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Section 1: 10-Q (10-Q)

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Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2020
OR
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from                to                
 
Commission file number 0-26301
United Therapeutics Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware52-1984749
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification No.)
1040 Spring Street,
Silver Spring,
MD (301)608-929220910
(Address of Principal Executive Offices)(Registrant’s Telephone Number, Including Area Code)(Zip Code)

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, par value $0.01 per shareUTHRNasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No x
The number of shares outstanding of the issuer’s common stock, par value $.01 per share, as of October 21, 2020 was 44,440,534.


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INDEX
 
  Page
 
 
 
 

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PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
UNITED THERAPEUTICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 September 30,
2020
December 31,
2019
 (Unaudited) 
Assets  
Current assets:  
Cash and cash equivalents$670.2 $738.4 
Marketable investments910.3 747.5 
Accounts receivable, no allowance for 2020 and 2019
152.3 151.4 
Inventories, net87.9 93.4 
Other current assets47.5 133.8 
Total current assets1,868.2 1,864.5 
Marketable investments1,227.5 767.5 
Goodwill and other intangible assets, net158.2 158.3 
Property, plant, and equipment, net736.4 738.5 
Deferred tax assets, net255.5 230.0 
Other non-current assets165.4 154.6 
Total assets$4,411.2 $3,913.4 
Liabilities and Stockholders’ Equity 
Current liabilities:  
Accounts payable and accrued expenses$177.1 $148.4 
Line of credit (current) 250.0 
Share tracking awards plan32.2 25.0 
Other current liabilities49.6 39.6 
Total current liabilities258.9 463.0 
Line of credit (non-current)800.0 600.0 
Other non-current liabilities69.2 70.0 
Total liabilities1,128.1 1,133.0 
Commitments and contingencies  
Stockholders’ equity:  
Preferred stock, par value $.01, 10,000,000 shares authorized, no shares issued
  
Common stock, par value $.01, 245,000,000 shares authorized, 71,059,151 and
70,503,775 shares issued, and 44,439,935 and 43,884,559 shares outstanding
at September 30, 2020 and December 31, 2019, respectively
0.7 0.7 
Additional paid-in capital2,125.7 2,047.9 
Accumulated other comprehensive loss(4.5)(14.2)
Treasury stock, 26,619,216 shares at September 30, 2020 and December 31, 2019
(2,579.2)(2,579.2)
Retained earnings3,740.4 3,325.2 
Total stockholders’ equity3,283.1 2,780.4 
Total liabilities and stockholders’ equity$4,411.2 $3,913.4 
 
See accompanying notes to consolidated financial statements.

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UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
 (Unaudited)(Unaudited)
Revenues:    
Net product sales$380.1 $401.5 $1,098.4 $1,137.7 
Total revenues380.1 401.5 1,098.4 1,137.7 
Operating expenses:   
Cost of product sales24.0 33.0 73.3 88.8 
Research and development68.7 85.7 231.6 1,069.0 
Selling, general, and administrative66.3 99.4 265.2 231.0 
Total operating expenses159.0 218.1 570.1 1,388.8 
Operating income (loss)221.1 183.4 528.3 (251.1)
Interest income6.4 12.1 23.6 32.7 
Interest expense(4.9)(11.7)(18.7)(34.2)
Other (expense) income, net(0.1)(16.9)0.4 19.3 
Impairments of investments in privately-held companies(3.5) (9.1) 
Total other (expense) income, net(2.1)(16.5)(3.8)17.8 
Income (loss) before income taxes219.0 166.9 524.5 (233.3)
Income tax (expense) benefit(47.8)(34.5)(108.5)76.2 
Net income (loss)$171.2 $132.4 $416.0 $(157.1)
Net income (loss) per common share:    
Basic$3.86 $3.02 $9.43 $(3.59)
Diluted$3.84 $3.01 $9.37 $(3.59)
Weighted average number of common shares outstanding:    
Basic44.4 43.9 44.1 43.8 
Diluted44.6 44.0 44.4 43.8 

See accompanying notes to consolidated financial statements.

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UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
(Unaudited)(Unaudited)
Net income (loss)$171.2 $132.4 $416.0 $(157.1)
Other comprehensive income:  
Defined benefit pension plan:
Actuarial gain (loss) arising during period, net of tax  0.2 (0.6)
Amortization of actuarial gain and prior service cost included in net periodic pension cost, net of tax0.3 (0.1)0.9 (1.6)
Total defined benefit pension plan, net of tax0.3 (0.1)1.1 (2.2)
Unrealized (loss) gain on available-for-sale securities, net of tax(2.7)1.0 8.6 6.0 
Other comprehensive (loss) income, net of tax(2.4)0.9 9.7 3.8 
Comprehensive income (loss)$168.8 $133.3 $425.7 $(153.3)

See accompanying notes to consolidated financial statements.

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UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
Three Months Ended September 30, 2020
(Unaudited)
 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
   
 SharesAmountTreasury
Stock
Retained EarningsStockholders’ Equity
Balance, July 1, 202071.0 $0.7 $2,105.1 $(2.1)$(2,579.2)$3,569.2 $3,093.7 
Net income— — — — — 171.2 171.2 
Unrealized losses on available-for-sale securities— — — (2.7)— — (2.7)
Defined benefit pension plan— — — 0.3 — — 0.3 
Shares issued under employee stock purchase plan0.1 — 2.2 — — — 2.2 
Restricted stock units withheld for taxes— — (0.1)— — — (0.1)
Exercise of stock options— — 3.5 — — — 3.5 
Share-based compensation— — 15.0 — — — 15.0 
Balance, September 30, 202071.1 $0.7 $2,125.7 $(4.5)$(2,579.2)$3,740.4 $3,283.1 
Three Months Ended September 30, 2019
(Unaudited)
 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
   
 SharesAmountTreasury
Stock
Retained EarningsStockholders’ Equity
Balance, July 1, 201970.5 $0.7 $2,001.7 $(5.0)$(2,579.2)$3,140.2 $2,558.4 
Net income— — — — — 132.4 132.4 
Unrealized gains on available-for-sale securities— — — 1.0 — — 1.0 
Defined benefit pension plan— — — (0.1)— — (0.1)
Shares issued under employee stock purchase plan— — 1.9 — — — 1.9 
Restricted stock units withheld for taxes— — (0.2)— — — (0.2)
Share-based compensation— — 22.5 — — — 22.5 
Deconsolidation of variable interest entity— — (0.1)— — — (0.1)
Balance, September 30, 201970.5 $0.7 $2,025.8 $(4.1)$(2,579.2)$3,272.6 $2,715.8 
Nine Months Ended September 30, 2020
(Unaudited)
 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
   
 SharesAmountTreasury
Stock
Retained EarningsStockholders’ Equity
Balance, January 1, 202070.5 $0.7 $2,047.9 $(14.2)$(2,579.2)$3,325.2 $2,780.4 
Net income— — — — — 416.0 416.0 
Unrealized gains on available-for-sale securities— — — 8.6 — — 8.6 
Defined benefit pension plan— — — 1.1 — — 1.1 
Shares issued under employee stock purchase plan0.1 — 4.7 — — — 4.7 
Restricted stock units withheld for taxes— — (3.6)— — — (3.6)
Common stock issued for RSUs vested0.1 — — — — — — 
Exercise of stock options0.4 — 25.9 — — — 25.9 
Share-based compensation— — 50.8 — — — 50.8 
Cumulative effect of accounting change— — — — — (0.8)(0.8)
Balance, September 30, 202071.1 $0.7 $2,125.7 $(4.5)$(2,579.2)$3,740.4 $3,283.1 
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Nine Months Ended September 30, 2019
(Unaudited)
 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
   
 SharesAmountTreasury
Stock
Retained EarningsStockholders’ Equity
Balance, January 1, 201970.2 $0.7 $1,940.2 $(7.9)$(2,579.2)$3,434.8 $2,788.6 
Net loss— — — — — (157.1)(157.1)
Unrealized gains on available-for-sale securities— — — 6.0 — — 6.0 
Defined benefit pension plan— — — (2.2)— — (2.2)
Shares issued under employee stock purchase plan— — 4.1 — — — 4.1 
Restricted stock units withheld for taxes— — (2.1)— — — (2.1)
Common stock issued for RSUs vested0.1 — — — — — — 
Exercise of stock options0.2 — 9.9 — — — 9.9 
Share-based compensation— — 63.0 — — — 63.0 
Cumulative effect of accounting change— — — — — (5.1)(5.1)
Reclassification from temporary equity to permanent equity— — 10.8 — — — 10.8 
Deconsolidation of variable interest entity— — (0.1)— — — (0.1)
Balance, September 30, 201970.5 $0.7 $2,025.8 $(4.1)$(2,579.2)$3,272.6 $2,715.8 
See accompanying notes to consolidated financial statements.
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UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 Nine Months Ended September 30,
 20202019
 (Unaudited)
Cash flows from operating activities:  
Net income (loss)$416.0 $(157.1)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization36.8 33.4 
Share-based compensation expense70.1 15.9 
Impairments of investments in privately-held companies9.1  
Deconsolidation of variable interest entity 2.0 
Intangible asset impairment charges 8.8 
Impairments of property, plant, and equipment5.4 8.4 
Other(6.8)(27.9)
Changes in operating assets and liabilities:
Accounts receivable(0.9)(7.8)
Inventories11.1 10.5 
Accounts payable and accrued expenses27.9 (4.9)
Other assets and liabilities60.8 (190.4)
Net cash provided by (used in) operating activities629.5 (309.1)
Cash flows from investing activities:  
Purchases of property, plant, and equipment(47.0)(59.0)
Proceeds from sale of property, plant, and equipment2.4  
Decrease in cash due to deconsolidation of variable interest entity (12.5)
Deposits (5.6)
Sales/maturities of held-to-maturity investments 39.7 
Purchases of available-for-sale investments(1,698.8)(974.7)
Sales/maturities of available-for-sale investments1,041.4 618.5 
Sales of investments in equity securities27.3  
Purchase of investments in privately-held companies (8.0)
Net cash used in investing activities
(674.7)(401.6)
Cash flows from financing activities:  
Proceeds from line of credit 800.0 
Repayment of line of credit(50.0)(50.0)
Payments of debt issuance costs (0.7)
Proceeds from the exercise of stock options25.9 9.9 
Proceeds from the issuance of stock under employee stock purchase plan4.7 4.1 
Restricted stock units withheld for taxes(3.6)(2.1)
Net cash (used in) provided by financing activities
(23.0)761.2 
Net (decrease) increase in cash and cash equivalents(68.2)50.5 
Cash and cash equivalents, beginning of period738.4 669.2 
Cash and cash equivalents, end of period$670.2 $719.7 
Supplemental cash flow information:  
Cash paid for interest$16.6 $31.7 
Cash paid for income taxes$62.3 $94.4 
Non-cash investing and financing activities:
     Non-cash additions to property, plant, and equipment$4.4 $3.9 
See accompanying notes to consolidated financial statements.
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UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(UNAUDITED) 
1.     Organization and Business Description
United Therapeutics Corporation is a biotechnology company focused on the development and commercialization of innovative products to address the unmet medical needs of patients with chronic and life-threatening conditions.
We have approval from the U.S. Food and Drug Administration (FDA) to market the following therapies: Remodulin® (treprostinil) Injection (Remodulin), Tyvaso® (treprostinil) Inhalation Solution (Tyvaso), Orenitram® (treprostinil) Extended-Release Tablets (Orenitram), Unituxin® (dinutuximab) Injection (Unituxin), and Adcirca® (tadalafil) Tablets (Adcirca). Our only significant revenues outside the United States are derived from sales of Remodulin in Europe.
As used in these notes to our consolidated financial statements, unless the context otherwise requires, the terms “we”, “us”, “our”, and similar terms refer to United Therapeutics Corporation and its consolidated subsidiaries.
2.     Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information required by U.S. generally accepted accounting principles (GAAP) for complete financial statements. 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, as filed with the SEC on February 26, 2020.
In our management’s opinion, the accompanying consolidated financial statements contain all adjustments, including normal, recurring adjustments, necessary to fairly present our financial position as of September 30, 2020 and December 31, 2019, our statements of operations, comprehensive income, and stockholders’ equity for the three- and nine-month periods ended September 30, 2020 and 2019, and statements of cash flows for the nine-month periods ended September 30, 2020 and 2019. Interim results are not necessarily indicative of results for an entire year.
Recently Issued Accounting Standards
Accounting Standards Adopted During the Period
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 first quarter of 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 did not recognize any further impairment of this note receivable during the second and third quarters of 2020. We recorded this impairment charge within “other (expense) 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.
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In 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 Adopted
In 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, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (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, with early adoption permitted. We are currently evaluating the impact of this guidance on our financial statements.
In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force) (ASU 2020-01), which addresses the accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04), which provides optional expedients and exceptions to lessen the burden of accounting for contract modifications and hedging relationships that reference LIBOR or other reference rates that could be discontinued due to reference rate reform. ASU 2020-04 is effective immediately and may be applied through December 31, 2022. We are currently evaluating the impact of the expedients and exceptions of this new standard on our accounting for our credit agreement, which references LIBOR.
3.     Investments
Marketable Investments
Available-for-Sale Debt Securities
Available-for-sale debt securities are recorded at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive income in stockholders’ equity, until realized. Available-for-sale debt securities consisted of the following (in millions):
As of September 30, 2020Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
U.S. government and agency securities$1,806.1 $11.9 $(0.2)$1,817.8 
Corporate debt securities298.4 3.8  302.2 
Total$2,104.5 $15.7 $(0.2)$2,120.0 
Reported under the following captions on our consolidated balance sheets:
Current marketable investments  892.5 
Non-current marketable investments  1,227.5 
 Total  $2,120.0 
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As of December 31, 2019Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
U.S. government and agency securities$1,225.2 $2.9 $(0.2)$1,227.9 
Corporate debt securities222.4 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 
The following table summarizes the contractual maturities of available-for-sale marketable investments (in millions). 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.
 As of September 30, 2020
 Amortized
Cost
Fair
Value
Due within one year$889.7 $892.5 
Due in one to three years1,214.8 1,227.5 
Total$2,104.5 $2,120.0 
 As of December 31, 2019
 Amortized
Cost
Fair
Value
Due within one year$683.3 $684.5 
Due in one to three years764.3 767.5 
Total$1,447.6 $1,452.0 
Investments in Equity Securities with Readily Determinable Fair Values
We held investments in equity securities with readily determinable fair values of $17.7 million and $63.0 million as of September 30, 2020 and December 31, 2019, 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 “other (expense) income, net”. Refer to Note 4—Fair Value Measurements. During the nine months ended September 30, 2020, we received $27.3 million in cash from the sale of these equity securities.
Investments in Privately-Held Companies
As of September 30, 2020 and December 31, 2019, we maintained non-controlling equity investments in privately-held companies of $101.7 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.
During the first quarter and third quarter of 2020, two of the privately-held companies in which we invested raised additional capital by issuing equity securities similar to ours at an increased valuation, which resulted in an increase of $22.5 million and $2.3 million, respectively, in the values of our investments. These gains were recorded within “other (expense) income, net” on our consolidated statements of operations.
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During the first quarter of 2020, we observed an indicator of impairment for our investments in two of the private companies in which we invested, which caused us to recognize aggregate impairment charges of $5.6 million. One of these companies suspended operations during the first quarter of 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 first quarter of 2020, which caused us to recognize an impairment charge equal to a portion of the value of our investment in this company. We did not recognize any further impairment in this investment during the second or third quarters of 2020. During the third quarter of 2020, we observed an indicator of impairment for our investment in another privately-held company, which caused us to recognize an impairment charge of $3.5 million. These impairment charges were recorded within impairments of investments in privately-held companies on our consolidated statements of operations.
4.     Fair Value Measurements
We account for certain assets and liabilities at fair value and classify these assets and liabilities within the fair value hierarchy (Level 1, Level 2, or Level 3). Our other current assets and other current liabilities have fair values that approximate their carrying values.
Assets and liabilities subject to fair value measurements are as follows (in millions):
 As of September 30, 2020
 Level 1Level 2Level 3Balance
Assets    
Money market funds(1)
$248.6 $ $ $248.6 
Time deposits(2)
 88.1  88.1 
U.S. government and agency securities(3)
 1,817.8  1,817.8 
Corporate debt securities(3)
 302.2  302.2 
Equity securities(4)
17.7   17.7 
Total assets$266.3 $2,208.1 $ $2,474.4 
Liabilities    
Contingent consideration(5)
  13.6 13.6 
Total liabilities$ $ $13.6 $13.6 
 As of December 31, 2019
 Level 1Level 2Level 3Balance
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 $13.4 
 ________________________
(1)Included in cash and cash equivalents on our consolidated balance sheets.
(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.
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(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 and nine months ended September 30, 2020, we recognized $3.0 million and $18.0 million of net unrealized and realized losses on these securities. During the three and nine months ended September 30, 2019, we recognized $13.0 million of net unrealized losses and $19.5 million of net unrealized gains, respectively, on these securities. We recorded these gains and losses on our consolidated statements of operations within “other (expense) income, net”. Refer to Note 3—Investments—Investments in Equity Securities with Readily Determinable Fair Values.
(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 and nine months ended September 30, 2020 was not material.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of their short maturities. The fair values of our marketable investments and contingent consideration are reported above within the fair value hierarchy. Refer to Note 3—Investments. The carrying value of our debt is a reasonable estimate of the fair value of the outstanding debt based on the variable interest rate of the debt.
5.     Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value and consist of the following, net of reserves (in millions):
 September 30,
2020
December 31,
2019
Raw materials$19.9 $21.1 
Work-in-progress30.0 29.1 
Finished goods38.0 43.2 
Total inventories$87.9 $93.4 
6.     Goodwill and Other Intangible Assets 
Goodwill and other intangible assets comprise the following (in millions):
 As of September 30, 2020As of December 31, 2019
 GrossAccumulated
Amortization
NetGrossAccumulated
Amortization
Net
Goodwill$28.0 $— $28.0 $28.0 $— $28.0 
Other intangible assets:     
Technology, patents, and trade names6.7 (5.4)1.3 6.7 (5.3)1.4 
In-process research and development(1)
128.9  128.9 128.9  128.9 
     Total$163.6 $(5.4)$158.2 $163.6 $(5.3)$158.3 
(1)In April 2020, the FDA issued a complete response letter related to our Trevyent® new drug application (NDA) indicating that some of the deficiencies previously raised by the FDA had not yet been addressed to its satisfaction. During the quarter ended June 30, 2020, we determined this to be a potential indicator of impairment of our in-process research and development (IPR&D) asset related to Trevyent, which had a carrying value of $107.3 million as of June 30, 2020. Significant judgment is required to estimate the probability of success of a drug candidate, as well as the associated revenue from a future product. We obtained a third-party valuation of the IPR&D asset to estimate its fair value using the income approach, together with Level 3 valuation inputs, including estimated future cash flows and a discount rate. Based on this valuation, the fair value was in excess of carrying value; therefore, the IPR&D asset was not impaired as of June 30, 2020. The value of the IPR&D asset could be subject to future impairment depending on future discussions with the FDA, the FDA’s review of our planned NDA resubmission, among other factors, and our analyses of the fair value of the IPR&D asset at the time such indicators of impairment occur.
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7.     Debt
Unsecured Revolving Credit Facility
In June 2018, we entered into a credit agreement (the Credit Agreement) with Wells Fargo Bank, National Association (Wells Fargo), as administrative agent and a swingline lender, and various other lender parties, providing for: (1) an unsecured revolving credit facility of up to $1.0 billion; and (2) a second unsecured revolving credit facility of up to $500.0 million (which facilities may, at our request, be increased by up to $300.0 million in the aggregate subject to obtaining commitments from existing or new lenders for such increase and other conditions). In accordance with the terms of the Credit Agreement, in June 2019, we extended the maturity date of the Credit Agreement by one year, to June 2024.
At our option, amounts borrowed under the Credit Agreement bear interest at either the LIBOR rate or a fluctuating base rate, in each case, plus an applicable margin determined on a quarterly basis based on our consolidated ratio of total indebtedness to EBITDA (as calculated in accordance with the Credit Agreement). To date, we have elected to calculate interest on the outstanding balance at LIBOR plus an applicable margin.
As of December 31, 2019, 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 nine months ended September 30, 2020, we paid down $50.0 million of our balance under the Credit Agreement. This brought our aggregate outstanding balance to $800.0 million as of September 30, 2020, all of which was classified as a non-current liability because we no longer 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.
The Credit Agreement contains customary events of default and customary affirmative and negative covenants. As of September 30, 2020, we were in compliance with these covenants. Lung Biotechnology PBC is our only subsidiary that guarantees our obligations under the Credit Agreement though, from time to time, one or more of our other subsidiaries may be required to guarantee our obligations.
In connection with the Credit Agreement, we capitalized debt issuance costs, which are being amortized to interest expense over the contractual term of the Credit Agreement. As of September 30, 2020, $3.4 million was recorded in other current assets and $7.2 million in other non-current assets on our consolidated balance sheets.
The interest expense reported on our consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019, relates to our borrowings under the Credit Agreement.
8.    Share-Based Compensation
As of September 30, 2020, we have two shareholder-approved equity incentive plans: the United Therapeutics Corporation Amended and Restated Equity Incentive Plan (the 1999 Plan) and the United Therapeutics Corporation Amended and Restated 2015 Stock Incentive Plan (as amended to date, the 2015 Plan). The 2015 Plan provides for the issuance of up to 10,000,000 shares of our common stock pursuant to awards granted under the 2015 Plan, which includes the 500,000 shares added pursuant to an amendment and restatement of the 2015 Plan approved by our shareholders in June 2020. No further awards will be granted under the 1999 Plan. We also have one equity incentive plan, the United Therapeutics Corporation 2019 Inducement Stock Incentive Plan (the 2019 Inducement Plan), that has not been approved by our shareholders, as permitted by the Nasdaq Stock Market rules. The 2019 Inducement Plan was approved by our Board of Directors in February 2019 and provides for the issuance of up to 99,000 shares of our common stock under 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 grant restricted stock units to newly-hired employees under the 2019 Inducement Plan. Refer to the sections entitled Stock Options and Restricted Stock Units below.
We previously issued awards under the United Therapeutics Corporation Share Tracking Awards Plan (2008 STAP) and the United Therapeutics Corporation 2011 Share Tracking Awards Plan (2011 STAP). We refer to the 2008 STAP and the 2011 STAP collectively as the “STAP” and awards outstanding under either of these plans as “STAP awards.” Refer to the section entitled Share Tracking Awards Plans below. We discontinued the issuance of STAP awards in June 2015.
In 2012, our shareholders approved the United Therapeutics Corporation Employee Stock Purchase Plan (ESPP), which is structured to comply with Section 423 of the Internal Revenue Code. Refer to the section entitled Employee Stock Purchase Plan below.
The following table reflects the components of share-based compensation (benefit) expense recognized in our consolidated statements of operations (in millions):
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 Three Months Ended
September 30,