) Should any internal operation be impacted by an outbreak, we believe that area and staff could shut down and isolate, respectively, without affecting the other manufacturing areas.To date, we have not experienced any interruption of our supply of drug products and devices needed to support our ongoing clinical trials.21Distribution of drug product to patients continues without interruption. Our specialty pharmacy distributors, which we require to maintain at least 30 days’ worth of inventory on hand at any given time, continue to ship our products to patients and hospitals. Specialty pharmacies have assured us that they have exercised their continuity plans to avoid supply disruptions. They have also assured us that their nursing support services, which are required for therapy initiation and over the course of treatment to train patients to safely administer their medicine, continue through a combination of in-person and virtual visits. Similarly, we are not aware of any disruption to the distribution of Unituxin treatment for patients with neuroblastoma. As a contingency plan, we secured alternative product transportation capability that we believe will allow us to continue delivering products to distributors if traditional freight operations are disrupted.Our commercial efforts continue but could be disrupted as a result of the COVID-19 pandemic. Our commercial field-based teams are meeting with prescribing physicians virtually instead of in person. As of March 31, 2020, COVID-19 has not had a material impact on our treprostinil-based therapies, positively or negatively, with respect to specialty pharmacy orders, new patient prescriptions or new patient starts. Thus far in April 2020, however, we have observed several COVID-19 related impacts on U.S. demand for our treprostinil-based therapies:●One of our specialty pharmacy distributors placed a larger than normal order during April to increase its inventory beyond typical levels (but still within contractual requirements) to: (1) account for potential increased investigational use of Tyvaso for acute respiratory distress syndrome (ARDS), which is a major cause of patient morbidity and mortality associated with COVID-19; (2) prepare for an anticipated increase in patient requests for 60- or 90-day refills (as compared to their typical 30-day supply); and (3) increase inventory levels across various locations to ensure uninterrupted business continuity during the COVID-19 pandemic.●We have seen a reduction in new patient prescriptions across all of our treprostinil-based products throughout the month, which we believe is due to the inability of patients to visit their physician’s office to determine whether our medicines may be appropriate.●While new patient starts remained steady during the first half of the month, we have experienced a decline in new patient starts in the second half of the month for the reasons noted above.We cannot predict the impact of these eventsCOVID-19 on our near-term revenues. We are uncertain as to how long the reduction in new patient prescriptions and new patient starts will last, whether there will be an increase in new prescriptions and new patient starts in later months due to pent up demand, or whether these events will materially impact orders from specialty pharmacy distributors since they place orders based on current utilization trends and contractual minimum and maximum requirements.We remain on track to launch the Remunity™ Pump for Remodulin in July 2020, but recognize that the launch could be delayed or limited due to pandemic-related constraints experienced by physicians and patients, the specialty pharmacy distributors that we are engaging to prefill Remunity cartridges, or any delay in DEKA’s ability to supply devices to us.Our clinical studies remain open, but many have paused new patient enrollment. Most of our ongoing clinical studies have paused enrollment during the pandemic, but patients already enrolled in studies continue to receive the study drug and complete necessary clinical evaluations as appropriate. To date, we have paused enrollment in the following studies, among others: (1) the PERFECT study related to Tyvaso in pulmonary hypertension associated with chronic obstructive pulmonary disease (PH-COPD); (2) the ADVANCE OUTCOMES and ADVANCE CAPACITY studies of ralinepag; (3) the BREEZE and pivotal pharmacokinetics studies of Treprostinil Technosphere®; (4) the SAPPHIRE study of Aurora-GTTM; (5) our phase I study of UnexisomeTM for bronchopulmonary dysplasia; and (6) our phase I study of OreniProTM. As such, we expect that completion and data readouts for several of our ongoing and planned studies will be delayed, but we do not currently expect delays of our potential product launch plans relative to the near-, medium-, and long-term windows described in the table below under Research and Development. Despite the enrollment pause in many of our other clinical studies, we continue to enroll patientsbusiness in our clinical study of our ex-vivo lung perfusion technology. In addition, while enrollment is paused we are exploring ways to continue and expand our efforts to enter into contracts with additional clinical study sites and complete other site activation activities for certain studies where practicable, in order to rapidly resume enrollment of our clinical studies at the appropriate time.Our planned regulatory activities and interactions with the FDA continue. In March 2020 the FDA announced that it was canceling or postponing all non-essential meetings. At this time, we have not experienced any delays to our upcoming regulatory activities, such as: (1) our planned NDA supplement for Tyvaso to incorporate the results of the INCREASE study; (2) our planned22BLA supplement for Unituxin to reflect recent clinical study results for relapsed/refractory neuroblastoma; and (3) Medtronic’s efforts to satisfy FDA conditions to its PMA approval for the Implantable System for Remodulin, among other efforts.We are engaged in the fight against COVID-19. As a pulmonary health company, we are committed to deploying our research teams and development partners to investigate potential therapies for COVID-19 and related pulmonary conditions. Earlier this month, we expanded our existing collaboration with Celularity, Inc. (Celularity) to study the use of Celularity’s placental-derived natural killer cell therapy, CYNK-001, to treat patients with the novel coronavirus associated with COVID-19. The FDA recently cleared Celularity’s investigational new drug application to evaluate CYNK - 001’s safety, tolerability, and efficacy for the treatment of COVID-19 in a phase I/II study of up to 86 patients. Under our agreement with Celularity, our Lung Biotechnology subsidiary will support Celularity’s study of CYNK-001 as an antiviral treatment for COVID-19. We have global rights to commercialize CYNK-001 to treat COVID-19 and ARDS, which is a major cause of patient morbidity and mortality associated with COVID-19. We are also exploring the use of other Celularity cell-based biologic products to treat ARDS. Finally, we are working with academic institutions to investigate the potential use of Tyvaso and Unexisome to treat ARDS and are expediting our biomechanical lung program to develop a version suitable for use in the hospital for COVID-19 patients needing oxygen support.additionala discussion of the risks to our business associated with COVID-19, please see the risk factor below entitled, We face risks and uncertainties related to the COVID-19 pandemic, which could significantly disrupt our operations and/or business for an unknown period of time. currently market and sell the following commercial products:●Remodulin, a continuously-infused formulation of the prostacyclin analogue treprostinil, approved by the FDA for subcutaneous and intravenous administration to diminish symptoms associated with exercise in patients with pulmonary arterial hypertension (PAH). Remodulin has also been approved in various countries outside of the United States.●Tyvaso, an inhaled formulation of treprostinil, approved by the FDA and regulatory authorities in Argentina and Israel to improve exercise ability in PAH patients.●Orenitram, a tablet dosage form of treprostinil, approved by the FDA to delay disease progression and improve exercise capacity in PAH patients.●Unituxin, a monoclonal antibody approved by the FDA and Health Canada for the treatment of high-risk neuroblastoma.●Adcirca, an oral PDE-5 inhibitor approved by the FDA to improve exercise ability in PAH patients.Revenues(Accredo)(Accredo) and Caremark, L.L.C. (CVS Specialty)(CVS Specialty) to distribute Remodulin (including the Remunity Pump), Tyvaso, and Orenitram in the United States, and we have entered into an exclusive distribution agreement with ASD Specialty Healthcare, Inc. (ASD), an affiliate of AmerisourceBergen Corporation, to distribute Unituxin in the United States. We also sell Remodulin, Tyvaso, and Unituxin to distributors internationally. We sell Adcirca through Lilly’sthe pharmaceutical wholesale network.network of Eli Lilly and Company (Lilly). To the extent we have increased the price of any of these products, increases have typically been in the single-digit percentages per year, except for Adcirca, the price of which is set solely by Lilly.23Inc. (Sandoz) relatingrelated to its abbreviated new drug application (ANDA)(ANDA) seeking FDA approval to market a generic version of Remodulin. Under the settlement agreement, Sandoz was permitted to market its generic version of Remodulin as early as June 2018. Onand in March 25, 2019, Sandoz announced the availability of its generic product in the United States, and that it was entitled to six months of marketing exclusivity before other companies would be permitted to market their generic versions of Remodulin in the United States. We have also entered into similar settlement agreements with Teva Pharmaceuticals USA, Inc. (Teva)(Teva), Par Sterile Products, LLC (Par)(Par), Dr. Reddy’s Laboratories, Inc. (Dr. Reddy’s)(Dr. Reddy’s), and Alembic Pharmaceuticals Ltd. (Alembic)(Alembic) permitting each of them to market a generic version of Remodulin in the United States. Par and Teva received FDA approval for their ANDAsits ANDA in late September 2019, and in early October 2019 Teva announced its plan to launchit had launched its generic version of Remodulin. To our knowledge, theThe FDA has not yet approved the ANDAs filed by Par, Dr. Reddy’s, or Alembic.and Alembic, but to our knowledge none of these companies have commenced sales of generic treprostinil. According to the FDA’s website, the ANDA filed by Dr. Reddy’s has been discontinued. Through March 31, 2020,2021, we have seen minimal erosion of Remodulin sales as a result of generic treprostinil competition in the United States. We are currently engaged in litigation with22 United Therapeutics LLC,a subsidiary of Liquidia, related to the infusion devices used to deliver Remodulin subcutaneously. We understand that generic treprostinil was initially launched by Sandoz/RareGen for use only by intravenous administration. In March 2021, Liquidia announced plans to make Sandoz’s generic treprostinil available for subcutaneous use, following FDA clearance of a cartridge that can deliver the product via the Smiths Medical MS-3 pump. See Note 12—13—Litigation, to our consolidated financial statements included in this Quarterly Report on Form 10-Q.Internationally, regulatory We do not know whether these developments will result in erosion of Remodulin sales, but we believe any erosion will be minimal based on the relatively immaterial impact to date of generic treprostinil on our sales of Remodulin for intravenous administration.with additional pricing approvals and launches expected in 2020. As a result, we anticipate that our international Remodulin revenues willhave come under increasing pressure, due to increased competition and a reduction in our contractual transfer price for Remodulin sold by certain international distributors for sales in countries in which the pricing of Remodulin is impacted by the generic competition. Our non-U.S. net product sales for Remodulin were $28.0$23.1 million and $32.3$28.0 million for the three months ended March 31, 2021 and 2020, and 2019, respectively.(Watson)(Watson) and Actavis Laboratories FL, Inc. (Actavis)(Actavis) related to their ANDAs seeking FDA approval to market generic versions of Tyvaso and Orenitram, respectively, before the expiration of certain of our U.S. patents. Under the settlement agreements, Watson and Actavis can market their generic versions of Tyvaso and Orenitram in the United States beginning in January 2026 and June 2027, respectively, although they may be permitted to enter the market earlier under certain circumstances. Technologies, Inc. (Liquidia) submitted an NDA to the FDA for approval of LIQ861, a dry powder formulation of treprostinil for inhalation. This NDA was submitted under the 505(b)(2) regulatory pathway with Tyvaso as the reference listed drug. This product, if approved, would compete directly with Tyvaso and our other treprostinil-based products, and would also compete with Treprostinil TechnosphereTyvaso DPI if it is approved. In March 2020, Liquidia filed petitions for inter partes review (IPR) seeking to invalidate two of our patents related to Remodulin, Tyvaso, and Orenitram. In October 2020, the PTAB instituted IPR proceedings with respect to one of these patents and declined to institute IPR proceedings with respect to the other. In April 2020, we received a Paragraph IV notification letter from Liquidia indicating that Liquidia’s NDA contains a certification alleging that LIQ861 will not infringe any of the patents currently listed in the Orange Book for Tyvaso because those patents are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of LIQ861. In June 2020, we filed a lawsuit against Liquidia for patent infringement. As a result, the FDA is automatically precluded from approving Liquidia’s NDA for up to 30 months or until the resolution of the litigation, whichever occurs first. We later added another patent to the case—U.S. Patent No. 10,716,793 (the ’793 patent), which is listed in the Orange Book for Tyvaso—alleging that LIQ861 will infringe that patent as well. In January 2021, Liquidia filed an IPR petition for the ’793 patent. On November 25, 2020, Liquidia issued a press release stating that the FDA issued a complete response letter for its NDA identifying “the need for additional information and clarification on chemistry, manufacturing and controls (CMC) data pertaining to the drug product and device biocompatibility.” According to Liquidia, it does not anticipate the complete response letter will affect its projected launch timing of LIQ861 in the second half of 2022. For further details, please see Note 12—13—Litigation, to our consolidated financial statements.$13.6$12.3 million and $14.2$12.5 million as of March 31, 20202021 and December 31, 2019,2020, respectively.24Treprostinil TechnosphereTyvaso DPI — our profits, and our stock price. These potential effects are inherently difficult to predict. For additional discussion, refer to the risk factor entitled, Our intellectual property rights may not effectively deter competitors from developing competing products that, if successful, could have a material adverse effect on our revenues and profits,profits, contained in Part II, Item 1A—Risk Factorsincluded in this Quarterly Report on Form 10-Q.Quarterly Report 23 Since our inception, we have devotedfollowing costs:25Plan)Plan) and awards under our Share Tracking Awards Plans (STAP)(STAP). Issuance of awards under these plans was discontinued in 2015. Currently, we grant stock options and restricted stock units under the United Therapeutics Corporation Amended and Restated 2015 Stock Incentive Plan (as amended to date, the 2015 Plan), which provides for the issuance of up to 9,500,000 shares of our common stock, including the 450,000 shares added pursuant to an amendment and restatement of the (the 2015 Plan approved by our shareholders in June 2019.). In February 2019, our Board of Directors approved the 2019 Inducement Stock Incentive Plan (the 2019 Inducement Plan)Plan), which provides for the issuance of up to 99,000 shares of our common stock pursuant to awards granted to newly-hired employees. Currently, we grant equity-based awards to employees and members of our Board of Directors in the form of stock options and restricted stock units under the 2015 Plan, and we grantedgrant restricted stock units to newly-hired employees under the 2019 Inducement Plan. The grant date fair values of stock options and restricted stock units are recognized as share-based compensation expense ratably over their vesting periods.2.51.9 million STAP awards outstanding as of March 31, 2020.2021. We account for STAP awards as liabilities because they are settled in cash. As such, we must re-measure the fair value of STAP awards at the end of each financial reporting period until the awards are no longer outstanding. Changes in our STAP liability resulting from such re-measurements are recorded as adjustments to share-based compensation expense (benefit) and can create substantial volatility within our operating expenses from period to period. The following factors, among others, have a significant impact on the amount of share-based compensation expense (benefit) recognized in connection with STAP awards from period to period: (1) volatility in the price of our common stock (specifically, increases in the price of our common stock will generally result in an increase in our STAP liability and related compensation expense, while decreases in our stock price will generally result in a reduction in our STAP liability and related compensation expense); and (2) changes in the number of outstanding awards.24 United Therapeutics 2020-20222021-2023 timeframe) and medium-term pipeline programs (intended to result in product launches in the 2023-20262024-2027 timeframe). We are also engagedengage in a variety of additional medium- and long-term research and development efforts, including technologies designed to increase the supply of transplantable organs and tissues and improve outcomes for transplant recipients through regenerative medicine, xenotransplantation, biomechanical lungs, and ex-vivo lung perfusion. Please note that our expectations regarding our research and development programs are subject to the caveatsrisks described above under Overview—Overview—Impacts of COVID-19 on our Business, and below in Part II, Item 1A—Risk Factors—Risks Related to our Business—Products—We face risks and uncertainties related to the COVID-19 pandemic, which could significantly disrupt our operations and/or business for an unknown period of time.time.26(2020-2022)ProductProduct Mode of Delivery Indication
STUDY NAMERemunity (treprostinil)Continuous subcutaneous via pre-filled, semi-disposable systemPAHPharmacy-fill 510(k) cleared by the FDA; Launch expected by July 2020.WorldwideInhaledInhaledidiopathic pulmonary fibrosisinterstitial lung disease (WHO Group 3)IIINDA supplement to be submitted to the FDA mid-year 2020WorldwideWorldwideTrevyent (treprostinil)Continuous subcutaneous via pre-filled, disposable PatchPump® systemPAHEvaluating FDA complete response letter to NDAWorldwide, subject to out-licenses granted in Europe, Canada, and the Middle EastPAHPAHTreprostinil TechnospherePAH and PH-ILDPAHWorldwidePhase III BREEZEWorldwide27(2023-2026)ProductProduct Mode of Delivery IndicationInhaledInhaledPhase 3 PERFECT studyPhase IIIPERFECTWorldwideWorldwideOreniProOreniPro™ (once-daily, oral treprostinil prodrug)OralOralPhase 1PAHWorldwidePhase IWorldwide(pain-free subcutaneous(subcutaneous Remodulin prodrug)PAHPAHWorldwidePhase IWorldwideUnexisome (exosome-based product)InhaledIntravenousPhase 3 TETON studyBronchopulmonary DysplasiaWorldwidePhase IWorldwideOralOralPhase 3 ADVANCE studiesPAHPhase IIIADVANCE studiesAurora-GT (eNOSAurora-GT™
(eNOS gene therapy)IntravenousIntravenousSAPPHIRE studyPAHPhase II/IIISAPPHIRELNG01 (formerly SM04646, a Wnt pathway inhibitor)InhaledIdiopathic pulmonary fibrosisPhase IUnited States and Canada(Medtronic)(Medtronic). The system incorporates a proprietary Medtronic intravascular infusion catheter with Medtronic’s SynchroMed® II implantable infusion pump and related infusion system components (together referred to as the Implantable System for Remodulin) in order to deliver Remodulin for the treatment of PAH. We believe this technology has the potential to reduce many of the patient burdens and other complications associated with the use of external pumps to administer prostacyclin analogues. The FDA approved Medtronic’s premarket approval application (PMA)(PMA) for the device in December 2017, and our NDA for the use of Remodulin in the implantable pump in July 2018. Medtronic must satisfy certain conditions to its PMA approval before we can launch the Implantable System for Remodulin. As a result of recent FDA communications, Medtronic has indicated that these conditions will not be satisfied during 2020. We have nolimited control over when or whether these conditions will be met. Based on feedback the FDA recently provided to Medtronic, we do not believe these conditions will be satisfied in time for a 2021 launch. We are working with Medtronic to determine the timing required to address this new feedback. Our ability to launch the Implantable System for Remodulin on a timely basis, or at all, depends on a number of factors outside of our control, including Medtronic’s ability to satisfy the FDA’s conditions to its PMA approval, the ability of hospitals to complete training and other necessary preparations, and the potential impact of the COVID-19 pandemic.(CVS Specialty)(CVS Specialty) to provide refills of implanted pumps at its infusion centers. Once Medtronic satisfies its remaining PMA conditions, we plan to approach the launch in a careful and deliberate manner to ensure the safety of patients and the long-term success of the program. In December 2019, we announced a delay in the potential launch of the Implantable System for Remodulin from 2020 to 2021. These timelines are subject to a number of factors outside of our control, including Medtronic’s satisfaction of its PMA conditions, the ability of hospitals to complete training and other necessary preparations, and the potential impact of the COVID-19 pandemic. We are also working with Medtronic to develop a next-generation system incorporating various enhancements.28TheMedtronic completed the last of the third-party audits required by the consent decree remains in effect,2020 and is discussing completion of the remaining activities required by the consent decree with ongoing obligations for annual third-party audits continuing until September 2020.the FDA. Non-compliance by Medtronic with its consent decree could interrupt the manufacture and sale of the Implantable System for Remodulin.December 2014,February 2021, we entered into an exclusive agreement with DEKA Research & Development Corp. (DEKA) to developlaunched commercial sales of the Remunity Pump, which is a pre-filled, semi-disposable system for subcutaneous delivery of treprostinil, which we call the Remunity system. Under the terms of the agreement, we are funding thedeveloped in collaboration with DEKA Research & Development Corp. (DEKA) under an exclusive development costs related to the Remunity system and will pay product fees and a single-digit royalty to DEKA based on commercial sales of the system and the treprostinil drug product sold for use with the system.license agreement. The Remunity systemPump consists of a small, lightweight, durable pump that is intendedand controller designed to have a service life of at least three years. The Remunity systemPump uses disposable cartridges pre-filledfilled with treprostinil,Remodulin, which can be connected to the pump with less patient manipulation than is typically involved in filling other currently-available subcutaneous pumps. In November 2019, we entered into a supply agreement with an affiliate of DEKA to manufacture and supply the Remunity systemPump to us. Under the terms of the agreement, we will reimburse all of DEKA’s and its affiliates’ costs to manufacture the Remunity system.In May 2019, DEKA obtained FDA 510(k) clearance of a patient-filled version of thePump.system. On February 24, 2020, we announced FDA clearance of an additional 510(k) filing enabling Remunity cartridgesPump is being offered to be pre-filled with Remodulinpatients primarily by contracted specialty pharmacies, in order to improve convenience for patients. We plan to make the pharmacy-filledwhich will deliver Remunity system available to patients by July 2020, but the COVID-19 pandemic could delay this timeline or could make the launch more gradual than we anticipate.prefilledpre-filled as part of the manufacturing process. This version is expected to have an extended shelf life and simplified supply chain, and will allow patients to keep more drug product on hand. also conducting a series of phase I1 studies to develop a new prodrug of treprostinil called RemoPro, which is intended to enable subcutaneous delivery of treprostinil therapy without the site pain currently associated with subcutaneous Remodulin. As a prodrug, RemoPro is designed to be inactive in the subcutaneous tissue, which should decrease or eliminate site pain, and to metabolize into treprostinil once it is absorbed into the blood.onto develop RemoLife, a next-generation pump for Remodulin.TrevyentIn August 2018, we acquired SteadyMed Ltd. (SteadyMed)which is developing Trevyent, a drug-device combination product that combines SteadyMed’s two-day, single use, disposable PatchPump technology with treprostinil, for the subcutaneous treatment of PAH. In August 2017, SteadyMed received a refuse-to-file letter from the FDA with respect to its 505(b)(2) NDA for Trevyent. SteadyMed met with the FDA in November 2017,PERFECT, and the FDA indicated that SteadyMed does not need to conduct any clinical trials to prove the safety or efficacy of Trevyent. We submitted a 505(b)(1) NDA for Trevyent to the FDA in June 2019.TETON studies29In April 2020, the FDA issued a complete response letter (CRL) related to our NDA indicating that some of the deficiencies previously raised by the FDA had not yet been addressed to its satisfaction. We are currently evaluating the letter and will provide updates on our plans to resubmit our NDA at a later date. We have one year from the date of the CRL to resubmit our NDA to the FDA, which is expected to trigger a six-month review period by the agency.OreniProWe are developing an oral prodrug version of Orenitram we call OreniPro, in order to provide increased tolerability and convenience through a once-daily dosing regimen. We commenced a phase I study in early March 2020.UnituxinUnder our BLA approval for Unituxin, the FDA has imposed certain post-marketing requirements and post-marketing commitments on us. We are conducting additional clinical and nonclinical studies to satisfy these requirements and commitments. While we believe we will be able to complete these studies, any failure to satisfy these requirements or commitments could result in penalties, including fines or withdrawal of Unituxin from the market, unless we are able to demonstrate good cause for the failure. We are pursuing a label expansion for Unituxin in combination with two other drugs to treat cancer, irinotecan and temozolomide, for the treatment of pediatric patients with relapsed or refractory neuroblastoma, based on the results of the ANBL1221 study conducted by the Children’s Oncology Group. We met with the FDA in April 2020 to discuss the proposed label expansion, and are planning to file a supplemental BLA in the near term. 2020, we completed the DISTINCT study of Unituxin in adult patients with small cell lung cancer, which is another GD2-expressing cancer, and announced that this study failed to meet its primary endpoint. We are also conducting preclinical research to determine Unituxin’s potential activity against other types of GD2-expressing tumors.Unituxin therapy is associated with severe side effects, including infections, infusion reactions, hypokalemia, hypotension, pain, fever, and capillary leak syndrome. In post-approval use of Unituxin, the adverse reactions of prolonged urinary retention, transverse myelitis, and reversible posterior leukoencephalopathy syndrome have been observed. The Unituxin label also includes a boxed warning related to serious infusion reactions and neurotoxicity.Finally, we are developing a fully humanized (non-chimeric) version of dinutuximab, the active ingredient in Unituxin. We expect this new version to reduce some of the side effects associated with Unituxin, which is a chimeric composed of a combination of mouse and human proteins.TyvasoOn February 24, 2020, we reported the results of the INCREASE phase III3 registration study of Tyvaso in patients with WHO Group 3 pulmonary hypertension associated with interstitial lung disease (including idiopathic pulmonary fibrosis and combined pulmonary fibrosis and emphysema) (PH-ILD)(PH-ILD). Based on our preliminary analysis of the results, the INCREASEThe study met its primary endpoint ofby demonstrating improvement inthat treatment with Tyvaso improved six-minute walk distance (6MWD). Tyvaso increased (6MWD) by 21 meters versus placebo (p=0.0043,0.0043) at week 16 when using a pre-specified worst-case imputation for missing data and Hodges-Lehmann estimate)estimate. Tyvaso increased 6MWD by 31 meters relative to placebo after26 United Therapeutics treatment.treatment (p<0.001) using the mixed model repeated measurement analysis. Tyvaso was well-tolerated, and also showed benefits across several key subgroups, including etiology of PH-ILD, disease severity, age, gender, baseline hemodynamics, and dose. Significant improvements were also observed in each of the study’s secondary endpoints, including reduction in the cardiac biomarker NT-proBNP, time to first clinical worsening event, change in peak 6MWD at Weekweek 12, and change in trough 6MWD at week 15. Treatment with Tyvaso of up to 12 breaths per session, four times daily, was well tolerated and the safety profile was consistent with previous Tyvaso studies and known prostacyclin-related adverse events. Detailed studyIn January 2021, the INCREASE results will be provided through scientific disclosure at upcoming conferences andwere published in peer-reviewed publications.We plan to submit the results toby mid-2020 to support anapproved our efficacy supplement (sNDA)(sNDA) to the Tyvaso new drug application, which we expect to resultresulted in revised labeling reflecting the outcome of the INCREASE study. In April 2020, in response to questions we submitted toAs a result, Tyvaso is now the first and only therapy approved by the FDA along with a pre-sNDA meeting request and briefing package,to treat PH-ILD, which we estimate affects at least 30,000 patients in the FDA indicated that the results of the INCREASE study appear to support our proposed indication of treatment of patients with PH-ILD to improve exercise ability and delay clinical worsening.United States.30III3 registration study called PERFECT, which is a study of Tyvaso in patients with WHO Group 3 PH-COPD.WHO Group 3 pulmonary hypertension. InPH-COPD, which we estimate affects 100,000 patients in the United States alone, we believe there are approximately 30,000 PH-ILD patients and 100,000 PH-COPD patients.Treprostinil Technosphereare developinghave developed a dry powder formulation of inhaled treprostinil called Treprostinil Technosphere for the treatment of PAH,Tyvaso DPI, under an in-license from MannKind Corporation (MannKind)(MannKind). Treprostinil TechnosphereTyvaso DPI incorporates the dry powder formulation technology and Dreamboat® inhalation device technology used in MannKind’s Afrezza® (insulin human) Inhalation Powder product, which was approved by the FDA in 2014. If the FDA approves Treprostinil Technosphere,Tyvaso DPI, we believe this new inhaled treprostinil therapy will provide substantial lifestyle benefits to PAH and PH-ILD patients, as compared with nebulized Tyvaso Inhalation Solution therapy, because it will be: (1) less time consuming to administer and easier to maintain as the device and drug will be provided in a pre-filled, single use, disposable cassette eliminating the need for cleaning and filling; and (2) mobile and more convenient, as the compact design of the Dreamboat device and drug cassettes used with Treprostinil Technosphere canTyvaso DPI enables the device to easily fit into the patient’s pocket and dothe device does not require electricity.electricity to function.commencedcompleted two clinical studies of Tyvaso DPI. One was a study in healthy volunteers, comparing the pharmacokinetics of Tyvaso DPI to Tyvaso Inhalation Solution. We completed the study in October 2020, and announced in January 2021 that the study demonstrated comparable systemic treprostinil exposure between Tyvaso DPI and Tyvaso Inhalation Solution. In December 2020, we completed a clinical study (called called BREEZE) in September 2019 to evaluate, which evaluated the safety and pharmacokinetics of switching PAH patients from Tyvaso Inhalation Solution to Treprostinil Technosphere.Tyvaso DPI. In MarchJanuary 2021, we announced that the BREEZE study demonstrated safety and tolerability of Tyvaso DPI in subjects with PAH transitioning from Tyvaso Inhalation Solution. In April 2021, we filed an NDA with the FDA seeking approval for Tyvaso DPI to treat both PAH and PH-ILD. In January 2021, we purchased a pediatric disease priority review voucher for $105.0 million, which we redeemed upon submission of the Tyvaso DPI NDA. We expect the voucher to reduce the typical 12-month timeframe for the FDA to review the Tyvaso DPI NDA to eight months. If the FDA accepts our NDA for review, we anticipate FDA action on our NDA in December 2021.commencedare currently conducting a second clinicalphase 1 study in healthy volunteers to compare the pharmacokinetics of Treprostinil Technosphere to Tyvaso. The FDA has indicated that these two studies, if successful, will be the only clinical studies necessary to support FDA approval.Unexisomenext generation, development-stage, cell therapy utilizing exosomes to treat bronchopulmonary dysplasia (BPD), which is a chronic lung disease that affects newborns (mostly premature newborns) and infants. BPD results from damage to the lungs caused by mechanical ventilation (respirators) and long-term use of oxygen, and impacts approximately 12,000 infants annually.therapy-derived biologic comprising exosomes. Exosomes are cell-secreted vesicles generated by virtually all cells, including cell types used in therapeutic applications. Exosomes serve as potent vehicles for cell-to-cellcell-Quarterly Report 27 I1 safety study of Unexisome in preterm neonates at high risk for BPD.conductingenrolling two phase III3 studies of ralinepag: (1) ADVANCE OUTCOMES, which is an event-driven study of ralinepag in PAH patients (with a primary endpoint of time to first clinical worsening event); and (2) ADVANCE CAPACITY, studying the effect of ralinepag on exercise capacity in PAH patients (with a primary endpoint of change in peak oxygen uptake via cardiopulmonary exercise test). Both of these studies are global, multi-center, placebo-controlled trials of patients on approved oral background PAH therapies.phase II/IIIclinical study (called SAPPHIRE) of a gene therapy product called Aurora-GT, in which a PAH patient’s own endothelial progenitor cells are isolated, transfected with the gene for human endothelial NO-synthase (eNOS)(eNOS), expanded ex-vivo, and then delivered back to the same patient. This product is intended to rebuild the blood vessels in the lungs that are destroyedcompromised by PAH. This study is being conducted in Canada, is intended to be a registration-phase study for Canadian regulatory submission, and is sponsored by Northern Therapeutics, Inc., a Canadian entity in which we have a 49.7 percent voting stake and a 71.8 percent financial stake. We have the exclusive right to pursue this technology in the United States and plan to seekwill evaluate seeking FDA approval of Aurora-GT if SAPPHIRE is successful.31LNG01 (formerly SM04646)are developing LNG01,have satisfied all post-marketing requirements and expect to satisfy the final remaining post-marketing commitment (a non-clinical study) during 2021. We were pursuing a Wnt pathway inhibitor formerly known as SM04646, which we in-licensed from Samumed LLC (Samumed)label expansion for Unituxin in September 2018,combination with irinotecan and temozolomide for the treatment of idiopathic pulmonary fibrosis (IPF). The Wnt pathway is onepediatric patients with relapsed or refractory neuroblastoma, based on the results of a clinical study conducted by the primary signaling pathways essential forChildren’s Oncology Group. In April 2021, the normal development of all multicellular animals,FDA informed us that the data from this study will not be sufficient, and foradditional data and analyses would be necessary to support such a label expansion. These additional activities would have caused considerable additional delay, and additional efforts may not ultimately have been successful in addressing the growth and maintenance of various adult tissues. Recent evidence suggests that aberrant Wnt signaling may be involved in the pathogenesis of chronic lung disease such as IPF. Samumed completedFDA’s comments. As a phase I, multiple dose clinical trial in April 2019, and our subsidiary, Lung Biotechnology PBC, is planning additional nonclinical and clinical studies.Since 2011, we have beenWe are engaged in research and development of a variety of technologies designed to increase the supply of transplantable organs and tissues and to improve outcomes for transplant recipients. These programs include preclinical research and development of alternative tissue sources through tissue and organ xenotransplantation, regenerative medicine, biomechanical lungs, and other technologies to create engineered organs and organ tissues. Although our primary focus is on engineered lungs, we are also developing technologies for other engineered organs, such as kidneys and hearts, and our manufactured lungs, kidneys and hearts have set records for viability in FDA-required animal models. In February 2018, we reached a significant milestone by achieving 30-day survival of our genetically modified porcine lungs in FDA-required animal models. In 2019, we entered into a collaboration agreement with the University of Alabama at Birmingham to develop a pilot-scale, designated pathogen-free facility to house genetically modified pigs, with a goal of commencing human clinical trials of xenotransplanted kidneys from pigs to humans in the near term. In August 2020, we began to conduct operations at the facility with the first introduction of genetically modified pigs, and in March 2021, the facility received its recertification of compliance from the American Association for Accreditation of Laboratory Animal Care. We are also developing technologies to improve outcomes for lung transplant recipients and to increase the supply of donor lungs through ex-vivo lung perfusion. While we continue to develop and commercialize therapies for rare and life-threatening conditions, we view organ manufacturing as the ultimate technologya complementary solution for a broad array of diseases, many of which (such as PAH) have proven incurable to date through more traditional pharmaceutical and biologic therapies. For this reason, in 2015 we created a wholly-owned public benefit corporation called Lung Biotechnology PBC, chartered with the express purpose of “address[ing] the acute national shortage of transplantable lungs and other organs with a variety of technologies that either delay the need for such organs or expand the supply.”28 United Therapeutics Our prospects forhave become more difficult to projectdriven primarily by: (1) growth in lightsales of Tyvaso as a result of the effectsexpansion of its label in March 2021 to include treatment of PH-ILD based on the results of the COVID-19 pandemic, as described above under Overview—Impacts of COVID-19 on our Business. We continue to anticipate further negative impacts on revenue arising fromINCREASE study; (2) continued generic competition for Adcirca, and for Remodulin in Europe. After 2020, we do not expect to generate any revenue from sales of Adcirca (which accounted for $107.2 million of our revenue in 2019), unless we and Lilly agree to extend the term of our license agreement related to Adcirca beyond its current expiration date of December 31, 2020. We believe our pipeline of new products and potential label expansions for existing products should result in a return to revenue growth in the near term, although the precise timing depends on a number of factors, including factors that we cannot control. Referpatients prescribed with Orenitram following our expansion of the Orenitram label to reflect the risks identified in Part II, Item 1A—Risk Factors, included in this Quarterly Report on Form 10-Q.futureadditional revenue growth beyond 2021 will be driven by commercializing sixthe factors noted above, as well as our efforts to commercialize five key therapeutic platforms in our pipeline, which are comprised of the enabling technologies described below:PlatformEnabling TechnologiesEnabling Technologies Remodulin (parenteral treprostinil) Remunity, Implantable System for Remodulin, Trevyent, RemoLife, RemoProPERFECTINCREASE study, PERFECT study, Treprostinil TechnosphereOreniProOreniProUnituxin (dinutuximab)Humanized dinutuximab, additional GD2-expressing tumorsLNG01, SAPPHIREstudy(gene therapy), Unexisome32sixfive therapeutic platforms each with multiple enabling technologies, will lead to significant revenue growth over the medium- and longer-term. For further details regarding our research and development initiatives, refer to the section above entitled Research and Development.theseour objectives, grow our business, and maintain profitability will depend on many factors, including among others: (1) the timing and outcome of preclinical research, clinical trials, and regulatory approvals for products we develop; (2) the timing and degree of our success in commercially launching new products; (3) the demand for our products; (4) the price of our products and the reimbursement of our products by public and private health insurance organizations; (5) the competition we face within our industry, including competition from generic companies and new PAH therapies; (6) our ability to effectively manage our business in an increasingly complex legal and regulatory environment; (7) our ability to defend against challenges to our patents; (8) the duration and (8)severity of the COVID-19 pandemic; and (9) the risks identified in Part II, Item 1A—Risk Factors, included in this Quarterly Report on Form 10-Q.Quarterly Report 29 20202021 and March 31, 2019Revenues for the three months ended March 31, 2020 decreased by $6.3 million as compared to the same period in 2019.As of March 31, 2020, new patient starts Three Months Ended
March 31,Dollar
ChangePercentage
Change 2021 2020 Net product sales: Remodulin $ 130.2 $ 145.3 $ (15.1) (10) % Tyvaso 123.0 102.9 20.1 20 % Orenitram 72.4 69.0 3.4 5 % Unituxin 43.9 26.6 17.3 65 % Adcirca 9.6 12.5 (2.9) (23) % Total revenues $ 379.1 $ 356.3 $ 22.8 6 % were not impacted as a result of the COVID-19 pandemic, but most of the prescriptions submittedgrew by physicians for new patients as of this date pre-dated the outbreak$8.4 million in the United States. However, we have observed a decline in new prescriptions from our treprostinil-based products during the monthfirst quarter of April 2020 that we believe is primarily due2021 compared to the inabilityfirst quarter of patients to visit their physicians’ offices to determine whether our medicines may be appropriate, which could lead to a reduction in new patient starts and negatively impact our revenues. Refer to Overview—Impacts of COVID-19 on our Business for additional discussion. decreased by $10.2 million for the three months ended March 31, 2020,2021, decreased as compared to the same period in 2019.2020, due to decreases of $10.2 million and $4.9 million in U.S. Remodulin net product sales decreased by $6.0 million and international Remodulin net product sales, decreased by $4.2 million. The total decrease of $10.2 millionrespectively. These decreases were primarily resulted from: (1)due to a decreasedecline in quantities sold. Although fewer quantities were sold in the United States, the number of $5.7 million; and (2) the $5.4 million impactU.S. Remodulin patients increased as of price reductions. U.S. patient demand for Remodulin during the three months ended March 31, 2020, remained consistent with the strong demand in 2019, following the initial transition of Remodulin patients2021 compared to generic treprostinil in the first half of 2019.March 31, 2020.332020 decreased by $0.9 million,2021, increased as compared to the same period in 2019, resulting from: (1) higher gross-to-net revenue deductions of $3.5 million; and (2) a decrease in quantities sold of $2.9 million; partially offset by a $5.5 million increase in revenue2020, primarily due to a January 2020 price increase.Orenitram net product sales for the three months ended March 31, 2020 increased by $10.6 million, as compared to the same period in 2019, primarily resulting from: (1) an increase in quantities sold, reflecting an increased number of $7.5 million; and (2) $3.7 million due to a January 2020 price increase.20202021, increased by $1.7 million, as compared to the same period in 2019, primarily resulting from $3.8 million due to April 2019 and January 2020, price increases, partially offset by a $2.0 million decrease due to a reduction in the number of vials sold.Adcirca net product sales for the three months ended March 31, 2020 decreased by $7.5 million, as compared to the same period in 2019. This decrease was primarily due to a continuing decreasean increase in bottles sold as a resultquantities sold.30 United Therapeutics 34Three Months Ended March 31, 2021 Rebates & Chargebacks Prompt Pay
DiscountsAllowance for Sales Returns Distributor Fees Total Balance, January 1, 2021 $ 60.7 $ 3.0 $ 12.5 $ 3.7 $ 79.9 Provisions attributed to sales in: Current period 41.7 8.8 — 7.6 58.1 Prior periods (0.5) — — 0.2 (0.3) Payments or credits attributed to sales in: Current period (7.6) (5.9) — (2.5) (16.0) Prior periods (38.0) (3.0) (0.2) (3.8) (45.0) Balance, March 31, 2021 $ 56.3 $ 2.9 $ 12.3 $ 5.2 $ 76.7 Three Months Ended March 31, 2020 Rebates & Chargebacks Prompt Pay
DiscountsAllowance for Sales Returns Distributor Fees Total Balance, January 1, 2020 $ 51.7 $ 2.6 $ 14.2 $ 4.1 $ 72.6 Provisions attributed to sales in: Current period 44.8 7.5 — 5.0 57.3 Prior periods 1.1 — — — 1.1 Payments or credits attributed to sales in: Current period (9.9) (5.0) — (1.3) (16.2) Prior periods (34.5) (2.5) (0.6) (3.4) (41.0) Balance, March 31, 2020 $ 53.2 $ 2.6 $ 13.6 $ 4.4 $ 73.8 Three Months Ended
March 31,Dollar Change Percentage
Change 2021 2020 Category: Cost of product sales $ 21.3 $ 22.2 $ (0.9) (4) % 1.7 1.2 0.5 42 % Total cost of product sales $ 23.0 $ 23.4 $ (0.4) (2) % (1)(1)Refer to Share-Based Compensation section below.Cost of product sales, excluding share-based compensation. The decrease in cost of product sales of $5.8 millionRefer to Share-Based Compensation section below for the three months ended March 31, 2020, as compared to the same period in 2019, was primarily attributable to a $3.3 million decrease in royalty expense for Adcirca as fewer bottles were sold as a result of generic competition for Adcirca. Three Months Ended
March 31,Dollar
ChangePercentage
Change 2021 2020 Category: Research and development projects $ 297.2 $ 68.6 $ 228.6 333 % 6.5 4.6 1.9 41 % Total research and development expense $ 303.7 $ 73.2 $ 230.5 315 % (1)(1)Refer to Share-Based Compensation section below. decreased by $825.2 million for the three months ended March 31, 2020,2021 increased as compared to the same period in 2019. Research and development expense for the treatment of cardiopulmonary diseases decreased by $830.42020, due to: (1) a $107.3 million for the three months ended March 31, 2020, as compared to the same period in 2019, due to an $800.0 million upfront payment to Arena under our license agreementIPR&D impairment charge related to ralinepagour March 2021 decision to discontinue the U.S. development of Trevyent; (2) a $105.0 million purchase of a pediatric disease priority review voucher, which we redeemed upon submission of the Tyvaso DPI NDA; (3) a $11.6 millionQuarterly Report 31 $12.5$6.1 million payment underIPR&D impairment charge related to our license and collaboration agreement with MannKind, bothdecision to discontinue development of which occurred during the three months ended March 31, 2019.(1)Refer to Share-Based Compensation below.35 Three Months Ended
March 31,Dollar Change Percentage
Change 2021 2020 Category: General and administrative $ 71.6 $ 55.0 $ 16.6 30 % Sales and marketing 13.7 13.0 0.7 5 % 31.9 25.0 6.9 28 % Total selling, general, and administrative expense $ 117.2 $ 93.0 $ 24.2 26 % Three Months Ended
March 31,Dollar Change Percentage
Change 2021 2020 Category: Stock options $ 8.3 $ 16.4 $ (8.1) (49) % Restricted stock units 5.7 4.0 1.7 43 % STAP awards 25.7 10.1 15.6 154 % Employee stock purchase plan 0.4 0.3 0.1 33 % Total share-based compensation expense $ 40.1 $ 30.8 $ 9.3 30 % Three Months Ended
March 31,Dollar Change Percentage
Change 2021 2020 Cost of product sales $ 1.7 $ 1.2 $ 0.5 42 % Research and development 6.5 4.6 1.9 41 % Selling, general, and administrative 31.9 25.0 6.9 28 % Total share-based compensation expense $ 40.1 $ 30.8 $ 9.3 30 % Other Income, Net“othershare-based compensation expense for the three months ended March 31, 2021, as compared to the same period in 2020, was primarily due to an increase in STAP expense driven by a 10 percent increase in our stock price for the three months ended March 31, 2021, as compared to an eight percent increase in our stock price for the same period in 2020, partially offset by a decrease in stock option expense due to fewer awards granted and outstanding in 2021. For more information, refer to Note 9—Share-Based Compensation to our consolidated financial statements.net”net for the three months ended March 31, 2021, as compared to the same period in 2020, were primarily due to net unrealized and realized gains and losses on equity securities. During the three months ended March 31, 2021, we sold an investment that we held in a publicly-traded company. We received $108.9 million in cash from the sale of $2.9the investment and realized a gain of $91.9 million. Refer to Note 3—Investments to our consolidated financial statements.32 United Therapeutics as compared to the same period in 2019, was primarily due to excess tax benefits from share-based compensation recognized as a discrete item relative to the amount of pretax income, and a decrease in valuation allowance, partially offset by an increase in net unrealized and realized gains on equity securities of $13.4 million, partially offset by: (1) a $4.2 million increase of net unrealized and realized foreign currency losses; and (2) a $1.5 million impairment charge on a note receivable during the first quarter of 2020. During the three months ended March 31, 2020, we recognized a $22.5 million unrealized gain on an investment in a privately-held company and $6.1 million of net unrealized and realized losses on equity securities with readily determinable fair values. During the three months ended March 31, 2019, we recognized $3.0 million of unrealized gains on equity securities with readily determinable fair values. Refer to Note 3—Investments to our consolidated financial statements.Impairments of Investments in Privately-Held CompaniesDuring the quarter ended March 31, 2020, we observed indicators of impairment of the value of two of the privately-held companies in which we hold an investment. We determined each of these investments in privately-held companies was impaired and recognized total impairment charges of $5.6 million. We did not recognize any impairment charges related to our investments in privately-held companies during the three months ended March 31, 2019. Refer to Note 3—Investments to our consolidated financial statements.Income Tax Expense (Benefit)Income tax expense was $33.9 million for the three months ended March 31, 2020, as compared to income tax benefit of $156.0 million for the same period in 2019. The effective income tax rate (ETR) for the three months ended March 31, 2020 and 2019 was 20 percent and 24 percent, respectively. For the three months ended March 31, 2020, anticipated tax credits, state audit adjustments, and the foreign sales deduction, partially offset by non-deductible compensation and state tax expense, decreased our ETR. For the three months ended March 31, 2019, anticipated tax credits and the foreign sales deduction, partially offset by non-deductible compensation and state tax expense, increased our ETR due to the pre-tax loss that resulted primarily from the upfront $800.0 million payment under our license agreement with Arena.36long-termgrowth in revenues from our commercial products, excluding Adcirca, to continue to grow due to our work on development of new products and label expansions for existing products.Adcirca. Furthermore, our customer base remains stable and we believe it presents minimal credit risk. However, any projections of future cash flows are inherently subject to uncertainty and we may seek other forms of financing. In June 2018, we entered into a credit agreement (the Credit Agreement)Agreement), which provides an unsecured, revolving line of credit of up to $1.5 billion. Our aggregate outstanding balance under the Credit Agreement was $850.0 million and $800.0 million as of December 31, 20192020 and March 31, 2020, respectively.2021. We classified the entire outstanding balance under the Credit Agreement, which matures in 2024,2025, as a non-current liability on our consolidated balance sheet as of March 31, 2020. As of December 31, 2019, we classified $250.0 million of the outstanding principal balance as a current liability because we intended, at such time, to repay this amount within one year. As of March 31, 2020 we decided not to repay a portion of the loan within one year out of an abundance of caution given the uncertainty surrounding the current COVID-19 pandemic and its potential impact on our business. March 31, 2021 December 31, 2020 Percentage Change Cash and cash equivalents $ 832.3 $ 738.7 13 % Marketable investments—current 899.0 1,096.3 (18) % Marketable investments—non-current 1,433.5 1,149.6 25 % Total cash and cash equivalents and marketable investments $ 3,164.8 $ 2,984.6 6 % Three Months Ended March 31, Percentage Change 2021 2020 Net cash provided by operating activities $ 89.8 $ 214.6 (58) % Net cash used in investing activities $ (6.3) $ (27.6) 77 % Net cash provided by (used in) financing activities $ 10.1 $ (50.2) 120 % $842.0$124.8 million in net cash used inprovided by operating activities for the three months ended March 31, 2020,2021, as compared to the three months ended March 31, 2019,2020, was primarily due to: (1) an $825.2a $105.0 million decrease in research and development expense, excluding share-based compensation expense, primarily driven by an $800.0 million upfront payment to Arena under our license agreement related to ralinepag, andpurchase of a $12.5 million payment under our license and collaboration agreement with MannKind, both of which occurred during the three months ended March 31, 2019;pediatric disease priority review voucher; (2) a $9.6$12.4 million increase in cash received for income taxes; (3) a $2.8 million decrease in cash paid to settle STAP awards; and (4)(3) a $1.7$7.1 million decrease in cash received for income taxes, partially offset by a $3.5 million decrease in cash paid for interest. The remainder of the changedecrease in cash used inprovided by operating activities was due to other changes in assets and liabilities.$32.7$21.3 million in net cash used in investing activities for the three months ended March 31, 2020,2021, as compared to the three months ended March 31, 2019,2020, was primarily due to: (1) a $13.2$18.9 million increase in cash from the saletotal sales, purchases, and maturities of investments in equity securities;marketable investments; and (2) a $12.1$2.4 million decrease in cash paid to purchase property, plant, and equipment; and (3) a $7.0 million decrease in cash paid to purchase investments in privately held companies.equipment.37Quarterly Report 33 $859.3$60.3 million in net cash provided byused in financing activities for the three months ended March 31, 2020,2021, as compared to the three months ended March 31, 2019,2020, was primarily due to: (1) $800.0 million that we borrowed underno repayments on our Credit Agreement, which was used to fund an $800.0 million upfront payment under our license agreement with Arenaline of credit during the three months ended March 31, 2019; (2)2021, compared to a $50.0 million repayment on our revolvingline of credit facility underduring the Credit Agreementsame period in 2020; and (2) a $16.8 million increase in proceeds from the exercise of stock options during the three months ended March 31, 2020; and (3) an $8.1 million decrease2021, compared to the same period in proceeds from the exercise of stock options.(GAAP)(GAAP) requires our management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We continually evaluate our estimates and judgments to determine whether they are reasonable, relevant, and appropriate. These assumptions are frequently developed from historical data or experience, currently available information, and anticipated developments. By their nature, our estimates are subject to an inherent degree of uncertainty; consequently, actual results may differ. We discuss critical accounting policies and estimates that involve a higher degree of judgment and complexity in Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report on Form 10-K for the year ended December 31, 2019.Report. There have been no material changes to our critical accounting policies and estimates as disclosed in our 2020 Annual Report on Form 10-K for the year ended December 31, 2019.2—2—Basis of Presentation, to our consolidated financial statements for information on our adoption during the current period and anticipated adoption of recently issued accounting standards.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKCONTROLS AND PROCEDURES2020,2021, our ChairmanChairperson and Chief Executive Officer and Chief Financial Officer and Treasurer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, summarized, processed, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our ChairmanChairperson and Chief Executive Officer and Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure. There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.3834 United Therapeutics LEGAL PROCEEDINGSRISK FACTORSForward-Looking StatementsThis Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 (the Exchange Act) and the Private Securities Litigation Reform Act of 1995. These statements, which are based on our beliefs and expectations as to future outcomes, include, among others, statements related to the following:●The potential impact of the COVID-19 pandemic on our business, results of operations, liquidity, and operations and our ability to mitigate those potential impacts;●Expectations of revenues, expenses, profitability, and cash flows;●The sufficiency of our cash on hand to support operations;●Our ability to obtain financing on terms favorable to us or at all;●The maintenance of domestic and international regulatory approvals;●Our ability to maintain attractive pricing for our products, in light of increasing competition, including from generic products and pressure from government and other payers to decrease the costs associated with healthcare;●The expected volume and timing of sales of Remodulin, Tyvaso, Orenitram, and Unituxin, as well as potential future commercial products, including the anticipated effect of various research and development efforts on sales of these products;●The timing and outcome of clinical studies, other research and development efforts, and related regulatory filings and approvals;●The potential timing and success of our anticipated launch of Remunity, Trevyent, and the Implantable System for Remodulin;●The timing and outcome of our anticipated supplemental NDA for Tyvaso to reflect the INCREASE study results;●The outcome of pending and potential future legal and regulatory actions by the FDA and other regulatory and government enforcement agencies, and the anticipated duration of regulatory exclusivity for our products;●The timing and outcome of the lawsuit filed against us by Sandoz and RareGen, LLC, the petitions for inter partes review filed by Liquidia, and any further litigation that may ensue as a result of Liquidia’s NDA for LIQ861;●The impact of competing therapies on sales of our commercial products and the amount of inventory of our products that will expire unsold, including the impact of generic versions of Adcirca and Remodulin; established therapies such as Uptravi; and newly-developed therapies such as LIQ861;●The expectation that we will be able to manufacture sufficient quantities and maintain adequate inventories of our commercial products, through both our in-house manufacturing capabilities and third-party manufacturing sites, and our ability to obtain and maintain related approvals by the FDA and other regulatory agencies;39●The adequacy of our intellectual property protection and the validity and expiration dates of the patents we own or license, as well as the regulatory exclusivity periods for our products;●The expected eligibility of patents for inclusion in the Orange Book;●Any statements that include the words “believe,” “seek,” “expect,” “anticipate,” “forecast,” “project,” “intend,” “estimate,” “should,” “could,” “may,” “will,” “plan,” or similar expressions; and●Other statements contained or incorporated by reference in this Quarterly Report on Form 10-Q that are not historical facts.These statements are subject to risks and uncertainties and our actual results may differ materially from anticipated results. Factors that may cause such differences include, but are not limited to, those discussed below. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.Businessour current treprostinil-based PAH therapies (Remodulin,Remodulin, Tyvaso, and Orenitram)Orenitram comprise the vast majority of our revenues. Substantially decreased sales of any one of these products could have a material adverse impact on our operations. A wide variety of events, such as withdrawal of regulatory approvals or substantial changes in prescribing practices or dosing patterns, many of which are described in other risk factors below, could cause sales of these products to materially decline, or to grow more slowly than expected. Generic competition due to theThe current commercialand expected availability of generic versions of Remodulin, which launched in the United States in March 2019 and in certain countries in Europe beginning in 2019, and which we expect will be launched in certain other countries in Europe during the remainder of 2020,our products has decreased and may continue to decrease our revenues. In addition, generic versionsThe approval of Tyvaso and Orenitram, which could be launched in the United States by Watson and Actavis as early as January 2026 and June 2027, respectively (or earlier under certain circumstances), may decrease our revenues. A number of companies are developing new PAH therapies, such as LIQ861, a dry powder formulation of treprostinil using a disposable inhaler being developed by Liquidia Technologies Inc. (Liquidia), which if approved couldmay negatively impact sales of our current products and potential sales of the PAH products we are developing. In addition, the inability ofnew products. Sales may decrease if any third party that manufactures, markets, distributes, or sells any of our commercial products to perform these functionscannot do so satisfactorily, or our inability towe cannot manage our internal manufacturing processes, could result in an inability to meet patient demand and decrease sales.processes. Finally, our strategy involves the development and successful launch of next-generation delivery systems (such as the Implantable System for Remodulin, Remunity, and Trevyent) and expanded indications for our existing treprostinil-based products. We mayif we are not be able to successfully launch the Implantable System for Remodulin Remunity, or TrevyentTyvaso DPI when we anticipate, or at all, for regulatory or other reasons, andor demand for these products following their launch maydoes not meet our expectations. As a result,expectations, the revenue opportunity for our treprostinil products could be significantly lower than we expect.obtain FDA and international regulatory approvals and will be unable to sell those products. regulatory approvals from the FDA and international regulatory agencies to sell new products, or to expand the product labeling for our existing products, to new indications, we must conduct clinical trials demonstrating that our products are safe and effective. These regulatorsRegulators have substantial discretion over the approval process for our products, and may not agree that we have demonstrated the requisite level of product safety and efficacy to grant approval.The FDA and other regulatory agenciesprocess. Regulators may require us to amend ongoing trials or perform additional trials, beyond those we planned, which have in the past and could in the future result in significant delays and additional costs or may be unsuccessful. For example, approval of an NDADelays and costs associated with requirements to change or add trials may cause us to discontinue efforts to develop a BLA could be delayed if the FDA determines that it cannot review or approve the applicationproduct, as submitted. In such a case, the FDA may require substantial additional studies, testing, or information in order to complete its review of the application.they did with Trevyent. If our clinical trials are not successful, or we fail to address any identified deficiencies adequately, we will not obtain required approvals to market the new product or new indication.the length of timehow long it will take, or how much it will cost, to complete necessary clinical trials or obtain regulatory approvals related toof our current or future products. The length of time we needand cost needed to complete clinical trials and obtain regulatory approvals varies by product, indication, and country.40●The COVID-19 pandemic, which has severely strained the capacity of hospitals and reduced their ability to conduct clinical trials, and caused us to suspend enrollment of most of our clinical studies;●The drug is ineffective, or physicians and/or patients believe that the drug is ineffective, or that other therapies are more effective or convenient;●We fail to reach agreement with the applicable regulatory agencies regarding the scope or design of our clinical trials;●Patients do not enroll, patients drop out, or we do not observe worsening events, at the rate we expect;●Ongoing or new clinical trials conducted by drug companies in addition to our own clinical trials reduce the availability of patients for our trials;●Our clinical trial sites, contracted clinical trial administrators or clinical studies conducted entirely by third parties do not adhere to trial protocols and required quality controls under good clinical practices (GCP) regulations and similar regulations outside the United States;●Patients experience severe side effects during treatment or die during our trials because of adverse events related to the trial drug, advanced disease, or other medical complications; and
(1) the COVID-19 pandemic, which initially caused us to suspend enrollment of most of our clinical studies, and may do so again; (2) the drug is ineffective, or physicians and/or patients believe that the drug is ineffective, or that other therapies are more effective or convenient; (3) patients do not enroll in or complete clinical trials at the rate we expect; (4) clinical trial sites or third parties do not adhere to trial protocols and required quality controls under good clinical practices (GCP) regulations and similar regulations outside the United States; (5) patients experience severe side effects during treatment or die during our trials because of adverse events; and (6) the results of clinical trials conducted in a particular country are not acceptable to regulators in other countries.●The results of our clinical trials conducted in a particular country are not acceptable to regulators in other countries.andor newly developed drugs or products, or the companies that develop and market them.MostMany of these competitors have substantially greater financial, marketing, manufacturing, sales, distribution, and technical resources, and a larger number of approved products, than we do. TheseMany of these competitors also possess greater experience in areas critical to success such as research and development, clinical trials, sales and marketing, and regulatory matters.Quarterly Report 35 therapies, and others are under development.therapies. For example, for the treatment of PAH, we compete with Adempas®, Flolan®, Ilomedin®, Letairis®, Opsumit®, Revatio®, Tracleer®, Uptravi®, Veletri®, Volibris®, Ventavis®, generic tadalafil, generic treprostinil injection, generic epoprostenol,over fifteen branded and generic sildenafil citrate. Our competitors may introduce new products that render all or some of our technologies and products obsolete or noncompetitive. For example, Liquidia is developing LIQ861, a dry powder formulation of treprostinil using a disposable inhaler, which if successful would compete directly with Tyvaso and Treprostinil Technosphere, and our other treprostinil-based products. In addition, we may not compete successfully against generic competitors.drugs. Sales of a generic version of Adcirca launched in August 2018 and have had a material adverse impact on demand forour sales of Adcirca. GenericThe availability of generic versions of Remodulin were launched in the United States in March 2019 and in certain countries in Europe beginning in 2019 and may also be launched in certain additional countries in Europe in the remainder of 2020 (or later), as described elsewhere in this Quarterly Report on Form 10-Q. These launches could materially impact our revenues. Furthermore, we have limited visibility intorevenues, and generic competition has materially impacted our Remodulin revenues outside the level of Adcirca inventory held by wholesale distributorsUnited States. Our competitors are also developing new products that may compete with ours. For example, Liquidia is developing LIQ861, which if successful would compete directly with Tyvaso and pharmacies,Tyvaso DPI, and rapid generic penetration could cause substantial amounts of Adcirca to expire unsold, causing us to incur increased liabilities for product returns. Any change in our estimated allowance for returns could result in a material impact on our revenues during the quarter in which the change is made.other treprostinil-based products.41Legislation such as the 21st Century Cures Act, which was enacted in December 2016 and designed to encourage innovation and bring pharmaceutical products to market more quickly, may enable our competitors to bring competing products to market on an expedited basis. In addition, alternative approaches to treating chronic diseases, such as gene therapy, cell therapy or transplantation technologies, may make our products obsolete or noncompetitive. Patients and doctors may discontinue use of our products if they perceive competing products as safer, more effective, less invasive, more convenient, and/or less expensive than ours. Alternatively, doctorsDoctors may reduce the prescribed doses of our products if they prescribe them in combination with competing products. In addition, many competing therapies are less invasive or more convenient than Tyvaso and Remodulin, and the use of thesesuch products often delays or prevents initiation of Tyvaso or Remodulin therapy. Any of these circumstances could negatively impact our operating results.Salestherapies.are subject todepends on the availability of coverage and adequacy of reimbursement from government agenciesthird-party payers, including governmental authorities and other third parties.private health insurers. Pharmaceutical pricing and reimbursement pressures may negatively impact our sales. the coverage by governmental payers such as Medicare and Medicaid, and private insurance companies. A significant portion of our product sales in the United States are reimbursed under the Medicare and Medicaid programs. A reduction in the availability or extent of reimbursement from domestic or foreign government health care programs could have a material adverse effect on our business and results of our operations. In the United States, the European Union, and other potentially significant markets for our products, governmentGovernment payers and/or third-party payers are increasingly attempting to limit or regulate the price of medicinal products and frequently challenge the pricing of new or expensive drugs. Financial pressures may cause United States government payers to seek cost containment more aggressively by mandating discounts or rebates on our products, limiting future price increases, capping reimbursement rates for pharmaceuticals to rates paid internationally, requiring the automatic substitution of generic products, demanding more rigorous requirements for initial coverage for new products or other similar measures. The Centers for Medicare and Medicaid Services (CMS) released an advance notice of proposed rulemaking in October 2018 that discussed the development of an international pricing index model that would cap reimbursement for many drugs paid for under the Medicare Part B program (which could apply to Remodulin and Tyvaso) to those paid in 16 other industrialized countries. CMS has not yet released its proposed rule, however, and the specifics of any such rule are unknown at this time.Consequently, it may be difficult for ourOur specialty pharmacy distributors may not be able to obtain adequate reimbursement for our products from commercial and government payers to motivate such distributorsthem to support our products. Alternatively, third-partyThird-party payers may reduce the amount of reimbursement for our products based on changes in pricing of other therapies for the same disease or the development of new payment methodologies to cover and reimburse treatment costs, such as the use of cost-effectiveness research or value-based payment contracts. In addition, third-partyThird-party payers often encourage the use of less-expensive generic alternative therapies, which has materially impacted our Adcirca revenues and which may materially impact our Remodulin revenues. If commercial and/or government payers do not cover our products or limit payment rates, patients and physicians could choose covered competing products that are covered and may have lower out-of-pocket costs. For example, Medicare Advantage Plans aremay now allowed to use step therapy for Part B drugs, which could limit patient access to our products by requiringrequires patients to try other medicines, including generic products, before using specific therapies.42Patient assistance programs for pharmaceutical products have come under increasing scrutiny by governments, legislative bodies, and enforcement agencies. These activities may result in actions that have the effect of reducing prices or demand for our products, harming our business or reputation, or subjecting us to fines or penalties.Recently, there has been enhanced scrutiny of company-sponsored patient assistance programs,therapies, including insurance premium and co-pay assistance programs and manufacturers’ donations to third-party charities that provide such assistance. The Department of Justice (DOJ) has taken enforcement action against pharmaceutical companies, including us in 2017, alleging violations of the Federal False Claims Act and other laws in connection with patient assistance programs. In December 2017, we entered into a civil Settlement Agreement with the U.S. Government to resolve the DOJ investigation related to our support of 501(c)(3) organizations that provide financial assistance to patients and paid $210.0 million, plus interest, to the U.S. Government upon settlement. We also entered into a Corporate Integrity Agreement (the CIA) with the Office of Inspector General of the Department of Health and Human Services (OIG), which requires us to maintain our corporate compliance program and to undertake a set of defined corporate integrity obligations for a period of five years from the date the agreement was signed.We may be required to incur significant future costs to comply with the CIA. If we fail to comply with applicable regulatory requirements or the CIA, we could be subject to penalties including fines, suspension of regulatory approvals that cause us to suspend production, distribution or marketing activities, product recalls, seizuresome of our products, and/or criminal prosecution. If regulatory sanctions are applied or regulatory approval is delayed or withdrawn, our operating results and the value of our company may be adversely affected. In addition, our reputation could be harmed as a result of any such regulatory restrictions or actions, and patients and physicians may avoid the use of our products even after we have resolved the issues that led to such regulatory action.In the future, if we, our vendors or donation recipients, are deemed to have failed to comply with relevant laws, regulations or government guidance in any of these areas, we could be subject to additional criminal and civil sanctions, including significant fines, civil monetary penalties and exclusion from participation in government healthcare programs, including Medicare and Medicaid, and burdensome remediation measures. Actions could also be brought against executives overseeing our business or other employees.Members of Congress have recently called upon the OIG to issue revised guidance about patient assistance programs. It is possible that these, or any other actions taken by the DOJ or other agencies as a result of this industry-wide inquiry could reduce demand for our products and/or reduce coverage of our products, including by federal health care programs such as Medicare and Medicaid and state health care programs. If any or all of these events occur, our business, prospects, and stock price could be materially and adversely affected.Additionally, payers and pharmacy benefit managers (PBMs) have developed several different mechanisms to limit the benefits of co-pay assistance for commercially insured programs through co-pay accumulator programs. Under these programs, a patient using co-pay assistance is not able to count the manufacturer’s co-payment contribution toward their annual out-of-pocket payment maximum. Therefore, patients on expensive therapies utilizing co-pay assistance to help cover the costs of their expensive medications are penalized financially for the use of these programs. Some states have passed legislation to limit the use of co-pay accumulator programs, while the Trump administration and other states have indicated that the use of these programs should be allowed to limit cost of care and encourage patients to use lower cost generics. Growing use of programs like these could affect patient access to our products and limit product utilization, which may, in turn, adversely affect our business, prospects, and stock price.Tyvaso, and finished Unituxin drug product. However, weTyvaso. We rely on a variety of third-party sole manufacturers for certain elements of our commercial and development-stage products, as detailed under the risk factor below entitled, We rely in part on third parties to perform activities that are critical to our business. Our ability to generate commercial sales or conduct clinical trials has in the past, and could in the future, suffer if our third-party suppliers and service providers fail to perform.If any of our internal or third-party manufacturing and supply arrangements are interrupted for compliance issues, issues related to the COVID-19 pandemic, or other reasons, we may not have sufficient inventory to meet future demand. In addition, any changeChanges in suppliers and/or service providers could interrupt the manufacturing of our commercial products and impede the progress of our commercial launch plans and clinical trials.4336 United Therapeutics In addition, ourPart II. Other InformationFor example, Remodulin, Tyvaso, and Unituxin are sterile solutions that must be prepared under highly-controlled environmental conditions, which are challenging to maintain on a commercial scale. In addition, Unituxin is a monoclonal antibody. As with all biologic products, monoclonal antibodies are inherently more difficult to manufacture than our treprostinil-based products and involve increased risk of viral and other contaminants. We manufacture our entire supply of Orenitram and dinutuximab, the active ingredient in Unituxin without an FDA-approved back-up manufacturing site. We built a new facility to expand our manufacturing capacity for dinutuximab, which is currently being qualified,site, and which must receive FDA approval prior to commercial use. We presently have no plansdo not plan to engage a third-party contract manufacturer to manufacture Orenitram or dinutuximab.these materials. Our long-term organ manufacturing programs will involve exceptionally complicated manufacturing processes, many of which have never been attempted on a clinical or commercial scale. It will take substantial time and resources to develop and implement such manufacturing processes, orand we may never be able to do so successfully.we face withof our manufacturing strategy include the following:●We and our third-party manufacturers are subject to the FDA’s current good manufacturing practices regulations, current good tissue practices, and similar international regulatory standards. Our ability to exercise control over regulatory compliance by our third-party manufacturers is limited;●We may experience difficulty designing and implementing processes and procedures to ensure compliance with applicable regulations as we develop manufacturing operations for new products;●Natural and man-made disasters (such as fires, contamination, power loss, hurricanes, earthquakes, flooding, terrorist attacks and acts of war), disease outbreaks, and pandemics such as COVID-19 impacting our internal and third-party manufacturing sites could cause a supply disruption — for example, Medtronic manufactures the Implantable System for Remodulin at its facilities in Puerto Rico, which is vulnerable to hurricanes and earthquakes;●Even if we and our third-party manufacturers comply with applicable drug manufacturing regulations, the sterility and quality of our products could be substandard and such products could not be sold or used or subject to recalls;●If we had to replace our own manufacturing operations or a third-party manufacturer, the FDA and its international counterparts would require new testing and compliance inspections. Furthermore, a new manufacturer would have to be familiarized with the processes necessary to manufacture and commercially validate our products, as producing our treprostinil-based and biologic products is complex;●We may be unable to contract with needed manufacturers on satisfactory terms or at all; and●The supply of materials and components necessary to manufacture and package our products may become scarce or unavailable, which could delay the manufacturing and subsequent sale of such products. Products manufactured with substituted materials or components must be approved by the FDA and applicable international regulatory agencies before they could be sold.44•Interruption of our development pipeline. Approvals of new products we are developing, potential label expansions for existing products, and the launch of newly-approved products may be delayed, which would harm our revenue growth prospects. Enrollment in most of our clinical trials has been suspended, and we may be forced to suspend enrollment in our remaining clinical trials. When we resume enrollment of new patients in our clinical trials or initiate or expand clinical trials, we may experience further delays or difficulties, including delays or difficulties with clinical site initiation and recruiting clinical site investigators and clinical site staff. In addition, we may experience increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19 or other health conditions or because of quarantines or travel limitations (whether voluntary or required). Our clinical trials, including the integrity and completeness of subject data and clinical study endpoints, may also be impacted or delayed by: (1) diversion of healthcare resources away from the conduct of clinical trials due to changes in hospital or research institution policies, governmental regulations, prioritization of hospital and other medical resources toward efforts to cope with the pandemic, or other reasons related to the pandemic; (2) interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by governments, employers, and others, or other interruption of clinical trial participant visits and study procedures; or (3) any interruption of, or delays in receiving, supplies of our investigational drug candidates or other study materials from us or our contract manufacturing organizations, due to staffing shortages, production slowdowns, or stoppages and disruptions in distribution systems. In addition, our pipeline may be delayed by interruption or delays in the operations of the FDA or other regulatory authorities, which are extremely busy responding to the COVID-19 pandemic and are working-from-home as a result of social distancing requirements. Any prolongation or de-prioritization of our clinical trials or delay in regulatory review resulting from such disruptions could materially affect the development and study of our new products and label expansions.•A decrease in revenues from our existing products.Quarterly Report COVID-19 has made it difficult or impossible for many patients to visit their physicians’ offices to determine whether our medicines may be appropriate. As a result, we have begun to see a decline in the number of new patients starting our treprostinil-based medicines, and that decline could continue or worsen as the COVID-19 pandemic continues or if the pandemic causes access to medical care to become further restricted, which could cause a negative impact on our revenues. The potential inability of patients to visit their physician’s offices or receive required diagnostic testing to ensure reimbursement for our therapies or any inability of specialty pharmacy nurses to visit patients as appropriate to provide training and assistance with the use of our therapies, may also cause existing patients to stop using our medicines or prevent new patients from starting to use our medicines. In addition, the virtual meetings by our commercial field-based teams with prescribing physicians may not be as effective as in-person meetings, which may negatively impact how often physicians prescribe our medicines. Our net revenues could also be adversely impacted by the negative effects the COVID-19 pandemic has had on the global economy, which could result in (1) an increased number of patients utilizing our patient access programs to receive free drug due to loss of employer-based health insurance, or other factors impacting their ability to afford our medicines; and (2) patients increasingly seeking Medicaid coverage for our products, which would lead to higher gross-to-net revenue reductions compared to commercial insurance providers.37 45Unituxin is administereddue to “shelter-in-place” orders and other public health guidance measures, we have implemented a work-from-home policy for all personnel excluding those necessary to maintain minimum basic operations. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business. The increase in working remotely could increase our cybersecurity risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations or delay necessary interactions with local and federal regulators, manufacturing sites, clinical trial sites, and other third parties. In addition, as a combination treatment alongresult of shelter-in-place orders or other mandated travel restrictions, our on-site staff conducting research and development and manufacturing activities may not be able to access our laboratories or manufacturing space, and these core activities may be significantly limited or curtailed, possibly for an extended period of time. Further, we, and third parties with three other drugs thatwhich we engage to conduct distribution, production, and research and development activities, may experience limitations on the ability to recruit and hire key personnel due to the inability to meet with candidates because of travel restrictions and “shelter-in-place” orders. We and third parties with which we engage also may experience operational challenges caused by sickness of our employees or their families, the desire of employees to avoid contact with large groups of people, and an increased reliance on working from home or mass transit disruptions. Efforts to accelerate vaccine production and distribution (such as Operation Warp Speed) have impacted availability and lead times for certain materials used in the manufacture of our products. If we, or our third-party suppliers, and contract manufacturers are manufacturedunable to source materials, it may prevent us from manufacturing our products for an indefinite period until such materials become available.sold by third parties: granulocyte-macrophage colony-stimulating factor (GM-CSF), interleukin-2 (IL-2),the resulting economic impact has had a significant impact on many companies, and 13-cis-retinoic acid (RA). At least onecaused significant disruption and volatility in the financial markets. Our balance sheet includes a significant amount of publicly-traded corporate debt and equity securities and investments in privately-held companies. We may be required to recognize impairments in the value of these drugs, GM-CSF, is currently being evaluatedinvestments if the relevant companies are materially adversely effected as a result of the negative effects arising from the COVID-19 pandemic or for treatment of COVID-19 patients. Should anyother reasons, become unable to repay debt securities when due, or experience credit rating downgrades, or if the public trading price of these three drugs become unavailable for use by high-risk neuroblastoma patients due to COVID-19 related supply failures or significant utilization to treat COVID-19, we could see a decrease in Unituxin utilization and a resulting negative impact on our sales.securities decreases.•38 Disruption of our operations.United Therapeutics COVID-19 could disrupt many aspects of our operations, which could harm our business and prospects. For example, due to “shelter in place” orders and other public health guidance measures, we have implemented a work-from-home policy for all personnel excluding those necessary to maintain minimum basic operations. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business. The increase in working remotely could increase our cybersecurity risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations or delay necessary interactions with local and federal regulators, manufacturing sites, clinical trial sites, and other third parties. In addition, as a result of shelter-in-place orders or other mandated travel restrictions, our on-site staff conducting research and development and manufacturing activities may not be able to access our laboratories or manufacturing space, and these core activities may be significantly limited or curtailed, possibly for an extended period of time. Further, we, and third parties with which we engage to conduct distribution, production, and research and development activities, may experience limitations on the ability to recruit and hire key personnel due to the inability to meet with candidates because of travel restrictions and “shelter in place” orders. We and third parties with which we engage also may experience operational challenges caused by sickness of our employees or their families, the desire of employees to avoid contact with large groups of people, and an increased reliance on working from home or mass transit disruptions.•Impact on our investments. COVID-19 and the resulting economic downturn has had a significant impact on many companies, and caused significant disruption and volatility in the financial markets. Our balance sheet includes a significant amount of publicly-traded corporate debt and equity securities and investments in privately-held companies. We may be required to recognize impairments in the value of these investments if the relevant companies are materially adversely effected as a result of the negative effects arising from the COVID-19 pandemic or for other reasons, become unable to repay debt securities when due, or experience credit rating downgrades, or if the public trading price of these securities decreases.downturn. For additional discussion of the impacts of COVID-19, which could be materially adverse to our operations and financial results, please see Management’s Discussion and Analysis—Impact of COVID-19 on our Business. Our ability to generate commercial sales or conduct clinical trials has in the past, and could in the future, suffer if our third-party suppliers and service providers fail to perform.(5)approvals for the devices used to deliver our drugs; and (6) marketing and distributing our products. Any disruption in the ability of third parties to continue to perform these critical activities, including as a result of the COVID-19 pandemic, could cause a material adversematerially adversely impact on our business and results of operations. Any change in service providers could interrupt the manufacture and distribution of our products and services, and impede the progress of our clinical trials, commercial launch plans, and related revenues.46From time-to-time, we increase the price of products sold to our U.S.-based and international distributors. Our price increases may not be fully reimbursed by third-party payers. If our distributors do not achieve acceptable profit margins on our products, they mayare unsuccessful in, or reduce or discontinue, the sale of our products. Furthermore, if our distributors devote fewer resources to sell our products or are unsuccessful in their sales efforts, our revenues may decline materially. Outside the United States, we rely substantially on our international distributors to obtain and maintain regulatory approvals for our products and to market and sell our products in compliance with applicable laws and regulations. In the United States, we derive all of our treprostinil revenues from sales to two distributors, Accredo and CVS Specialty. Because we only sellIf either of these products to two distributors in the United States, if either distributor places significantly larger or smaller orders in a given time period, our revenues can be materially impacted in a way that does not reflect patient demand.We rely on to manufacturemanufactures and supplysupplies Adcirca for us, and weus. We use Lilly’s pharmaceutical wholesaler network to distribute Adcirca. If Lilly is unable to manufacture or supply Adcirca or its distribution network is disrupted, it could delay, disrupt, or prevent us from selling Adcirca. In addition, Lilly has the right to determine the price of Adcirca. Changes in the price of Adcirca set by Lilly could adversely impact demand or reimbursement for Adcirca.Any change in service providers could interrupt the distribution of our commercial products and our other products and services, and impede the progress of our clinical trials, commercial launch plans and related revenues.We rely heavily on third-party contract research organizations, contract laboratories, clinical investigative sites, and other third-parties to conduct our clinical trials, preclinical studies and other research and development activities. In addition, the success of certain products we are developing will depend on clinical trials sponsored by third parties. Failure by any third party to conduct or assist us in conducting clinical trials in accordance with study protocols, quality controls, GCP, or other applicable U.S. or international requirements or to submit associated regulatory filings, could limit or prevent our ability to rely on results of those trials in seeking regulatory approvals.In particular, Medtronic is entirely responsible for regulatory approvals and all manufacturing and quality systems related to its infusion pump and related components. This includes satisfying FDA-imposed PMA conditions prior to launching the Implantable System for Remodulin, which Medtronic has not been able to dosatisfy FDA-imposed PMA conditions necessary to launch the Implantable System for Remodulin as quickly as we expected. Medtronic entered into a consent decree related to the SynchroMed II implantable infusion pump systems. Medtronic’s failure to comply with the ongoing obligations under the consent decree related to the SynchroMed II implantable infusion pump systems could adversely impact Medtronic’sits ability to manufacture and supply the Implantable System for Remodulin. In the eventIf Medtronic is unwilling or unable tocannot supply the system, for any reason, including further delays in satisfying outstanding FDA-imposed conditions, our ability to meet patient demand and generate additional revenues will be materially adversely impacted.Treprostinil Technosphere.Tyvaso DPI. MannKind announced that its currently available cash and financing sources are not sufficient to continue to meet its current and anticipated cash requirements, raising substantial doubt about its ability to continue as a going concern. If MannKind is unable to supply us with devices and other components necessary to develop and manufacture Treprostinil Technosphere,Tyvaso DPI, the timing and success of this program could be materially adversely impacted.our pre-filled, semi-disposable systemPump for subcutaneous treprostinil.LNG01 (formerly SM04646),RemoPro, OreniPro, and Trevyent.47Quarterly Report 39 operationsearly-stage research and development involves animal testing required by regulatory authorities, which we conduct both directly and through contracts with third parties. Our xenotransplantation and regenerative medicine programs rely heavily on the use of animals to manufacture and test our products. Certain special interest groups categorically object to the use of animals for research purposes. Any negative attention, threats or acts of vandalism directed against our animal research activities could impede the operation of our business.countries, including FDA regulations.countries. Failure to obtain approvals on a timely basis or to achieve continued compliancecomply with these requirements could delay, disrupt, or prevent the commercialization of our products.approval on a timely basis, or at all.approval. If granted, product approvals can be conditioned on the completion of post-marketing clinical studies, accompanied by significant restrictions on the use or marketing of a given product and withdrawn for failure to comply with regulatory requirements, such as post-marketing requirements and post-marketing commitments, or upon the occurrence of adverse events subsequent to commercial introduction. If data from post-marketing studies suggest that an approved product presents an unacceptable safety risk, regulatory authorities could withdraw the product’s approval, suspend production, or place other marketing restrictions on that product.40 United Therapeutics If we are not able to obtain FDA approval for any desired future indications for our products, our ability to effectively market and sell our products may be reduced. choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those approved by regulatory authorities (called “off-label” uses), our ability to promote our products is limited to those indications that are specifically approved by the FDA. If our promotional activities fail to comply with regulations or guidelines related to off-label promotion, we may be subject to warnings from, or enforcement action by, these authorities. In addition, failureFailure to follow FDA rules and guidelines related to promotion and advertising can result in the FDA’s refusal to approve a product, suspension or withdrawal of an approved product from the market, product recalls, fines, disgorgement of money, operating restrictions,enforcement action, civil lawsuits, injunctions or criminal prosecution.practices in the pharmaceutical and medical device industries. Failure to comply with such laws could result in penalties and have a material adverse effect on our business, financial condition, and results of operations.as anti-kickbackas:Any penalties imposed upon us for failure to comply could have a material adverse effect on our business and financial condition.compensationremuneration (i.e., anything of value) to induce, or in return for, the purchase, lease, order or arranging the purchase, lease or order of any health care product or service reimbursable under any federally financed health-care program.healthcare program like Medicare or Medicaid. This statute has beenis interpreted broadly to apply to arrangements between pharmaceutical manufacturers and prescribers, purchasers, formulary managers, patients, and others. The exemptions and safe harbors under this statute may be narrow, and practices that involve compensation may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices domay not always qualify for safe harbor protection.48as amended by the Patient Protection and Affordable Care Act of 2010 (PPACA), prohibits any person from knowingly presenting or causing to be presented a false or fraudulent claim for payment of government funds, or making or causing a false statement material to a false or fraudulent claim. For example, several pharmaceuticalPharmaceutical and health care companies have been investigatedfaced liability under this law for allegedly providing free product to customers with the expectation that the customers would bill federal health care programs for the free product. Other companies have been prosecuted for causing false claims to be submitted because of these companies’ marketing ofthey marketed a product for unapproved and non-reimbursable uses. Potential liabilityFederal False Claims Act includes mandatory treble damagespayer, including private payers.significant per-claim penalties. The majority of states alsosimilar laws on a state-by-state basis is difficult, time consuming, and requires substantial resources. Any investigation, inquiry, or other legal proceeding under these laws related to our operations, even if we successfully defend against it, or any penalties imposed upon us for failure to comply, could have statutes similar to the Federal Anti-Kickback Statutea material adverse effect on our business and the Federal False Claims Act.financial condition or reputation. Sanctions under these federal and state laws may include treble civil monetary penalties, payment of damages, fines, exclusion of a manufacturer’s productour products from reimbursement under state governmentfederal health care programs, debarment, criminal fines,imprisonment, and imprisonment.Any investigation, inquirythe curtailment or other legal proceeding under these laws and related torestructuring of our operations may adversely affect our business, results of operations or reputation.The PPACA also imposed reporting requirements for pharmaceutical, biologic, and device manufacturers regarding payments or other transfers of value made to physicians and teaching hospitals, including investment interests in such manufacturers held by physicians and their immediate family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties, which may increase significantly for “knowing failures.” Compliance with these and similar laws on a state-by-state basis is difficult and time consuming.The PPACA is a broad measure intended to expand health care coverage within the United States, primarily through the imposition of health insurance mandates on employers and individuals and expansion of the Medicaid program. The Cures Act, meanwhile, contains a wide range of provisions designed to promote clinical research and streamline and expedite the FDA review and approval process. The reforms imposed by these laws will significantly impact the pharmaceutical industry; however, the full effects of the PPACA and the Cures Act will be unknown until all of these provisions are implemented and CMS, the FDA, and other federal and state agencies issue applicable regulations or guidance. Moreover, in the coming years, additional changes could be made to governmental health care programs or FDA regulations that could significantly impact the success of our products or product candidates. We may also face uncertainties as a result of federal and administrative efforts to repeal, substantially modify or invalidate some or all of the provisions of the PPACA. There is no assurance that the PPACA, as currently enacted or as amended in the future, will not adversely affect our business and financial results, and we cannot predict how future federal or state legislative or administrative changes related to healthcare reform will affect our business.future stabilityPPACA is a broad measure intended to expand healthcare coverage within the United States, primarily through the imposition of health coverage-related mandates on employers and individuals and expansion of the Medicaid program. The PPACA and certain of its provisions have been subject to judicial challenges as well as efforts to repeal or replace them or to alter their interpretation or implementation. It is unclear how the PPACA and its implementation, as well as efforts to repeal, replace, or otherwise modify, or invalidate, the resulting impactPPACA, or portions thereof, will affect our business.Quarterly Report 41 our businessNovember 20, 2020, CMS issued the Most Favored Nation demonstration project discussed above, and there is thus uncertainalso proposed legislation pending that would establish an international reference price-based Medicare Part B drug and could be material.many states have proposed legislation that seeksregional healthcare authorities and individual hospitals are increasingly using bidding procedures to indirectly or directly regulate pharmaceutical drug pricing by requiring biopharmaceutical manufacturers to publicly report proprietary pricing information or to place a maximum price ceiling ondetermine what pharmaceutical products purchased byand which suppliers will be included in their prescription drug and other healthcare programs.agencies. As additional legislation is passed, we may experienceand federal healthcare reform measures adopted in the future could limit the amounts that state and federal governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing and reporting pressures on our products. For example, inpressure. In October 2017, California’s governor signed a prescription drug price transparency state bill into law, requiring prescription drug manufacturers to provide advance notice and explanation for price increases2020, the U.S. Department of certain drugs that exceed a specified threshold. Since then, similar legislation has also been passed in other states. Similar bills have been previously introduced at the federal level, and the Trump administration has focused attention on proposed efforts to curb prescription drug prices. In May 2018, President Trump and the Health and Human Services (HHS) Secretary released the “American Patients First” blueprint, which included measures to increase generic drug(HHS) and biosimilar competition, the ability of the Medicare program to negotiate drug prices, public transparency regarding drug prices and information available to beneficiaries regarding ways to lower out-of-pocket costs. The Trump administration has begun implementing many of these measures.49The potential effect of health insurance market destabilization during ongoing repeal and replace discussions, as well as the impact of potential changes to the way costs of drugs are reimbursed and how the Medicaid program is financed through executive orders, legislation, and/or regulation, will likely affect patients’ sources of insurance, PBMs, specialty pharmacy providers, and resultant drug coverage. In addition to the Trump administration’s proposals, discussions continue at the federal level regarding policies that would require manufacturers to pay higher rebates in Medicare Part D, give states more flexibility on drugs that are covered under the Medicaid program, permit the re-importation of prescription medications from Canada or other countries and other policy proposals that could impact reimbursement for our products. In December 2019, the FDA issued a notice of proposed rulemaking that, if finalized, would allowfinal rule and guidance concerning two new pathways for importing lower-cost drugs into the importation ofUnited States. The final rule allows certain prescription drugs to be imported from Canada, and the FDA published draft guidance that describes howprocedures for drug manufacturers can import prescription products that wereto facilitate the importation of FDA-approved drugs and biologics manufactured abroad and originally intended for sale in a foreign country.country into the United States. Additionally, in November 2020, the HHS adopted a rule that will eliminate the safe harbor shielding Medicare Part D rebates to pharmacy benefit managers from the Anti-Kickback Statute. In response to a legal challenge brought by a trade association representing PBMs, the Biden Administration agreed to delay the effective date of the rule until January 1, 2023. It is difficult to predict the impact, if any, of any such legislation or executive actions or Medicaid flexibility on the use of and reimbursement offor our products in the United States, including the potential for the importation of generic versions of our products.policies could allow stateagreement, pursuant to which we participate in the Medicaid programsDrug Rebate program. In the event that CMS terminates our rebate agreement, no federal payments would be available under Medicaid or Medicare Part B for our covered outpatient drugs.42 United Therapeutics request additional supplemental rebateshave failed to report data to the government in a timely manner. Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. We cannot guarantee that our submissions will not be found by CMS, the VA, or other governmental agencies to be incomplete or incorrect.increase inbenefits of co-pay assistance for commercially insured programs through co-pay accumulator programs. These programs do not allow a patient using co-pay assistance to count the federal base Medicaid rebate. Private insurersmanufacturer’s co-payment contribution toward their annual out-of-pocket payment maximum. Therefore, patients using co-pay assistance are penalized financially for using these programs. Some states have passed legislation to limit the use of co-pay accumulator programs, while some other states have indicated that these programs should be allowed to limit cost of care and encourage patients to use lower cost generics. In addition, some states have imposed restrictions on manufacturer co-pay programs when therapeutic equivalents are available. Growing use of such programs, or new laws limiting manufacturer ability to provide co-pay assistance, could also use the enactment of any federal policiesaffect patient access to exert pricing pressure on our products and limit product utilization, which may, in turn, adversely affect our business, prospects, and stock price.Quarterly Report 43 extent that private insurers or managed care programs follow Medicaid coveragecontrolled use of chemicals and payment developments, the adverse effectshazardous substances. We are expanding these activities in both scale and location. Patients may be magnified by private insurers adopting lower payment schedules.Reports of actual or perceived side effects and adverse events associated with our products, such as sepsis, could cause physicians and patients to avoid or discontinue usedispose of our products using means we do not control. Such activities subject us to numerous federal, state, and local environmental and safety laws and regulations that govern the management, storage, and disposal of hazardous materials. Compliance with current and future environmental laws and regulations can require significant costs. The risk of accidental contamination or injury from these materials cannot be completely eliminated. Once chemical and hazardous materials leave our facilities, we cannot control the manner in favorwhich such hazardous waste is disposed of alternative treatments.Reports of side effects and adverse eventsby our contractors. We could be liable for substantial civil damages or costs associated with our productsthe cleanup of the release of hazardous materials and such liability could have a significantmaterial adverse impacteffect on our business.saleeffectiveness of a product or to report an alleged adverse event. When such disclosures occur, we may fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend against political and market pressures generated by social media due to restrictions on what we may say about our products. An exampleThere is also a risk of a known risk associatedinappropriate disclosure of sensitive information or negative or inaccurate comments about us on any social networking website. If any of these events occur or we otherwise fail to comply with intravenous Remodulin is sepsis, which is a seriousapplicable regulations, we could incur liability, face overly restrictive regulatory actions, or incur other harm to our business.potentially life-threatening infection of the bloodstream caused by a wide variety of bacteria. Intravenous Remodulin is infused continuously through a catheter placed in a large vein in the patient’s chest, and sepsis is a known risk associated with this type of delivery. In addition, Unituxin is associated with severe side effects, and its label contains a boxed warning related to potential infusion reactions and neurotoxicity. We are required to report certain adverse events to the FDA. Development of new products, and new formulations and indications for existing products, could result in new side effects and adverse events which may be serious in nature. Concerns about side effects may affect a physician’s decision to prescribe or a patient’s willingness to use our products.Negative attention from special interest groups may impair our business.As is common with pharmaceutical and biotechnology companies, our early-stage research and development involves animal testing required by regulatory authorities, which we conduct both directly and through contracts with third parties. Our xenotransplantation and regenerative medicine programs rely heavily on the use of animals to manufacture and test our products. Certain special interest groups categorically object to the use of animals for research purposes. Any negative attention, threats or acts of vandalism directed against our animal research activities in the future could impede the operation of our business.license or other agreements under which we license or acquired intellectual property rights are licensed to, or were acquired by us, are breached or terminated, we could lose our rightrights to continue to develop, manufacture, and sell the products covered by such agreements could be impaired or lost.agreements. Under each of our purchase agreements we have rights to certain intellectual property covering a drugdrugs or other productproducts or technology. We may be required to license additional intellectual property owned by third parties to continue to develop and commercialize our products.●We may be unable to obtain rights to intellectual property that we determine we need for our business at a reasonable cost or at all;●If any of our product licenses or purchase agreements are terminated, we may lose our rights to develop, make, and sell the products to which such licenses or agreements relate;50●Our rights to develop and market products to which the intellectual property relates are frequently limited to specific territories and fields of use (such as treatment of particular diseases); and
•If a licensor of intellectual property fails to maintain the intellectual property licensed, we may lose any ability to prevent others from developing or marketing similar products covered by such intellectual property. In addition, we may be forced to incur substantial costs to maintain the intellectual property ourselves or take legal action seeking to force the licensor to do so.●If a licensor of intellectual property fails to maintain the intellectual property licensed, we may lose any ability to prevent others from developing or marketing similar products covered by such intellectual property. In addition, we may be forced to incur substantial costs to maintain the intellectual property ourselves or take legal action seeking to force the licensor to do so.20182024 and 2031. We have entered into settlement agreements with Sandoz and four othera number of generic drug companies permitting themcertain companies to launch generic versions of Remodulin in the United States. Sandoz commenced marketing of its generic product in the United States in March 2019. Teva and Par received FDA approval for their ANDAs and announced plans to launch during the third quarter of 2019, and to our knowledge, the remaining twoother companies have not yet received FDA approval for their ANDAs. We also settled patent litigation with Actavis and Watson, and entered into settlement agreements permitting them to launch generic versions of Orenitram and Tyvaso in the United States in June 2027 and January 2026, respectively, although each may be permitted to enter the market earlier under certain circumstances. continue to conduct research into new methods to synthesize treprostinil and have pending U.S. and international patent applications and patents related to such methods. We also have additional issued and pending patents covering the use of our existing commercial products in new indications and with new devices. However, we cannot be sure that our existing or any new patents will effectively deter or delay competitors’ efforts to bring new products to market, or that additional patent applications will result in new patents. Upon the expiration of any ofWhen our patents expire, competitors may develop generic versions of our products and may market those generic versionsthem at a lower price to compete with our products. Competitors may also seek to design around our patents or exclude patented methods of treatment, such as patent-protected indications, from the label for generic versions of our products in an effort to develop competing products that do not infringe our patents. In addition, patent laws of foreign jurisdictions may not protect our patent rights to the same extent as the patent laws of the United States.44 United Therapeutics recently filed IPR petitions forinter partes review of two of our treprostinil-related patents, which we may not be successfuland in defending.October 2020 the PTAB instituted IPR proceedings with respect to one of these patents and declined to institute proceedings with respect to the other patent. In April 2020, we received a Paragraph IV notification letter from Liquidia indicating that Liquidia’s NDA contains a certification alleging that LIQ861 will not infringe any of the patents currently listed in the Orange Book for Tyvaso because those patents are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of LIQ861.to our operations, and costly, and may conclude unfavorably for us. In addition, the outcome of patent infringement litigation often ismay be difficult to predict.predict and unfavorable to us. If we are unsuccessful with respect to any future legal action in the defense of our patents, and our patents are invalidated or determined to be unenforceable, our business could be negatively impacted. Even if our patents are determined to be valid or enforceable, it is possible that a competitor could circumvent our patents by effectively designing around the claims of our patents. Accordingly, our patents may not provide us with any competitive advantage.51In addition to patent protection, weWe also rely on trade secrets to protect our proprietary know-how and other technological advances that we do not disclose to the public. We enter intopublicly disclose. Our confidentiality agreements with our employees and others to whom we disclose trade secrets and other confidential information. These agreementsinformation may not necessarily prevent our trade secrets from being used or disclosed without our authorization and confidentialityauthorization. These agreements may be difficult, time-consuming, and expensive to enforce or may not provide an adequate remedy in the event of unauthorized disclosure. In addition, if any ofIf our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor,us, and our business and competitive position could be harmed.royalties. Payment of royalties wouldthat negatively affect our profits; furthermore, if we chose to contest these allegations, we could beprofits, subject us to costly and time-consuming litigation or couldcause us to lose the ability to continue to sell the related products.In the case ofFor products or services that utilize intellectual property of strategic collaborators or other suppliers, such suppliers may have an obligation to secure the needed license to these patents at their cost. Otherwise,cost; if not, we would be responsible for the cost of these licenses. Royalty payments and other fees under these licenses would erode our profits from the sale of related products and services. Moreover, we may be unable to obtain these licenses on acceptable terms or at all. If we fail to obtain a required license or are unable to alter the design of the product to avoid infringing a third-party patent, we would be unable to continue to manufacture or sell related products.could be compelled tomay incur significant costs to defend the action and our management’s attention could be diverted from our day-to-day business operations, whether or not the action were to have anyhas merit. We cannot be certain that we could prevail in the action, and anAn adverse judgment or settlement resulting from the action could require us to pay substantial amounts in damages for infringement or substantial amounts to obtain a license to continue to use the intellectual property that is the subject of the infringement claim.We may not maintain adequate insurance coverageclaim, or could result in injunctive relief limiting our ability to protect us against significant product liability claims.The testing, manufacturing, marketing,develop, manufacture, or sell our products.sale of drugsother disruptions could compromise our information and diagnostics involve product liability risks. We may not be able to maintain our current product liability insurance at an acceptable cost, if at all. In addition, our insurance coverage may not be adequate for all potential claims. If claims or losses significantly exceed our liability insurance coverage, we may experience financial hardship or potentially be forced out of business. While we historically have had a limited number of product liability claims, the clinical testing and eventual marketing and sale of new products, reformulated versions of existing products, or existing products in new indications, could expose us to new product liability risks.legal responsibility which would cause our business and reputation to suffer.launchsecure maintenance of new products will raise new product liability risks,this information is critical to our operations and business strategy. We are subject to laws and regulations in many cases the qualityUnited States and abroad, such as the Health Insurance Portability and Accountability Act of 1996 and European Union regulations related to data privacy, which require us to protect the privacy and security of certain types of information. Our information technology and infrastructure may be vulnerable to attacks by hackers, breached due to employee error, malfeasance, or other disruptions, or subject to system failures. Because the techniques used to obtain unauthorized access, disable, or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these products will dependtechniques or implement adequate preventive measures. Any breaches or failures could compromise sensitive and confidential information stored on the performanceour networks or those of third parties and expose such information to public disclosure, loss, or theft. Any actual or alleged unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disruption of our operations, and damage to our reputation, any of which could adversely affect our business, financial condition, or results of operations. Costs we do not control (suchmay incur as Medtronic, in the casea result of any of the Implantable System for Remodulin).If we fail to attract and retain key management and qualified scientific and technical personnel, we may not be able to achieveforegoing, could adversely affect our business, objectives.Membersfinancial condition, or results of our management team, including our founder, Chairman and Chief Executive Officer, Dr. Martine Rothblatt, play a critical roleoperations. Given the increasing use of conferencing technologies to conduct business virtually in defining our business strategy and maintaining our corporate culture. The losslight of the services and leadership of Dr. Rothblatt or any other members of our senior management team could have an adverse effect on our business. We do not maintain key person life insurance on our senior management team members. In addition, effective succession planning is important to our long-term success. Failure to identify, hire, and retain suitable successors for members of our senior management team and to transfer knowledge effectively could impede the achievement of our business objectives. Our future success also depends on our ability to attract and retain qualified scientific and technical personnel. Competition for skilled scientific and technical personnel in the biotechnology and pharmaceutical industries is intense. Furthermore, our compensation arrangements may not be sufficient to attract new qualified scientific and technical employees or retain such core employees. If we fail to attract and retain such employees, we may not be successful in developing and commercializing new therapies for PAH and other diseases.52Quarterly Report 45 Improper handling of hazardous materials used in our activities could expose usPart II. Other Informationsignificant remediation liabilities.researchFinancing Capacity, Indebtedness, and development and manufacturing activities involve the controlled use of chemicals and hazardous substances and we are expanding these activities in both scale and location. In addition, patients may dispose of our products using means we do not control. Such activities subject us to numerous federal, state, and local environmental and safety laws and regulations that govern the management, storage, and disposal of hazardous materials. Compliance with current and future environmental laws and regulations can require significant costs; furthermore, we can be subject to substantial fines and penalties in the event of noncompliance. The risk of accidental contamination or injury from these materials cannot be completely eliminated. Furthermore, once chemical and hazardous materials leave our facilities, we cannot control the manner in which such hazardous waste is disposed of by our contractors. In the event of an accident, we could be liable for substantial civil damages or costs associated with the cleanup of the release of hazardous materials. Any related liability could have a material adverse effect on our business.In addition, ourOur Credit Agreement contains affirmative and negative covenants that, among other things, limit our ability to incur additional indebtedness. If we are unable to obtain additional funding on commercially reasonable terms or at all, we may be compelled to delay clinical studies, curtail operations, or obtain funds through collaborative arrangements that may require us to relinquish rights to certain products or potential markets. In addition, we may be forced to take other actions to satisfy our obligations in connection with our indebtedness, which actions may not be successful.June 2024.December 2025. Currently, our outstanding principal balance is $800.0 million. Our ability to make payments onrepay or refinance our debt obligations including any outstanding balance under our Credit Agreement and any future debt that we may incur will depend on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory, and othera number of factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal premium, if any, and interest on our indebtedness. Our inability to generate sufficient cash flows to satisfy our debt obligations would materially and adversely affect our financial position and results of operations.couldmay be forced to take disadvantageous actions, including reducing or delaying investments and capital expenditures, disposing of material assets or operations, seeking additional debt or equity capital, or restructuring or refinancing our indebtedness. We may not be able to effect any such alternative measures if necessary, on commercially reasonable terms or at all and, even if successful, such actions may not be sufficient forenable us to meet any such debt service obligations. In addition, our ability to withstand competitive pressures and to react to changes in our industry could be impaired.53value. Privately-held companies are not subject to the same disclosure regulations as U.S. publicly traded companies, and the evaluation of investments in privately-held companies is based on information that we receive from these companies. As such, the basis for these evaluations is subject to the timing and accuracy of the data received from these companies.Information technology security breaches and other disruptions could compromise our information and expose us to legal responsibility which would cause our business and reputation to suffer.We are increasingly dependent on information technology systems and infrastructure, much of which is outsourced to third parties including in “cloud” based platforms. In the ordinary course of our business, we collect, store, and use sensitive or confidential data, including intellectual property, our proprietary business information and that of our suppliers, customers, and business partners, and personally identifiable information. The secure maintenance of this information is critical to our operations and business strategy. We are subject to laws and regulations in the United States and abroad, such as the Health Insurance Portability and Accountability Act of 1996 and European Union regulations related to data privacy, which require us to protect the privacy and security of certain types of information. Our information technology and infrastructure may be vulnerable to attacks by hackers, breached due to employee error, malfeasance, or other disruptions, or subject to system failures. We must continuously monitor and enhance our information security controls to prevent, detect, and/or contain unauthorized activity and malicious software. Because the techniques used to obtain unauthorized access, disable, or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. Any breaches or failures could compromise sensitive and confidential information stored on our networks or those of third parties and expose such information to public disclosure, loss, or theft. Any actual or alleged unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disruption of our operations, and damage to our reputation which could adversely affect our business, financial condition, or results of operations. In addition, remediation, repair and other costs we may incur as a result of any of the foregoing, including increased costs to protect our information technology systems and infrastructure, and increased insurance premiums, could adversely affect our business, financial condition, or results of operations. Given the increasing use of conferencing technologies to conduct business virtually in light of the COVID-19 pandemic, these cybersecurity risks are becoming more prevalent.The increasing use of social media platforms presents new risks and challenges.Social media is increasingly being used to communicate information about our products and the diseases that our therapies are designed to treat. Social media practices in our industry continue to evolve and regulations related to such use are not always clear. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business. For example, patients and others may use social media channels to comment on the effectiveness of a product or to report an alleged adverse event. When such disclosures occur, we may fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend against political and market pressures generated by social media due to restrictions on what we may say about our products. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate comments about us on any social networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face overly restrictive regulatory actions, or incur other harm to our business.5446 United Therapeutics Tax legislation may materially adversely affect us.Tax laws are dynamic and continually changing as new laws are passed and new interpretations of existing laws are issued or applied. Governmental tax authorities are increasingly scrutinizing the tax positions of companies. If federal, state, or foreign tax authorities change applicable tax laws or issue new guidance, our overall taxes could increase, and our business, financial condition, or results of operations may be adversely impacted.If we are not able to successfully identify, finance, consummate, and/or integrate acquisitions, our business operations and financial position could be adversely affected.In August 2018 we acquired SteadyMed. We also entered into several in-licenses related to ongoing development programs in 2018, including our license with Arena related to ralinepag and our license with MannKind related to Treprostinil Technosphere. We may continue to seek to expand in part through acquisitions of complementary businesses, products, and technologies, through business combinations or in-licenses. The success of this strategy will depend on our ability to identify, and the availability of, suitable acquisition candidates. We may incur costs in the preliminary stages of an acquisition, but may ultimately be unable or unwilling to consummate the proposed transaction for various reasons. In addition, acquisitions involve numerous risks, including the ability to realize or capitalize on anticipated synergies; managing the integration of personnel, products, and acquired infrastructure and controls; potential increases in operating costs; managing geographically remote operations; the diversion of management’s attention from other business concerns and potential disruptions in ongoing operations during integration; the inherent risks in entering markets and sectors in which we have either limited or no direct experience; and the potential loss of key employees, clients or vendors and other business partners of the acquired companies. External factors, such as compliance with laws and regulations, may also impact the successful integration of an acquired business. Acquisitions could result in dilutive issuances of equity securities, the incurrence of debt, one-time write-offs of goodwill and substantial amortization expenses of other intangible assets. We may be unable to obtain financing on favorable terms, or at all, if necessary to finance future acquisitions, which may make acquisitions impossible or more costly. If we are able to obtain financing, the terms may be onerous and restrict our operations. Further, certain acquisitions may be subject to regulatory approval, which can be time consuming and costly to obtain or may be denied, and if obtained, the terms of such regulatory approvals may impose limitations on our ongoing operations or require us to divest assets.there can be significant price and volume fluctuations in the market that may not relate to operating performance. The following table sets forth the high and low closing prices of our common stock for the periods indicated:●Developments relating to the COVID-19 pandemic and the associated economic downturn, and their impacts on our business, financial condition, or results of operations;●Failure to meet our estimates or expectations, or those of securities analysts;●Quarterly and annual financial results;●Timing of enrollment and results of our clinical trials;●Announcements regarding generic or other challenges to the intellectual property relating to our products, the launch of generic versions of our products or other competitive products, and the impact of competition from generic and other products on our revenues;55●Announcements regarding litigation matters, including the lawsuit filed against us by Sandoz and RareGen, LLC, the petitions for inter partes review filed by Liquidia, and any further litigation that may ensue as a result of Liquidia’s NDA for LIQ861;●Announcements regarding our efforts to obtain FDA approval of, and to launch, new products, such as Remunity, Trevyent, and the Implantable System for Remodulin;●Physician, patient, investor, or public concerns regarding the efficacy and/or safety of products marketed or being developed by us or by others;●Changes in, or new legislation and regulations affecting reimbursement of, our therapeutic products by Medicare, Medicaid or other government payers, and changes in reimbursement policies of private health insurance companies, and negative publicity surrounding the cost of high-priced therapies;●Announcements of technological innovations or new products or announcements regarding our existing products, including in particular the development of new, competing PAH therapies;●Substantial sales of our common stock by us or our existing shareholders, or concerns that such sales may occur;●Future issuances of common stock by us or any other activity which could be viewed as being dilutive to our shareholders;●Rumors among, or incorrect statements by, investors and/or analysts concerning our company, our products, or our operations;●Failures or delays in our efforts to obtain or maintain regulatory approvals from the FDA or international regulatory agencies;●Discovery of previously unknown problems with our marketed products, or problems with our manufacturing, regulatory, compliance, promotional, marketing or sales activities that result in regulatory penalties or restrictions on our products, up to the withdrawal of our products from the market;●Accumulation of significant short positions in our common stock by hedge funds or other investors or the significant accumulation of our common stock by hedge funds or other institutional investors with investment strategies that may lead to short-term holdings; and
•Announcements regarding generic or other challenges to the intellectual property related to our products, the launch of generic versions of our products or other competitive products, and the impact of competition from generic and other products on our revenues;●General market conditions.and our amended and restated certificate of incorporation, seventh amended and restated By-lawscharter, bylaws and employment and license agreements, among other things, could prevent or delay a change of control or change in management that may be beneficial to our public shareholders.and our amended and restated certificate of incorporation, and seventhour ninth amended and restated By-lawsbylaws may prevent, delay, or discourage:●A merger, tender offer, or proxy contest;●The assumption of control by a holder of a large block of our securities; and/or●The replacement or removal of current management by our shareholders. amended and restated certificate of incorporation dividesdivided our Board of Directors into three classes. MembersThe recent declassification of each class areour Board will be phased in and all directors will not be elected for staggered three-year terms.annually until our 2023 annual meeting of shareholders. This provision may make it more difficult for shareholders to replace the majority of directors.directors until such time. It may also deter the accumulation of large blocks of our common stock by limiting the voting power of such blocks.56also result in an acceleration ofaccelerate the vesting of outstanding awards under our Share Tracking Awards Plans, stock options, and restricted stock units. This, together with anyAny increase in our stock price resulting from the announcement of a change of control, and our broad-based change of control severance program, under which employees may be entitled to severance benefits if they are terminated without cause (or they terminate their employment for good reason) following a change of control, could make an acquisition of our company significantly more expensive to the purchaser. We also have a broad-based changeQuarterly Report 47 thesethe agreements, plus a specified period thereafter. We are also party to certain license agreements that restrict our ability to assign or transfer the rights licensed to us to third parties, including parties with whom we wish to merge, or those attempting to acquire us. These agreements often require that we obtain prior consent of the counterparties to these agreements if we contemplate a change of control. If these counterparties withhold consent, related agreements could be terminated and we would lose related license rights. For example, Lilly Samumed, and MannKind have the right to terminate our license agreements relatingrelated to Adcirca LNG01 (formerly SM04646), and Treprostinil Technosphere,Tyvaso DPI, respectively, in the event of certain change of control transactions. These restrictive change of control provisions could impede or prevent mergers or other transactions that could benefit our shareholders.Because we do not intend to pay cash dividends, ourdeclared or paid, cash dividends on our common stock. Furthermore, weand do not intend to pay, cash dividends in the future and ourdividends. Our Credit Agreement contains covenants that may restrict us from doing so. As a result, the return on an investment in our common stock will dependdepends entirely upon the future appreciation, if any, in the price of our common stock.canis uncertainty as to whether a court would enforce this provision. If a court ruled the choice of forum provision was inapplicable or unenforceable in an action, we may incur additional costs to resolve such action in other jurisdictions. Our choice of forum provision is intended to apply to the fullest extent permitted by law to the above-specified types of actions and proceedings, including any derivative actions asserting claims under state law or the federal securities laws. Our shareholders will not be no assurances thatdeemed, by operation of the choice of forum provision, to have waived our common stock will provide a returnobligation to investors.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS2020,2021, we did not (a) repurchase any of our outstanding equity securities or (b) sell any of our equity securities in transactions that were not registered under the Securities Act of 1933, as amended.5748 United Therapeutics EXHIBITSExhibit No.DescriptionExhibit No.Description3.23.23.3SeventhNinth Amended and Restated By-lawsBylaws of the Registrant, incorporated by reference to Exhibit 3.1 toof the Registrant’s Current Report on Form 8-K filed June 28, 2018.February 5, 2021.4.13.44.131.1*10.1*†31.131.2*31.232.1*32.132.2*32.2101*101*quarterthree months ended March 31, 2020,2021, filed with the SEC on April 29, 2020,May 5, 2021, formatted in Inline Extensible Business Reporting Language (iXBRL): (1) our Consolidated Balance Sheets as of March 31, 20202021 and December 31, 2019,2020; (2) our Consolidated Statements of Operations for the three-month periods ended March 31, 20202021 and 2019,2020; (3) our Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 20202021 and 2019,2020; (4) our Consolidated Statements of Stockholders’ Equity for the three-month periods ended March 31, 20202021 and 2019,2020; (5) our Consolidated Statements of Cash Flows for the three-month periods ended March 31, 20202021 and 2019,2020; and (6) the Notes to our Consolidated Financial Statements.104*104*† Certain identified information has been omitted from this exhibit because it is both (1) not material, and (2) would be competitively harmful if publicly disclosed.58Quarterly Report 49 UNITED THERAPEUTICS CORPORATION April 29, 2020/s/ MARTINE A. ROTHBLATT By:ChairmanChairperson and Chief Executive Officer/s/ JAMES C. EDGEMOND By:5950 United Therapeutics