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Section 1: 10-Q (FORM 10Q)

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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 March 31, 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)

Delaware

    

52-1984749

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

1040 Spring Street, Silver Spring, MD

20910

(Address of Principal Executive Offices)

(Zip Code)

(301) 608-9292

(Registrant’s Telephone Number, Including Area 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 class

    

Trading Symbol(s)

    

Name of exchange on which registered

Common Stock, par value $0.01 per share

UTHR

Nasdaq 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   No 

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   No 

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 filer

    

Accelerated filer

Non-accelerated filer

Smaller 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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 

The number of shares outstanding of the issuer’s common stock, par value $.01 per share, as of April 22, 2020 was 44,012,324.

Table of Contents

INDEX

Page

Part I.

FINANCIAL INFORMATION (UNAUDITED)

3

Item 1.

Consolidated Financial Statements

3

Consolidated Balance Sheets

3

Consolidated Statements of Operations

4

Consolidated Statements of Comprehensive Income

5

Consolidated Statements of Stockholders’ Equity

6

Consolidated Statements of Cash Flows

7

Notes to Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

38

Part II.

OTHER INFORMATION

39

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

57

Item 6.

Exhibits

58

SIGNATURES

59

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

UNITED THERAPEUTICS CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

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, no 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, no shares issued

Series A junior participating preferred stock, par value $.01, 100,000 shares authorized, no 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

See accompanying notes to consolidated financial statements.

3

Table of Contents

UNITED THERAPEUTICS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

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

See accompanying notes to consolidated financial statements.

4

Table of Contents

UNITED THERAPEUTICS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

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)

See accompanying notes to consolidated financial statements.

5

Table of Contents

UNITED THERAPEUTICS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

See accompanying notes to consolidated financial statements.

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UNITED THERAPEUTICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

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

See accompanying notes to consolidated financial statements.

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UNITED THERAPEUTICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 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 March 31, 2020 and December 31, 2019, our statements of operations, comprehensive income, stockholders’ equity, and cash flows for the three-month periods ended March 31, 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 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.

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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. Early adoption is 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 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 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), 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.

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):

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

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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

The following table summarizes the contractual maturities of available-for-sale marketable investments (in millions):

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

Investments in Equity Securities with Readily Determinable Fair Values

We held investments in equity securities with readily determinable fair values of $43.8 million and $63.0 million as of March 31, 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 income, net”. Refer to Note 4—Fair Value Investments.

Investments in Privately-Held Companies

As of March 31, 2020 and December 31, 2019, we maintained non-controlling equity investments in privately-held companies of $102.9 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 quarter ended March 31, 2020, one of these privately-held companies raised additional capital by issuing equity securities similar to ours at an increased valuation, which resulted in an increase of $22.5 million in the value of our investment. The gain was recorded within “other income, net” on our consolidated statements of operations for the three months ended March 31, 2020.

During the quarter ended March 31, 2020, we observed an indicator of impairment for our investments in two 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.

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Variable Interest Entity (VIE)

In August 2019, we entered into an operating agreement and trust agreement related to the expected contribution of an asset to a newly created trust of which we are the beneficiary. The trust was created for legal and administrative purposes and is not expected to make future purchases. As the operator of the asset, we are required to incur all future expenses related to the operation and maintenance of the asset. Accordingly, the trust is deemed a VIE because it relies on our capital to pay future operating expenses. We are deemed the primary beneficiary of the VIE because we are the sole provider of financial support and can unilaterally remove the trustee without cause. Accordingly, we consolidate the VIE’s balance sheet and results of operations. As of March 31, 2020, our consolidated balance sheets included a $56.0 million asset within “property, plant, and equipment, net” due to the consolidation of this VIE.

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 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

$

13.4

(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 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.
(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

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):

    

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

6.    Goodwill and Other Intangible Assets

Goodwill and other intangible assets comprise the following (in millions):

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

(1)In April 2020, the FDA issued us a complete response letter related to our Trevyent® new drug application (NDA). We determined this to be a potential indicator of impairment of our in-process research and development asset related to Trevyent, which had a carrying value of $107.3 million as of March 31, 2020. We have not yet finalized our impairment analysis, including the determination of fair value of the asset, but we may be required to impair some or all of the carrying value of this asset.

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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. The Credit Agreement provides the lenders the ability to extend the maturity date by one additional year, to June 2025, if we request such an extension.

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 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 to $800.0 million as of March 31, 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 March 31, 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 March 31, 2020, $3.4 million was recorded in other current assets and $8.6 million in other non-current assets on our consolidated balance sheets.

During the three months ended March 31, 2020 and March 31, 2019, we recorded interest expense of $8.2 million and $10.3 million, respectively, related to the Credit Agreement.

8.    Share-Based Compensation

As of March 31, 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 9,500,000 shares of our common stock pursuant to awards granted under the 2015 Plan, which includes the 450,000 shares added pursuant to an amendment and restatement of the 2015 Plan approved by our shareholders in June 2019. 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.

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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 expense recognized in our consolidated statements of operations (in millions):

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

Stock Options

We estimate the fair value of stock options using the Black-Scholes-Merton valuation model, which requires us to make certain assumptions that can materially impact the estimation of fair value and related compensation expense. The assumptions used to estimate fair value include the price of our common stock, the expected volatility of our common stock, the risk-free interest rate, the expected term of stock option awards and the expected dividend yield.

The following weighted average assumptions were used in estimating the fair value of stock options granted to employees during the three months ended March 31, 2020 and March 31, 2019:

    

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

 

%  

%

A summary of the activity and status of stock options under our equity incentive plans during the three-month period ended March 31, 2020 is presented below:

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

The weighted average fair value of a stock option granted during each of the three-month periods ended March 31, 2020 and March 31, 2019, was $29.85 and $40.03, respectively. These stock options have an aggregate grant date fair value of $0.5 million and $80.5 million, respectively. The total grant date fair value of stock options that vested during the three-month periods ended March 31, 2020 and March 31, 2019 was $69.8 million and $33.7 million, respectively.

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Total share-based compensation expense relating to stock options is recorded as follows (in millions):

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

As of March 31, 2020, unrecognized compensation cost relating to stock options was $74.1 million. Unvested outstanding stock options as of March 31, 2020 had a weighted average remaining vesting period of 2.6 years.

Stock option exercise data is summarized below (dollars in millions):

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

Restricted Stock Units

Each restricted stock unit entitles the recipient to one share of our common stock upon vesting. We measure the fair value of restricted stock units using the stock price on the date of grant. Share-based compensation expense for the restricted stock units is recorded ratably over their vesting period. A summary of the activity with respect to, and status of, restricted stock units during the three-month period ended March 31, 2020 is presented below: