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Section 1: DEF 14A (DEFINITIVE PROXY STATEMENT)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.      )

Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:

        Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material under §240.14a-12

United Therapeutics Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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About United Therapeutics

United Therapeutics Corporation focuses on the strength of a balanced, value-creating biotechnology model. We are confident in our future thanks to our fundamental attributes, namely our obsession with quality and innovation, the power of our brands, our entrepreneurial culture and our bioinformatics leadership. We also believe that our determination to be responsible citizens — having a positive impact on patients, the environment and society — will sustain our success in the long term.

Our Strategic Objectives

Develop the best medicines possible from our intellectual property
Conduct the most insightful clinical trials of our medicines
Achieve superior communication and awareness of our products among physicians
Grow our business to be in the top quintile of our peers
Achieve our goals by doing the right thing and using the highest ethical standards

Our Commitment to Corporate Social Responsibility        

AWARDS AND
RECOGNITION

 

PATIENT-CENTRIC APPROACH

The parents of a child with pulmonary arterial hypertension (PAH) founded United Therapeutics, so we take our commitment to patients very personally. Through our patient support and assistance programs, and our relentless pursuit of life-changing therapies, medical devices and technologies, we are striving to improve the lives of patients with PAH and other life-threatening diseases.

Fortune’s 2019 Great
Places to Work
 

ENVIRONMENTAL STEWARDSHIP

Our work doesn’t stop with addressing unmet medical needs. We seek to operate in a way that is environmentally sustainable, as we believe that reducing the community’s carbon footprint benefits us all. Through our focus on constructing site net zero buildings, we are taking a leadership role in driving the use of sustainable technologies forward.

The Washington Post’s
2019 Top Places To Work
 

OUR PEOPLE

We are proud of our Unitherian employees, and ever grateful to them. Without their hard work and ingenuity, none of our successes would be possible, and our goals would not be achievable. We believe in work-life integration and personal development, and that has led us to adopt a company-wide minimum living wage, on-site subsidized day care, and a number of health and wellness programs.

Women in Technology’s
2019 Corporate
Board Award
 



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LEAD INDEPENDENT DIRECTOR’S LETTER

To Our Shareholders,

United Therapeutics had another solid year in 2019. Our significant revenue streams and conservative annual budgeting algorithm generated substantial free cash flow that contributed to our extremely healthy financial condition, including $1.4 billion in net cash, cash equivalents and marketable securities as of December 31, 2019 (net of indebtedness). This fortress balance sheet places our company in a very strong position to weather successfully the COVID-19 pandemic. 

Many expected that 2019 would mark a significant downturn in the face of new generic competition for two of our lead therapies, Adcirca® and Remodulin®. However, although we saw Adcirca revenues decline as expected, revenues for our other therapies grew by 3% in the aggregate in 2019 compared to 2018, largely fueled by continued growth in our existing treprostinil franchise that includes oral, inhaled and infused therapies approved to treat a rare disease called pulmonary arterial hypertension (PAH). In fact, to the surprise of some, but not to us, Remodulin reached its highest number of new patient starts in ten years during 2019, a period that included nine months of generic competition. We are also anticipating revenue growth driven by several significant recent developments, including the launch of an expanded Orenitram® label, the approval of the Remunity™ subcutaneous pump for Remodulin, and the successful results of our pivotal INCREASE study of Tyvaso® in a new indication for which there are no approved treatment options. Finally, we are anticipating several exciting clinical trial readouts and potential product launches over the near term that we expect will drive substantial additional revenue growth, profitability and enhanced stock price performance in the future. Our Board remains confident that the power of our research and development teams will keep our company at the forefront of improving the lives of patients with pulmonary hypertension and other rare diseases for years to come. We are also confident in the ability of our commercial teams to communicate the benefits of our therapies so that all appropriate patients can benefit from them.

WE’RE EXECUTING OUR BUSINESS STRATEGY

United Therapeutics was founded in 1996 to address the acute shortage of options for patients suffering from PAH, following the PAH diagnosis for the daughter of our Founder, Chairman and Chief Executive Officer, Martine Rothblatt. We currently market and sell four therapies for this terrible disease, and one drug for a rare pediatric cancer. Our revenues from these medicines in 2019 added up to approximately $1.45 billion. Three of these drugs, Remodulin, Tyvaso, and Orenitram, contain the active ingredient treprostinil, and we saw revenue growth in 2019 for these three therapies, combined, despite the onset of generic competition for Remodulin in March 2019. We plan to continue to grow revenue from our treprostinil-based therapies through label expansions, new indications, new formulations, and the introduction of new delivery devices. We are also working on a number of entirely new therapies to treat PAH and other rare diseases that we hope to launch over the next several years. Longer-term, we have set the ambitious goal of solving the acute national shortage of transplantable organs through our innovative organ manufacturing programs.

WE’RE ENGAGING WITH OUR SHAREHOLDERS

We continue to maintain strong relationships with our shareholders as part of our corporate governance commitment. In 2019, members of our Board of Directors continued dialogue with our shareholders on many issues, including our capital allocation priorities, governance practices, Board composition, and our sustainability efforts. In 2019, members of our Board of Directors invited discussions with our 25 largest shareholders in the spring and in the fall, who collectively hold about 70% of our outstanding shares. We plan to continue these conversations into 2020. These conversations gave us deeper insight into our shareholders’ perspectives and helped inform our Board’s decisions on strategy, governance, and sustainability.

       


We continue to maintain strong relationships with our shareholders as part of our corporate governance commitment.

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Lead Independent Director’s Letter

WE’RE DECLASSIFYING THE BOARD

In 2019, our Board supported a shareholder proposal requesting declassification of our Board so that directors are elected annually for one-year terms. This proposal received overwhelming shareholder support, and this year we are seeking to implement the proposal by way of a declassification amendment to our Certificate of Incorporation, which is proposed for shareholder approval in this Proxy Statement.

WE’RE ONBOARDING NEW VOICES

We’ve worked to bring new voices and perspectives onto our Board, most recently with the addition of Nilda Mesa, who brings substantial environmental, social and governance (ESG) experience to our Board. Nilda served as Director of the New York City Mayor’s Office of Sustainability and she successfully led efforts to develop the city’s first sustainability plan. In recent years we also recruited strong board members such as Judy Olian, a thought leader in organizational development, and Katherine Klein, an award-winning organizational psychologist and Vice Chair of the Wharton Social Impact Initiative.

CORPORATE RESPONSIBILITY HAS ALWAYS BEEN A BOARD PRIORITY

We strive to operate with an eye toward corporate responsibility, environmental sustainability, and solid governance. With the addition of Nilda Mesa to our Board, we’re taking a proactive approach to recording and reporting our ESG efforts with additional disclosures in this Proxy Statement, the development of a corporate responsibility website, and the inaugural publication of our annual Corporate Social Responsibility Report, which we anticipate later this year.

RISK OVERSIGHT IS CRITICAL TO OUR SUCCESS

We take our risk oversight role very seriously. Our Board committees each tackle various risks facing our company, to ensure management is focused on identifying and mitigating the material risks to our company. Our Nominating and Governance Committee has overseen substantial enhancements to our compliance program over the past several years, and is actively overseeing our enterprise risk management program. Our Audit Committee oversees risks related to auditing, accounting and financial matters, as well as cybersecurity. Our Compensation Committee annually assesses the risks created by our compensation programs.

WITH UNITED THERAPEUTICS THERE’S ALWAYS MORE TO COME…

While we expect our near-term development programs to help overcome the loss of Adcirca revenue and the threat posed by generics to Remodulin, we’re also excited about the potential for our company’s longer-term development programs. Ralinepag — an oral prostacyclin receptor agonist we licensed from Arena Pharmaceuticals in 2019 — is in phase III development for pulmonary arterial hypertension. If successful, we think the drug could help improve PAH outcomes with a much more convenient dosing route and schedule than existing or planned therapies on the market. We are also working with our Canadian affiliate, Northern Therapeutics, to explore the use of gene therapy for disease modification in PAH. While potentially revolutionary in their own right, we think these and other development programs are stepping stones for what we believe is the ultimate cure for PAH: a lung transplant. Our efforts in the organ transplant space — ex-vivo lung perfusion, xenotransplantation, regenerative medicine, and organ printing, among others — seek to address the acute shortage of transplantable lungs and other organs.

…AND WE’RE NOT GOING TO CONFORM TO THE BIOTECH NORM.

United Therapeutics has always been a unique biotech leader and we on our Board appreciate and nurture our company’s unique perspective to addressing unmet medical needs of patients.

Onward!

CHRISTOPHER PATUSKY, J.D., M.G.A.
Lead Independent Director
Vice Chairman of the Board
Chairman of the Nominating and Governance Committee

       

Our Board remains confident that the power of our research and development teams will keep our company at the forefront of improving lives of patients with pulmonary hypertension and other rare diseases for years to come.

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UNITED THERAPEUTICS CORPORATION
NOTICE OF 2020 ANNUAL MEETING OF SHAREHOLDERS

DATE AND TIME       LOCATION       WHO CAN VOTE
Friday, June 26, 2020
10:15 a.m. Eastern Time
www.virtualshareholdermeeting.com/ UTHR2020 Shareholders as of April 30, 2020 are entitled to notice of, and to vote at, our 2020 annual meeting of shareholders

Voting Items

Proposals       Board Vote Recommendation       For Further Details
1 Election of the three directors named in the Proxy Statement “FOR” each director nominee Page 19
2 Approval of an amendment to our Amended and Restated Certificate of Incorporation to declassify our Board of Directors and provide for the annual election of our directors “FOR” Page 37
3 Advisory resolution to approve executive compensation “FOR” Page 39
4 Approval of the amendment and restatement of the United Therapeutics Corporation Amended and Restated 2015 Stock Incentive Plan “FOR” Page 77
5 Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2020 “FOR” Page 86

Shareholders will also consider and act upon such other business as may properly come before the annual meeting of shareholders and any adjournment or postponement thereof. Proxy materials or a Notice of Internet Availability are being distributed to shareholders on or about May 4, 2020. This year’s Annual Meeting will be conducted solely virtually via live audio webcast. Our Board reached this decision after careful consideration and in light of the ongoing developments related to COVID-19. A virtual format will enable shareholders to participate from any location and at no cost, while safeguarding the health of our shareholders, management and Board. To attend the meeting online, vote your shares electronically, or submit questions, go to the website listed above. The annual meeting will begin at 10:15 a.m. Eastern Time on Friday, June 26, 2020, and you are encouraged to login early to avoid any delay from technical issues. Please review the information in the Proxy Statement for additional information. Whether or not you expect to attend the meeting, you are requested to vote your shares as promptly as possible so that your shares are represented at the meeting. All shareholders are extended a cordial invitation to attend this meeting. Our list of shareholders as of the Record Date will also be available for inspection for the ten days prior to the Annual Meeting. To inspect the list, please email our Investor Relations department at [email protected]

By Order of the Board of Directors,


PAUL A. MAHON
Corporate Secretary
April 29, 2020

How to Vote

INTERNET       TELEPHONE       MAIL
Before the meeting, go to www.proxyvote.com

During the meeting, go to www.virtualshareholdermeeting.com/UTHR2020
(800) 690-6903

Mark, sign, date and promptly mail the enclosed proxy card in the postage-paid envelope


Important Notice Regarding the Availability of Proxy Materials for United Therapeutics Corporation’s 2020 Annual Meeting of Shareholders to Be Held on Friday, June 26, 2020: United Therapeutics Corporation’s Proxy Statement and Annual Report on Form 10-K are available at: http://ir.unither.com/annual-and-proxy

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FORWARD-LOOKING STATEMENTS

This Proxy Statement contains forward-looking statements made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995 (PSLRA). These statements, which are based on our beliefs and expectations as to future outcomes, include, among others, statements about our future operating results, business plans, objectives, pipeline advancements, benefits of our products, and any others that contain the words believe, seek, expect, anticipate, forecast, project, intend, estimate, should, could, may, will, plan, or similar expressions, and any other statements contained or incorporated by reference into this Proxy Statement that are not historical facts. These forward-looking statements are subject to certain risks and uncertainties, such as those described in our periodic reports filed with the Securities and Exchange Commission (SEC), as well as risks stemming from COVID-19, that could cause actual results to differ materially from anticipated results. These statements may also be based on standards for measuring progress that are still developing and on assumptions that are subject to change in the future. Consequently, such forward-looking statements are qualified by the cautionary statements, cautionary language and risk factors set forth in our periodic reports and documents filed with the SEC, including our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. We claim the protection of the safe harbor contained in the PSLRA for forward-looking statements. We are providing this information as of April 29, 2020, and assume no obligation to update or revise the information contained in this Proxy Statement whether as a result of new information, future events or any other reason.

WEBSITE REFERENCES

Website references included throughout this Proxy Statement are provided for convenience. The content on the referenced websites are not incorporated herein and are not part of this Proxy Statement.

LEAD INDEPENDENT DIRECTOR’S LETTER       1
     
NOTICE OF 2020 ANNUAL MEETING OF SHAREHOLDERS 3
     
BUSINESS OVERVIEW 6
Our Business and Revenue Cycles 6
2019 Performance in Review 9
     
SUSTAINABILITY AND SOCIAL RESPONSIBILITY AT UNITED THERAPEUTICS 10
     
PROXY SUMMARY 14
Voting Matters 14
Governance Highlights 15
Executive Compensation Highlights 17
     
OUR CORPORATE GOVERNANCE 19
PROPOSAL 1: Election of Directors 19
Process for Selecting Directors 19
How We Select Our Director Nominees 20
Proxy Access 21
Majority Voting 21
Policy on Overboarding 21
Board Declassification 21
Board of Directors and Nominees 22
Nominees as Class III Directors for Election at our 2020 Annual Meeting of Shareholders 22
Class I Directors Continuing in Office with Terms Ending in 2021 24
Class II Directors Continuing in Office with Terms Ending in 2022 26
Director Independence 28
Board Structure 29
Board Leadership 29
Committees of our Board of Directors 29
Corporate Governance Guidelines and Committee Charters 30
Board Roles and Responsibilities 31
Risk Oversight 31
Shareholder Engagement 32
Board Education 33
Meetings of our Board of Directors and Board Attendance at Annual Meetings of Shareholders 33
Shareholder Communication with Directors 33
Stock Ownership Guidelines 33
Non-Employee Director Compensation 34
Overview 34
Equity-Based Awards 35
2019 Non-Employee Director Compensation 36
     
PROPOSAL 2: Approval of Amendment to our Amended and Restated Certificate of Incorporation to Declassify our Board and Provide for the Annual Election of All Directors 37

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EXECUTIVE COMPENSATION 39
PROPOSAL 3: Advisory Resolution to Approve Executive Compensation 39
Letter from Our Compensation Committee Chairman 40
Compensation Discussion and Analysis 45
Our Named Executive Officers 45
2019 Performance Highlights 46
Overview of our 2019 Executive Compensation Program 46
2019 Compensation Program Design 47
2019 Compensation Program Components 52
2019 Compensation Decisions 53
Other Executive Compensation Policies and Practices 61
Compensation Committee Report 63
Compensation Tables 64
Summary Compensation Table 64
Supplementary Summary Compensation Table 65
Grants of Plan-Based Awards in 2019 67
Narratives to Summary Compensation Table and Grants of Plan-Based Awards in 2019 Table 67
Outstanding Equity Awards at 2019 Fiscal Year-End 69
Option Exercises and Stock Vested in 2019 71
Pension Benefits in 2019 71
Supplemental Executive Retirement Plan 72
Potential Payments Upon Termination or Change in Control 73
Pay Ratio 76
 
PROPOSAL 4: Approval of The Amendment and Restatement of The United Therapeutics Corporation Amended and Restated 2015 Stock Incentive Plan 77
 
AUDIT MATTERS 86
PROPOSAL 5: Ratification of The Appointment of Ernst & Young LLP as United Therapeutics Corporation’s Independent Registered Public Accounting Firm for 2020 86
Report of our Audit Committee 86
Principal Accountant Fees and Services 87
Policy on Audit Committee Pre-Approval of Audit Services and Permissible Non-Audit Services of our Independent Auditors 87
 
OTHER MATTERS 88
Certain Relationships and Related Party Transactions 88
Beneficial Ownership of Common Stock 89
Delinquent Section 16(a) Reports 90
Shareholder Proposals and Director Nominations 91
Other Business 92
Shareholders Sharing the Same Address 92
Annual Report 92
 
INFORMATION ABOUT THE MEETING, VOTING AND PROXIES 93
Attending the Annual Meeting 93
General 93
Record Date and Outstanding Shares 93
Internet Availability of Proxy Materials 93
Solicitation 94
Voting Rights and Quorum 94
Proxy 94
 
ANNEX A - Proposed Amendments to Amended and Restated Certificate of Incorporation A-1
ANNEX B - United Therapeutics Corporation Amended and Restated 2015 Stock Incentive Plan B-1
ANNEX C - Non-GAAP Information C-1

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BUSINESS OVERVIEW

Our Business and Revenue Cycles

United Therapeutics markets four products for pulmonary arterial hypertension (PAH) and one product for pediatric high-risk neuroblastoma (NB).

PAH Portfolio        NB Product
 

Innovation and Revenue Growth Despite Generic Challengers

Our commercial product portfolio includes three prostacyclin analogue products based on the molecule treprostinil: Remodulin (delivered parenterally, via intravenous (IV) or subcutaneous (subQ) pumps), Tyvaso (an inhaled product), and Orenitram (an oral tablet). We also market and sell Adcirca, a PDE-5 inhibitor in-licensed from Eli Lilly and Company for treatment of PAH, and a monoclonal antibody called Unituxin® for treatment of high-risk NB.

In late August 2018, generic versions of Adcirca were introduced, leading to a decline in our revenue for this product from its peak of $420 million in 2017, to $324 million in 2018, to $107 million in 2019. This sharp decline is typical of the generic erosion curve for a small-molecule oral product.

In addition, we saw the market entry of a generic version of Remodulin in March 2019. Although many analysts predicted similar declines for Remodulin, we expected and saw a resilient response, with relatively few patients choosing the generic version over branded Remodulin. Despite generic competition, our Remodulin revenues declined by only 2%, or $12 million, from 2018 to 2019.

Going forward, we are actively working to improve the treprostinil molecule and each of its delivery systems to enhance convenience, safety and patient outcomes. We are also exploring other pulmonary indications where treprostinil may be able to address unmet medical needs. We expect these efforts will result in revenue growth for each of our treprostinil-based products.

Remodulin: Next-generation parenteral pump systems. Our next-generation IV and subQ treprostinil pump systems are designed to improve patient convenience and potentially bring on board the 30-40% of PAH patients who refuse parenteral therapy because of site pain, the inconvenience of current pump designs or interference with lifestyle choices.(1)

New Remodulin Pump Systems

(1) Based on UT market research.

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Business Overview

Orenitram: FREEDOM-EV label expansion. In October 2019, the FDA approved a label expansion for Orenitram that incorporated the results of our FREEDOM-EV study. The FREEDOM-EV study showed that Orenitram, when taken with an oral PAH background therapy, decreased the risk of a clinical worsening event versus placebo by 25% (p=0.0391), driven by a 61% decrease in the risk of disease progression for patients taking Orenitram, when compared to placebo (p=0.0002). Orenitram is now indicated to delay disease progression and improve exercise capacity. We believe this will drive continued growth in Orenitram revenues.

Tyvaso: INCREASE and PERFECT studies in two new pulmonary hypertension indications. We recently announced the successful results of the INCREASE study of our Tyvaso inhaled treprostinil therapy in pulmonary hypertension (PH) associated with interstitial lung disease (PH-ILD). We plan to request FDA approval to update Tyvaso’s label to add an indication for PH-ILD. In addition, we are conducting a pivotal study of Tyvaso in patients with PH associated with chronic obstructive pulmonary disease (PH-COPD) called the PERFECT study. PH-ILD and PH-COPD are distinct indications from Tyvaso’s current PAH indication. We believe there are approximately 30,000 PH-ILD patients and 100,000 PH-COPD patients in the United States, and presently there are no FDA-approved therapies indicated to treat either of these life-threatening conditions.

Treprostinil Label Expansion Efforts

Potential U.S. Population 45,000 30,000 100,000
Data Read-Out study ongoing
FDA Approval sNDA planned mid-2020 TBD

Treprostinil Technosphere®. We are developing a dry powder formulation of treprostinil called Treprostinil Technosphere for the treatment of PAH, under a license from MannKind Corporation (MannKind). Treprostinil Technosphere 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. We believe this product, which is a small, pocket-sized inhaler that does not need electricity, will have significant convenience advantages over current inhaled prostacyclin alternatives, which rely on the use of lengthy breathing sessions with nebulizers that need to be plugged in. We expect to file for FDA approval of this therapy in the near term, once we compete the necessary studies.

Prodrug development: RemoPro™ and OreniPro™. We are conducting a series of phase I 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. We are also developing an oral prodrug version of Orenitram we call OreniPro, in order to provide increased tolerability and convenience through a once-daily dosing regimen.

Generics Have Had Little Impact on our Total Treprostinil Revenue

Despite the launch of generic versions of treprostinil, the number of new U.S. patients starting to use Remodulin in 2019 reached the highest level in the last ten years. A small percentage of higher dose Remodulin patients transitioned to generic treprostinil when the first generic version became available in 2019, but these transitions declined to a negligible amount in the fourth quarter of 2019.

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Business Overview

United Therapeutics Treprostinil Historical Annual Net Sales

We’re Moving Beyond Treprostinil…

While we believe that treprostinil will be one of the standards of care in PAH for some time to come, we are also working on programs beyond treprostinil that we think could have an outsized impact on patients with PAH and other lung diseases.

Ralinepag. Ralinepag is a next-generation, oral, selective and potent prostacyclin receptor agonist in development for the treatment of PAH. We are conducting two phase III 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 event; and (2) ADVANCE CAPACITY, which will study the effect of ralinepag on exercise capacity in PAH patients with a primary endpoint of change in peak oxygen uptake via a cardiopulmonary exercise test. Both of these studies are global, multi-center, placebo-controlled trials of patients on approved oral background PAH therapies. We believe ralinepag’s once-daily dosing will make it highly competitive with the existing approved oral prostacyclin agonist, selexipag, which is a competitor’s product that generated U.S. revenues of more than $700 million in 2019.

Aurora-GT™. We’re conducting a phase II/III 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 nitric oxide synthase, expanded ex-vivo and then delivered to the same patient. This product is intended to rebuild the blood vessels in the lungs that are destroyed by PAH. This study is being conducted in Canada, 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 seek FDA approval of Aurora-GT if SAPPHIRE is successful.

LNG01. We’re developing LNG01, a Wnt pathway inhibitor formerly known as SM04646, which we licensed from Samumed LLC (Samumed) in September 2018, for the treatment of idiopathic pulmonary fibrosis (IPF). The Wnt pathway is one of the primary signaling pathways essential for the normal development of all multicellular animals, and for 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 completed a phase I, multiple dose clinical trial in April 2019, and our subsidiary, Lung Biotechnology PBC, is planning additional clinical and non-clinical studies.

…and Seeking a Cure

We believe that the ultimate solution for PAH patients and patients with many other life-threatening diseases is a cure through transplantation. Each year, end-stage organ failure kills millions of people. A significant number of these patients could have benefited from an organ transplant. Unfortunately, the number of usable, donated organs available for transplantation has not grown significantly over the past half century, while the need has soared. Our long-term goals are aimed at addressing this shortage. With advances in technology, we believe that creating an unlimited supply of tolerable manufactured organs is now principally an engineering challenge, and we are dedicated to finding engineering solutions.

We are heavily engaged in the early-stage research and development of a number of organ transplantation-related technologies including regenerative medicine, organ bio-printing, xenotransplantation, biomechanical lungs, and ex-vivo lung perfusion.

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Business Overview

2019 Performance in Review

STABILITY IN THE FACE OF
REMODULIN® GENERICS
INDUSTRY-LEADING ADJUSTED PROFITABILITY
Although overall revenue decreased 11% in 2019 compared to 2018, revenues from our other products increased by 3%
Remodulin revenue down only 2% compared to 2018, despite generic launches in 2019
New Remodulin patient starts at highest level in ten years
Orenitram revenue up 10% compared to 2018, with the FREEDOM-EV label expansion
Unituxin revenue up 34% compared to 2018
GAAP Diluted EPS of $(2.39), and non-GAAP Diluted EPS of $12.94
(7.2)% net profit margin and 51.6% adjusted EBITDASO margin*, compared to (1.6)% average net profit margin and 27.3% average adjusted EBITDASO margin for our compensation peer group
$1.6 million in 2019 revenue per employee compared to Nasdaq Biotechnology Index median of $0.2 million
     
CONTINUED PIPELINE
PROGRESSION & INVESTMENT
STRONG BALANCE SHEET POISED FOR
FUTURE INVESTMENT
Acquisition of ralinepag rights, January 2019
Remunity patient-fill FDA clearance, May 2019
Trevyent NDA accepted for filing, September 2019
Orenitram FREEDOM-EV label expansion approved, October 2019
Full enrollment of phase III INCREASE study in 2019, leading to positive read-out in early 2020
$2.3 billion in cash and investments at December 31, 2019
$850 million in debt outstanding at December 31, 2019; $200 million paid down in 2019
Strong balance sheet well-positioned to endure economic downturn driven by COVID-19
* A reconciliation of our non-GAAP measures and other information relating to such measures can be found in Annex C.

A Note About COVID-19

Like all companies, we are closely monitoring developments related to the COVID-19 pandemic. We are making every effort to ensure we remain focused on the health and well-being of our patients and our employees. Thus far we have avoided any supply interruptions or other significant disruptions to our business, and we believe our healthy balance sheet makes us well-positioned to endure the impact of this pandemic. That said, it is too early to predict what impact this pandemic, and the associated economic downturn, will have on our business. While we remain optimistic about our prospects over the longer term, our near-term revenue growth prospects and product development plans may be negatively impacted. In addition, we are engaged in the fight and are committed to deploying our research teams and development partners to investigate potential therapies for COVID-19 and related pulmonary conditions.

Our strong profitability and conservative budgeting algorithm have generated strong free cash flow resulting in an extremely healthy balance sheet. At December 31, 2019, we had net cash, cash equivalents and marketable securities totaling $1.4 billion, net of our outstanding indebtedness of $850 million. This is incredibly important, now more than ever in light of the COVID-19 pandemic. On March 23, 2020, Jefferies Equity Research screened over 1,000 companies, and highlighted United Therapeutics among a list of just six companies (along with Home Depot, Honeywell and T. Rowe Price, for example) with a so-called Fortress Balance Sheet, therefore making them best positioned to weather the expected economic storm caused by the pandemic.

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Sustainability and Social Responsibility and United Therapeutics

Dear United Therapeutics Shareholders,

As the newest member of our Board of Directors, I am thrilled to join the leadership of a forward-thinking company that prioritizes environmental stewardship, human capital management, ethics and social impact. I strongly believe that our values will drive not only long-term shareholder value, but also contribute to our shared future.

I’d like to highlight a few key accomplishments. We believe we have the first and largest net zero office building amongst public biotechnology companies, that we are the first public biotechnology company to create a public benefit subsidiary, and the first to have a company-wide minimum living wage. These are in addition to our outstanding track record of developing and commercializing innovative therapies for underserved patient populations. We also strive to share what we have learned so that others may benefit.

I am also excited to work with Katherine Klein, our Board member who is Vice Chair of the Wharton Social Impact Initiative.

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Sustainability

Overview. We make energy efficiency and lower carbon emissions a key criteria in the design of all of our facilities.

Net Zero Buildings. Our site net zero facility portfolio includes:

A 135,000 square foot commercial site net zero energy building — the Unisphere, Silver Spring, Maryland (see www.utunisphere.com)

A site net zero energy call center — Melbourne, Florida

A site net zero laboratory on the campus of Mayo Clinic — Jacksonville, Florida

A site net zero energy day care center — Research Triangle Park, North Carolina

Going forward, we strive to ensure all new non-manufacturing buildings are “site net zero”— meaning the building’s carbon-equivalent emissions are at zero as it produces as much renewable energy on-site as it consumes in a year. This is accomplished through a variety of technologies, including solar power, geothermal exchange, earth-coupled heating and cooling, and an intelligent building automation system.

LEED Certifications. Our facilities include one Platinum LEED-certified building and two Gold LEED-certified buildings.


Renewable Energy.

Currently, we operate eleven solar arrays that generate over 20% of the electricity that we consume on an annual basis

We buy renewable energy credits (RECs) to offset 100% of the electrical consumption at our Silver Spring, Maryland campus other than our site net zero Unisphere facility

For our North Carolina campus, where RECs are not currently available for purchase via the local utility, we constructed a four-megawatt solar array, which offsets about 30% of annual electrical consumption at the campus

Waste Reduction. We reduce our waste through our efficient use of water, and our recycling and composting programs.

       

NILDA MESA
Director

Adjunct Professor and senior researcher at Columbia University’s School of International and Public Affairs and the Earth Institute’s Center for Sustainable Urban Development, where she teaches, speaks, and writes about sustainable development and planning at the urban and global scale. Visiting Professor at SciencesPo Paris School of International Affairs

Former Founding Director of the NYC Mayor’s Office of Sustainability

Director, author and editor of OneNYC (2015), New York City’s first long-term sustainability plan, which for the first time for a major U.S. city tied environmental initiatives with economic development, equity and resilience

Past senior environmental positions include Assistant Director, White House Council on Environmental Quality. Graduate, Harvard Law School and Northwestern University

 

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Sustainability and Social Responsibility at United Therapeutics

 2 

Employees

In 2019, we achieved $1.6 million in revenue per employee, which ranks ninth among all 200+ companies in the Nasdaq Biotechnology Index, and fourth among our compensation peer group. We feel strongly that such industry-leading productivity cannot be maintained without a core focus on our family of Unitherians, and a dedication to ensuring they are healthy and engaged.

Unitherian Culture     

At United Therapeutics, we are crystal clear about our purpose and talk about it often — developing innovative therapies for unmet needs, with the ultimate objective of finding a cure for end-stage lung disease by creating an unlimited supply of transplantable lungs. We strive to hire the best and brightest people who are passionately committed to our goals.

Our people mission is to provide our employees with the opportunity to work on innovative, revolutionary projects, the autonomy and freedom to operate in a manner they believe is best to complete the project, and inspiring surroundings with state of the art facilities in which to think, work and problem solve. Where possible, we try to keep our work groups and divisions small and free from unneeded bureaucracy so that innovation can flourish.

We are intentional in our effort to maintain our small, entrepreneurial culture. We believe this differentiated approach instills a greater sense of ownership, meaning, and commitment in our employees, motivating them to work as hard as possible to achieve our lofty goals.
Living Wage of $75,000 We have adopted a minimum “living wage” for all employees of approximately $75,000 per year (cash salary and bonus, not including company-wide equity compensation).
People Programs To best support our workforce and retain employees of the highest caliber, we offer a competitive benefits package focused on fostering work/life integration, including:
Caregiver Leave. Twelve weeks of paid caregiver leave and three weeks of secondary caregiver leave.
Wellness. On-site gym facilities including access to many classes and personal training, and free cafeterias at our main locations, which focus on providing locally-sourced, sustainable food.
Daycare. Subsidized, on-site daycare at our main locations.
Development Opportunities. We offer up to $30,000 per employee for tuition assistance, and we make available a variety of instructor-led and online training programs for our employees.
COVID-19. The developing COVID-19 pandemic has led to unique challenges, and we are striving to ensure the health, safety and general well-being of our employees who are working hard to support a continuous supply of medicines to our patients.
Low turnover
compared to peer group
Our voluntary turnover is well below that of our industry peers. In 2019 our voluntary turnover was 6.3%, compared to the median turnover of 12.0% for the biotech industry(1).

Recognition

2019 Awards:

Fortune Magazine Certified Great Place to Work
#2 in Best Workplaces in Health Care & Biopharma
#26 in Best Small & Medium Companies
6th year on Triangle Business Journal Best Places to Work list (4th)
6th year on The Washington Post’s Top Workplace list (22nd)
Gender Diversity In 2019, we received the Women in Technology’s Corporate Board award. Women comprise one-half of our workforce, and hold 47% of our management positions. Additionally, 36% of the seats on our board of directors are held by women. We have also launched two internal initiatives, Women in Manufacturing and the Inspire Initiative, both of which are intended to promote leadership development and peer-to-peer networking for women at United Therapeutics.
(1) Based on data from Radford’s Global Turnover Results survey for the Life Sciences Sector for the fourth quarter of 2019.


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Sustainability and Social Responsibility and United Therapeutics

 3 

Public Benefit Corporation

The public benefit corporation (PBC) is a new corporate form that enables a company’s fiduciaries to target a clear public benefit mission alongside the emphasis on shareholder value. In 2015, we created the first-ever PBC subsidiary of a public biotech or pharma company, called Lung Biotechnology PBC, chartered in Delaware 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.” These technologies include xenotransplantation, regenerative medicine, organ bioprinting, mechanical artificial lungs and ex-vivo lung perfusion.

    

Rehabilitating discarded lungs into life-saving organs. Since 2014, we have been developing technologies to convert lungs deemed unsuitable for transplantation into usable lungs through ex-vivo lung perfusion (EVLP). Through our clinical trial of the Centralized Lung Evaluation System, developed at Toronto General Hospital, we have already performed over 130 procedures that resulted in successfully transplanted lungs for patients with end-stage lung disease. We have also begun commercializing EVLP procedures using XPS™, a technology developed by XVIVO Perfusion, Inc. that has been cleared by the FDA. We have two facilities dedicated to these technologies, including a site net zero facility we recently constructed on the campus of Mayo Clinic Jacksonville.


 4 

Community Impact

We support an annual service day at each of our main sites and support smaller service projects throughout the year. At United Therapeutics, we are committed to giving back to the communities in which we live and work. Unitherians have partnered through volunteer efforts or sponsorships with many organizations such as A Wider Circle, Habitat for Humanity, Capital Area Food Bank, Salvation Army/Boys & Girls Club, Durham Literacy Center, Shade Tree and Soles4Souls, to name a few. At our net zero Unisphere facility, we regularly provide educational opportunities to local schools and community groups to learn about sustainable building practices.

In April 2020, the International Society of Pharmaceutical Engineers granted us the 2020 Facility of the Year award for our newest manufacturing facility in Silver Spring, Maryland, in the category of Social Impact. Our facility was noted for its innovative design, location — providing high paying, skilled jobs in an urban area close to mass transit and improved community aesthetics — our partnership with local governments to change legislation allowing the facility to be built, and the fact that the primary product to be manufactured in the facility will treat a pediatric orphan disease.

 5 

Ethics

Our company was founded under the principle of “do the right thing”. It is a core aspect of our culture that has been translated into various policies and programs at our company. To reinforce that it is part of our DNA, we have built a first-class compliance foundation to live and breathe these values, including the following core compliance principles.

Our Principles

We are passionate
for patients.
We don’t pay
to play.
We respect
privacy.
We communicate
ethically and
honestly.
We do the
right thing.

Next Steps

In the coming months, I will be working with senior management at United Therapeutics to provide enhanced transparency regarding the company’s outstanding ESG track record for shareholders and other key stakeholders. By the end of this year, we plan to launch a new website devoted to these topics. We are also working on our first Corporate Sustainability Report, with both the Global Reporting Initiative and the Sustainable Accounting Standards Board standards in mind.

With warm regards,

NILDA MESA

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PROXY SUMMARY

Voting Matters

Shareholders will be asked to vote on the following matters at the Annual Meeting:

1 Election of Directors

 

This year at our Annual Meeting, Professor Raymond Dwek, Mr. Christopher Patusky, and Governor Tommy Thompson are nominees for election as Class III directors to serve three-year terms until our 2023 annual meeting of shareholders or until their successors are duly elected and qualified or their office is otherwise vacated.

 
Our Board recommends a vote FOR each director nominee. See page 19

2 Approval of Amendment to our Amended and Restated Certificate of Incorporation to Declassify our Board of Directors

 

We are asking our shareholders to approve an amendment to our Amended and Restated Certificate of Incorporation to phase out the classification of our Board and provide for the annual election of all directors.

 
Our Board recommends a vote FOR this proposal. See page 37

3 Advisory Resolution to Approve Executive Compensation

 

We are asking our shareholders to vote on an advisory resolution, commonly known as a “Say-on-Pay” proposal, to approve executive compensation as reported in this Proxy Statement.

 
Our Board recommends a vote FOR this proposal. See page 39

4 Approval of the Amendment and Restatement of The United Therapeutics Corporation Amended and Restated 2015 Stock Incentive Plan (the Plan)

 

The Amendment and Restatement makes the following changes to the Plan:

Increases the maximum number of shares of our common stock that may be issued under the Plan by 500,000 shares
Changes the fungible share ratio to 1.35:1
Removes certain references to Section 162(m) of the Internal Revenue Code (Code) that are no longer relevant
Extends the expiration date of the Plan to April 29, 2030
 
Our Board recommends a vote FOR this proposal. See page 77

5 Ratification of the Appointment of Ernst & Young LLP as United Therapeutics Corporation’s Independent Registered Public Accounting Firm for 2020

 

The Audit Committee of our Board has appointed Ernst & Young LLP as our independent registered public accounting firm for the year 2020. We ask that our shareholders vote to ratify this appointment.

 
Our Board recommends a vote FOR this proposal. See page 86

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Proxy Summary

Governance Highlights

Board of Directors

Director
Since
Committee Membership
Name and Primary Occupation Age AC CC NGC
    

Raymond Dwek, C.B.E., F.R.S.     IND 

Professor Emeritus and Director
of the Glycobiology Institute, University of Oxford

     

78

     

2002

Christopher Patusky, J.D., M.G.A.      IND 

Founder, Patusky Associates, LLC
Vice Chairman and Lead Independent Director, United Therapeutics

57

2002

Governor Tommy Thompson, J.D.      IND 

Former Governor of Wisconsin
Former Secretary, U.S. Department of Health and Human Services

78

2010

Katherine Klein, Ph.D.      IND 

Professor of Management, The Wharton School
Vice Dean, Wharton Social Impact Initiative

63

2014

Ray Kurzweil      IND 

A Director of Engineering, Google

72

2002

Martine Rothblatt, Ph.D., J.D., M.B.A.

Founder, Chairman and Chief Executive Officer, United Therapeutics

65

1996

Louis Sullivan, M.D.      IND 

President Emeritus, Morehouse School of Medicine
Former Secretary, U.S. Department of Health and Human Services

86

2002

Christopher Causey, M.B.A.      IND 

Principal, Causey Consortium

57

2003

Richard Giltner      IND 

Former Portfolio Manager, Lyxor Asset Management

56

2009

Nilda Mesa, J.D.      IND 

Adjunct Professor, Columbia University
Former Director, NYC Mayor’s Office of Sustainability

60

2018

Judy Olian, Ph.D.      IND 

President, Quinnipiac University
Former Dean, UCLA Anderson School of Management

68

2015


AC – Audit Committee

Member

CC – Compensation Committee

Chair

NGC – Nominating and Governance Committee

 IND  

– Independent

2020 Proxy Statement     15


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Proxy Summary

Board Snapshot

Independence       Tenure       Age       Gender

Our Governance Best Practices

We have taken great strides over recent years to implement best corporate governance practices, often acting ahead of the curve in terms of our industry peers and the Russell 3000.

MAJORITY VOTING BOARD DESTAGGERING DIVERSITY AND REFRESHMENT
       

In 2015, we adopted a majority voting standard with a director resignation policy

Only 47.8% of other Russell 3000 companies* have adopted majority voting for uncontested director elections
Only 19.3% of our industry peers** have adopted majority voting for uncontested director elections and a director resignation policy

In 2019, our Board supported a shareholder proposal to declassify our Board. That proposal was approved and will be implemented this year through an amendment to our Certificate of Incorporation, if approved by our shareholders (See Proposal 2).

Diversity and refreshment are also key areas of focus where we are largely in-line with our peers or ahead of the curve. For example, our Board is 36% female, compared with 20% for the Russell 3000. We have also refreshed our Compensation Committee in 2019.


PROXY ACCESS SHAREHOLDER FEEDBACK OVERBOARDING
       

In 2015, we also adopted a market-standard form of proxy access

Only 20.4% of Russell 3000 companies* provide their shareholders a similar right
Only 8.8% of our industry peers** provide their shareholders with proxy access

Our Nominating and Governance Committee has taken shareholder feedback on governance seriously — even commissioning external experts to study these issues and advise the Committee

We recently reduced our overboarding limit such that our directors may not serve on more than four public company boards (down from the previous limit of five), in direct response to shareholder feedback

* Data as of November 2019.
** Industry peers are defined as U.S.-domiciled, NYSE- or Nasdaq-listed companies with the same first two primary Standard Industrial Classification code digits as our company (28: Chemicals and Allied Products), but excluding our company from peer results. There were 513 companies in this dataset in the Sharkrepellent.net database as of November 4, 2019.

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Proxy Summary

Executive Compensation Highlights

Shareholder Engagement

We have actively engaged with our shareholders on compensation matters during the past five years, and have made significant changes to our compensation programs as a result of those discussions. During the spring of 2019, and again in the fall of 2019 following our annual meeting of shareholders, we reached out to shareholders whose holdings represented approximately 70% of our then outstanding shares, and ultimately held discussions with shareholders whose holdings represented approximately 30% of our then outstanding shares.

The purpose of these meetings was to gather feedback regarding our executive compensation and governance policies, understand their say-on-pay vote, and to share the structure and design of our 2019 equity compensation program. We believe our new equity program responds to many of the concerns raised by shareholders and proxy advisory firms that led to our low say-on-pay result. The information gathered was also shared with our Compensation Committee as it considered other potential changes to our executive compensation program, along with information on how our 2019 equity program addresses many of the concerns we heard from our shareholders. Our Compensation Committee Chairman and our Compensation Committee’s independent compensation consultant participated in these calls, along with our head of investor relations and a member of our human resources department.

As detailed in our Compensation Discussion and Analysis, we believe that changes implemented in 2019 (including the new long-term incentive program described below) are directly responsive to feedback we have received from shareholders and serve to motivate and retain our leadership team, who are critical to our company’s continued success.

Total Compensation Mix — Pay for Performance

The following charts illustrate the extent to which pay for our Chief Executive Officer and our other Named Executive Officers (as defined below under Compensation Discussion and Analysis—Our Named Executive Officers) is “at risk”, meaning payout levels are based entirely on performance due to the use of performance targets, in the case of our cash incentive program, or an inherent stock price performance criterion, in the case of stock options. For each chart, the amounts shown represent 2019 base salary (on an annualized basis, following the February 2019 salary increases), 2019 target cash bonus opportunity, and the annualized grant-date fair value of long-term incentive awards granted in March 2019, one-half of which were awarded as premium-priced stock options (granted with an exercise price at a 15% premium to our stock price at the time of grant), and one-half of which were granted with an exercise price equal to our stock price on the date of grant.

2019 CEO and Other NEOs Pay Mix

CEO      
   
Other NEOs

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Proxy Summary

New Long-Term Incentive Program

We implemented a new long-term incentive compensation program in 2019, awarding a four-year equity grant to our Named Executive Officers, intended to cover equity awards for the performance years 2019 through 2022. The four-year awards were granted in March 2019 and were divided equally into the following two forms of stock options:

Premium-Priced Stock Options. 50% of each Named Executive Officer’s equity award covering grants for 2019-2022 was granted with a premium-priced performance condition by virtue of an exercise price equal to 115% of our closing stock price on the date of the grant. Therefore, our stock price will have to grow by more than 15% above the share price on the grant date before our Named Executive Officers can realize any value from the award. These stock options will not vest (i.e., “cliff” vest) until the fourth anniversary of the grant date.
Market-Priced Stock Options. 50% of each Named Executive Officer’s equity award covering grants for the period of 2019-2022 was granted with an exercise price equal to our closing stock price on the date of grant. These awards will vest in equal thirds on the second, third and fourth anniversaries of the date of the grant, as retention incentive.

We view both of these tranches as performance-based, as both require significant stock price growth in order to enable our Named Executive Officers to realize any value from them. Both tranches have an eight-year term, which means they will need to grow the stock price more quickly than would be the case with a more typical ten-year term.

These awards are intended to compensate our Named Executive Officers over the four-year period of our current business plan, and we do not intend to make additional equity grants during this period. When viewed on an annualized basis, these awards meaningfully decrease overall compensation and decrease overall dilution, when compared with the results if we had continued our previous program for four additional years. On an annualized basis, this reduces our Chief Executive Officer’s total target direct compensation from the top quartile historically to approximately the 50th percentile of our peer group.

The four-year awards are designed to incentivize and retain our Named Executive Officers over a critical four-year period, which aligns with a four-year business plan intended to drive substantial revenue growth despite generic competition, while reducing compensation on an annualized basis in response to requests by our shareholders.

Robust Goal-Setting

We continue to set difficult goals under our annual Company-Wide Milestone Program, which governs cash bonuses for our Named Executive Officers. As one example, the chart below shows our revenue targets for the past three years, our actual revenue performance, and how this compares to the expectations of wall street analysts following our company. While we have seen a decrease in our revenues due to the generic competition described above, we continue to set goals well above external expectations, and to deliver against those goals.

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OUR CORPORATE GOVERNANCE

1 Election of Directors

Our Board consists of eleven members and is divided into three classes of three or four directors each. At each annual meeting of shareholders, members of one of the classes, on a rotating basis, are elected to a three-year term. This year at our Annual Meeting, Professor Raymond Dwek, Mr. Christopher Patusky, and Governor Tommy Thompson are nominees for election as Class III directors to serve three-year terms until our 2023 annual meeting of shareholders or until their successors are duly elected and qualified or their office is otherwise vacated. Each nominee was previously elected by shareholders at our 2017 annual meeting. For a discussion of our plans to declassify our Board if Proposal 2 is approved, please see Board Declassification below.

Directors are elected by a majority of votes cast at our Annual Meeting. A majority of votes cast means that the number of votes cast for the director nominee’s election must exceed the number of votes cast against that director nominee’s election. Broker non-votes and abstentions are not considered votes cast and therefore have no impact on the election of directors. Cumulative voting is not permitted in the election of directors. Proxies may not be voted for more than three nominees.

Each of our director nominees has consented to be named herein and to continue to serve on our Board of Directors, if elected. We do not anticipate that any nominee will become unable or unwilling to accept his or her nomination or election. If such an event should occur, the persons named on the proxy card intend to vote for the election of such other person as is selected by our Board in such nominee’s stead. In the alternative, the persons named on the proxy card may simply vote for the remaining nominees, leaving a vacancy that may be filled at a later date by our Board of Directors, or our Board of Directors may reduce the size of our Board.

Our Board of Directors recommends that you vote FOR the election of each of the nominees.

Process for Selecting Directors

We believe that our directors should possess the highest personal and professional ethics, integrity, and values, and should be committed to representing the best interests of our shareholders. We also endeavor to have a Board of Directors that, as a whole, represents a range of experiences in business, government, education and technology and in other areas that are relevant to our business activities. As reflected in our Corporate Governance Guidelines, our Board and our Nominating and Governance Committee seek to achieve a diversity of occupational and personal backgrounds on the Board, including with respect to gender, race and ethnic diversity. We assess the effectiveness of our efforts in this respect during the annual evaluation process conducted by our Nominating and Governance Committee. In addition, our Nominating and Governance Committee seeks to recommend director candidates who will enhance the quality of our Board’s deliberations and decisions, take their duties seriously, and promote the values and ethics to which we subscribe. Our Board also believes there are certain attributes every director should possess, which are described in the Director Nominations and Diversity section below.

In evaluating incumbent directors for re-nomination to our Board, the members of our Nominating and Governance Committee consider a variety of factors. These include each director’s independence, financial literacy, personal and professional accomplishments, tenure on our Board, and experience in light of our business goals. The following presents information concerning persons nominated for election as directors at our Annual Meeting and for those of our directors whose terms of office will continue after our Annual Meeting, including their age as of the date of this Proxy Statement, membership on committees of our Board, principal occupations or affiliations during the last five years or more, director qualifications, and certain other directorships held. For additional information concerning the director nominees, including stock ownership and compensation, see the section entitled Non-Employee Director Compensation and the Other Matters—Beneficial Ownership of Common Stock table below.

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Our Corporate Governance

How We Select Our Director Nominees

Succession
Planning
      Our Nominating and Governance Committee considers current and long-term needs of our evolving business and seeks potential director candidates in light of emerging needs, our current Board structure, tenure, skills, diversity and experience
Identification of
Candidates

Our Nominating and Governance Committee engages in a search process for director candidates, led by its Chairman

Our Nominating and Governance Committee considers candidates recommended by members of our Board, executive officers, shareholders and other sources, and evaluates shareholder nominees using the same criteria as it uses to evaluate all other candidates

A shareholder who wishes to recommend a prospective nominee for our Nominating and Governance Committee’s consideration should submit the candidate’s name and qualifications to our Corporate Secretary at the address set forth under Shareholder Communication with Directors below

 
Qualifications
Sought

To be considered, each director candidate must meet the following minimum criteria:

Personal and professional integrity
A record of exceptional ability and judgment
Ability and willingness to participate fully and work constructively in Board activities, including active participation in meetings of our Board and any committees to which he or she is assigned
Interest, capacity and willingness, in conjunction with the other members of our Board, to serve the interests of our shareholders
Reasonable knowledge of the fields of our operations, as well as familiarity with the principles of corporate governance
Expertise needed to serve on one or more committees of our Board
Independence, including the absence of any personal or professional relationships that would adversely affect his or her ability to serve our best interests and those of our shareholders

In addition, our Nominating and Governance Committee is interested in candidates who possess the following skills:

The ability to contribute to the variety of opinions, perspectives, personal and professional experiences and backgrounds, as well as other characteristics that differ among members of our Board
A desire to contribute positively to the existing tone and collaborative culture among our Board members
Professional and personal experiences and expertise relevant to achievement of our strategic objectives
 
Meeting with
Candidates

Once our Nominating and Governance Committee identifies a potential director nominee, it screens the candidate, performs reference checks, and conducts interviews with the assistance of our General Counsel and our Chairman and Chief Executive Officer

If the outcome of that process is favorable, our Nominating and Governance Committee may recommend the candidate to our Board for consideration

 
Decision and
Nomination

Our Nominating and Governance Committee recommends, and our full Board approves, the director candidates who are best qualified to serve the interest of our shareholders. Our Nominating and Governance Committee’s evaluation of director nominees considers their ability to contribute these qualities and skills to our Board.

 
Election

Each year, shareholders consider and elect directors at our annual meeting of shareholders. In addition, our Board may appoint directors to fill vacancies upon the recommendation of our Nominating and Governance Committee during the year, if deemed in the best interests of the company and our shareholders.

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Our Corporate Governance

Re-Nomination Process

Our Nominating and Governance Committee appreciates the importance of critically evaluating individual directors and their contributions to our Board in connection with re-nomination decisions.

In considering whether to recommend re-nomination of a director for election at our Annual Meeting, our Nominating and Governance Committee conducts a detailed review, considering factors such as:

The extent to which the director’s judgment, skills, qualifications, and experience (including those gained due to tenure on our Board) continue to contribute to our Board’s success
Attendance and participation at, and preparation for, Board and committee meetings
Independence
Shareholder feedback, including the support received by those director nominees elected at our most recent annual meeting of shareholders
Outside board and other affiliations, including any actual or perceived conflicts of interest
The extent to which the director continues to contribute to our Board’s diversity

Proxy Access

We amended our By-laws in 2015 to implement proxy access, which allows shareholders to nominate and include in our Proxy Statement their own director nominees, provided that the shareholder(s) and the nominee(s) satisfy the requirements in our By-laws. Our Board carefully considered feedback we received from our shareholders in creating a thoughtfully designed and balanced approach to proxy access that mitigates the risk of abuse and protects the interests of all of our shareholders, while affording a meaningful proxy access right. Shareholders who wish to nominate directors for inclusion in our Proxy Statement in accordance with the procedures in our By-laws should follow the instructions under Other Matters—Shareholder Proposals and Director Nominations in this Proxy Statement.

Majority Voting

In June 2015, as part of our Board’s ongoing review of our corporate governance policies, we amended our By-laws to provide that director nominees are elected by a majority of votes cast in uncontested director elections. A majority of votes cast means that the number of votes cast for the director nominee’s election must exceed the number of votes cast against that director nominee’s election. In connection with this By-law amendment, our Board also adopted a director resignation policy set forth in our Corporate Governance Guidelines, providing that any director who is not elected by a majority of the votes cast is expected to tender his or her resignation to our Nominating and Governance Committee. Our Nominating and Governance Committee will recommend to our Board whether to accept or reject the resignation offer, or whether other action should be taken, considering all factors that the Nominating and Governance Committee believes are relevant. Our Board will act on our Nominating and Governance Committee’s recommendation within 90 days following certification of the election results. Any director who tenders his or her resignation pursuant to our director resignation policy will not participate in the proceedings of either our Nominating and Governance Committee or our Board with respect to his or her own resignation offer.

Policy on Overboarding

We recently updated our Corporate Governance Guidelines to reduce our overboarding limit, such that directors are not permitted to serve on more than four public company boards (including our Board). This limit is below the limit of five boards contained in the guidelines of major proxy advisory firms, and satisfies the proxy voting criteria of our largest shareholders. In fact, this action was taken in direct response to feedback received during our shareholder outreach process in 2019. All of our directors satisfy our updated overboarding policy.

Board Declassification

At our 2019 annual meeting of shareholders, our Board supported a shareholder proposal seeking declassification of our Board. This proposal was approved by approximately 98% of votes cast for/against, and as a result we are in the process of declassifying our Board so that all directors will be subject to annual elections. As noted under Proposal 2, the first step in this process is to amend our Amended and Restated Certificate of Incorporation to eliminate the classification of our Board. Assuming this proposal is approved, beginning with our 2021 annual meeting of shareholders, directors will be elected to one-year terms.

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Our Corporate Governance

Board of Directors and Nominees

Nominees as Class III Directors for Election at our 2020 Annual Meeting of Shareholders


      Raymond Dwek, C.B.E., F.R.S.
Age: 78 Committees:
Director Since: 2002
 
 
 
None

Background

Professor Dwek is a Fellow of the Royal Society, London, and has served as Director of the Glycobiology Institute at the University of Oxford since 1988. He also served as Professor of Glycobiology at the University of Oxford from 1988 through 2009, and currently serves as Professor Emeritus. He was President of the Institute of Biology (a professional organization) from 2008 through 2010. From 2000 to 2006, Professor Dwek served as head of the Department of Biochemistry at the University of Oxford. Professor Dwek has been serving in various positions at the University of Oxford since 1966. In 1988, Professor Dwek was the scientific founder of Oxford GlycoSciences PLC, which was publicly traded on the London Stock Exchange and Nasdaq, and he served as a member of its Board of Directors until its sale in 2003. He was the 2007 Kluge Chair of Technology and Society at the U.S. Library of Congress. Professor Dwek is the founder of glycobiology, the study of the structure, biosynthesis and biology of sugar chains attached to proteins.

Director Qualifications

Professor Dwek has extensive scientific experience as both the head of the Department of Biochemistry at the University of Oxford, one of the world’s largest biochemistry departments, and as a biotechnology innovator at organizations such as the Glycobiology Institute and Oxford GlycoSciences PLC. In evaluating existing and potential new programs, our Board benefits from his scientific insight and experience in pharmaceutical research and development.


      Christopher Patusky, J.D., M.G.A.
Age: 56 Committees:
Director Since: 2002
Vice Chairman of the Board
Lead Independent Director
Nominating and Governance (Chairman)
Audit

Background

Mr. Patusky has more than 30 years of experience in the private, public and nonprofit sectors. After graduating from Harvard Law School, he clerked and practiced law from 1988 to 2000, focusing on litigation, intellectual property, and business startups. After receiving a master’s degree in governmental administration from the University of Pennsylvania in 2001, Mr. Patusky served from 2002 to 2007 as the Executive Director and member of the faculty of the University of Pennsylvania’s Fels Institute of Government. From 2007 to 2011, he served as the Director of the Office of Real Estate and as a member of the Senior Policy Team at the Maryland Department of Transportation, staying on in a part time capacity until 2013. Since 2012, Mr. Patusky has served as the founding principal of Patusky Associates, LLC, which serves as a personal investment vehicle, and as an executive manager of Slater Run Vineyards, LLC, his family’s farm-based vineyard and winery. Our Board of Directors has determined that Mr. Patusky meets the financial sophistication requirements of Nasdaq’s listing standards.

Director Qualifications

Mr. Patusky brings to our Board extensive legal and business experience from his law career, governance experience from his former position as an administrator and faculty member at the University of Pennsylvania’s Fels Institute of Government, and governmental regulatory experience gained from his leadership position with the Maryland Department of Transportation. His responsibilities at the Fels Institute and the Maryland Department of Transportation included significant budgetary management and oversight responsibilities.

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Our Corporate Governance 

      Tommy Thompson, J.D.
Age: 78 Committees:
Director Since: 2010
 
 
 
Audit

Background

Before entering the private sector in 2005, Governor Thompson enjoyed a long and distinguished career in public service. As Secretary of the U.S. Department of Health and Human Services from 2001 to 2005, he was a leading advocate for the health and welfare of all Americans. He also served four terms as Governor of Wisconsin from 1987 to 2001. Governor Thompson served as a partner at the law firm of Akin Gump Strauss Hauer & Feld LLP (Akin Gump) in Washington, D.C. from 2005 until January 2012. Governor Thompson has served as Chairman and Chief Executive Officer of Thompson Holdings, a consulting firm, since 2012. In 2017, Governor Thompson became an Adjunct Senior Advisor to Akin Gump. From 2005 to 2009, he also served as the Independent Chairman of the Deloitte Center for Health Solutions, which researches and develops solutions to some of our nation’s most pressing health care and public health related challenges. He is currently a member of the boards of directors of the following public companies: Centene Corporation, Physicians Realty Trust, and TherapeuticsMD, Inc. He previously served on the boards of various other public companies, including Cancer Genetics Inc., CareView Communications, Inc., CNS Response, Inc., C.R. Bard, Inc., Cytori Therapeutics, Inc., SpectraScience, Tyme Technologies, Inc., and X Shares Advisors, and as the chairman of the board of directors of AGA Medical Holdings, Inc. from 2005 to 2010. Our Board has determined that Governor Thompson meets the financial sophistication requirements of Nasdaq’s listing standards.

Other Current Public Boards

Centene Corporation
Physicians Realty Trust
TherapeuticsMD

Director Qualifications

Governor Thompson brings to our Board significant experience in the healthcare industry, both as a public official (former Secretary of the U.S. Department of Health and Human Services) and in the private sector (Deloitte Center for Health Solutions), as well as public company board experience and knowledge of legislative affairs. Governor Thompson’s legal experience from his private practice at Akin Gump also is useful in our Board’s oversight of our legal and regulatory compliance.

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Our Corporate Governance

Class I Directors Continuing in Office with Terms Ending in 2021

Each Class I director was previously elected by shareholders at the 2018 annual meeting.

      Katherine Klein, Ph.D.
Age: 63 Committees:
Director Since: 2014


None

Background

Professor Klein has served as the Vice Dean of the Wharton Social Impact Initiative since July 2012, and as The Wharton School’s Edward H. Bowman Professor of Management since 2005. She also served as Professor of Management of The Wharton School from 2004 to 2005. Prior to joining Wharton, Professor Klein was on the faculty of the University of Maryland and a visiting professor at the Stanford Graduate School of Business. She received her B.A. from Yale University, and her Ph.D. in Community Psychology from the University of Texas at Austin. An award-winning organizational psychologist, Professor Klein has conducted extensive field research regarding a range of topics including team leadership, climate, conflict, social networks, and effectiveness; organizational change and technology implementation; employee diversity; and employee responses to stock ownership. She has taught executive education and consulted with and studied a variety of for profit and non-profit organizations including Charles Schwab, Rohm and Haas, North American Scientific, Medtronic, The Baltimore Shock Trauma Center, Penn Vet, the U.S. Census Bureau, and the Korean Management Association. Her research has been published in numerous top journals including Administrative Science Quarterly, Journal of Applied Psychology, the Academy of Management Journal, and the Academy of Management Review. She is also a former associate editor of the Journal of Applied Psychology and Administrative Science Quarterly. Professor Klein is a Fellow of the Academy of Management, the Society for Industrial and Organizational Psychology, the American Psychological Association, and the Association for Psychological Science.

Director Qualifications

As a professor and Vice Dean at one of the world’s leading business schools, Professor Klein brings valuable expertise in organizational behavior and employee ownership culture, two topics that are of vital importance to a growing biotech company like United Therapeutics. As we adapt to the needs of a larger company while balancing our goal of maintaining an entrepreneurial culture designed to foster continued high growth and innovation, Professor Klein provides valuable insight to our Board. Additionally, as Vice Dean of the Wharton Social Impact Initiative, Professor Klein is highly qualified to help guide United Therapeutics’ thinking about the social impact of its business operations.


      Ray Kurzweil
Age: 72 Committees:
Director Since: 2002



None

Background

Mr. Kurzweil is an inventor, entrepreneur, and author, and has created several important technologies in the artificial intelligence field. He has received the National Medal of Technology, the MIT Lemelson Prize, twenty-one honorary doctorates, a Grammy award for his contributions to music technology, and honors from three U.S. Presidents. In 2002, Mr. Kurzweil was inducted into the National Inventors Hall of Fame. Since 1995, Mr. Kurzweil has served as the Chief Executive Officer of Kurzweil Technologies, Inc., a technology development firm. Since January 2013, he has also served as a Director of Engineering for Google, a global technology and Internet search company.

Director Qualifications

Mr. Kurzweil brings to our Board extensive technological experience as an inventor and technology developer. His technical experience in the areas of artificial intelligence, telemedicine, and pharmaceutical research and development, and his experience in building businesses around his inventions, provide our Board with perspective in evaluating current and proposed technologies and business opportunities. Mr. Kurzweil also brings to our Board substantial corporate leadership experience from his role as Chief Executive Officer of Kurzweil Technologies, Inc.

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Our Corporate Governance

      Martine Rothblatt, Ph.D., J.D., M.B.A.
Age: 65 Committees:
Director Since: 1996
Chairman of the Board
Chief Executive Officer
None

Background

Dr. Rothblatt founded United Therapeutics in 1996 and served as Chairman and Chief Executive Officer from its inception through January 2015, when she became our Chairman and Co-Chief Executive Officer. She was promoted to her current role as Chairman and soul CEO in June 2016. Prior to founding United Therapeutics, she created several satellite communications technologies, and she is the Founder of SiriusXM. She is the co-inventor on six of our patents pertaining to treprostinil, and the inventor of our recently-awarded patent on a brain-computer interface device for patients with debilitating cognitive conditions.

Director Qualifications

Dr. Rothblatt brings to our Board extensive leadership and business experience at technology companies, as well as in depth knowledge of our company from her service as our founder, Chairman and Chief Executive Officer. She also has substantial knowledge of medical ethics, having obtained her Ph.D. in medical ethics from the University of London.


      Louis Sullivan, M.D.
Age: 86 Committees:
Director Since: 2002
 
 
 
Compensation
Nominating and Governance

Background

Dr. Sullivan was the founding President of Morehouse School of Medicine, from 1981 to 1989, served as President again from 1993 to 2002, and has served as President Emeritus since 2002. Dr. Sullivan was also one of the founders and served as Chairman of Medical Education for South African Blacks, Inc., a member of the National Executive Council for the Boy Scouts of America, and a member of the Board of Trustees of Little League of America. Dr. Sullivan served as Secretary of the U.S. Department of Health and Human Services from 1989 to 1993. He is a physician certified in internal medicine with a sub-specialty certification in hematology. Dr. Sullivan currently serves on the board of directors of Emergent BioSolutions, Inc. (since 2005), a publicly-traded company. He also serves as Co-Chair of the Henry Schein Cares Foundation. Dr. Sullivan previously served on the boards of directors of a wide range of public companies, including General Motors Company, BioSante Pharmaceuticals, Inc., Bristol Myers Squibb Company, Cigna Corporation, 3M Company, Henry Schein, Inc., Household International (now HSBC), Equifax, and Georgia Pacific Corporation.

Other Current Public Boards

Emergent BioSolutions, Inc.

Director Qualifications

Dr. Sullivan brings to our Board extensive experience in the healthcare industry as a public official from his service as Secretary of the U.S. Department of Health and Human Services, a physician certified in internal medicine, and a professor and an administrator at Morehouse School of Medicine. He also has substantial public company board experience gained from his service as a director of Emergent BioSolutions, Inc., as well as his previous public company board service.

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Our Corporate Governance

Class II Directors Continuing in Office with Terms Ending in 2022

Each Class II director was previously elected by shareholders at the 2019 annual meeting.

      Christopher Causey, M.B.A.
Age: 57 Committees:
Director Since: 2003
 
 
 
Compensation (Chairman)
Nominating and Governance

Background

Mr. Causey has served as the Principal of the Causey Consortium, a professional services organization providing business strategy and marketing counsel to the healthcare industry, since 2002. Previously, Mr. Causey served as a senior marketing officer for a variety of healthcare companies. From 2001 to 2002, Mr. Causey served as the Chief Marketing Officer for Definity Health Incorporated. He was also a member of the board of directors of Data Sciences International, Inc., a private company that develops wireless physiological monitoring solutions, from 2008 to 2013.

Director Qualifications

Drawing upon nearly 30 years of experience in strategic planning and marketing for health care delivery, financing and biotechnology organizations, including as Principal of Causey Consortium, Mr. Causey brings to our Board substantial experience in the health care and biotech industries. Our Board benefits from Mr. Causey’s extensive leadership experience as a senior health care marketing executive.


      Richard Giltner
Age: 56 Committees:
Director Since: 2009
 
 
 
Audit (Chairman)
Nominating and Governance

Background

From 2009 until his retirement in 2010, Mr. Giltner was a portfolio manager at Lyxor Asset Management, an asset management group at the French bank Société Générale. From 2006 until 2009, he served as a managing director of Société Générale Asset Management, an international fund management firm, and head of the European office for its fund of hedge funds group. From 2003 to 2006, Mr. Giltner was the global head of foreign exchange options for the investment banking arm of Société Générale. He also held various other managerial positions within Société Générale from 1991 until 2003. Mr. Giltner has been a private investor since his retirement from Société Générale in 2010. Our Board of Directors has determined that Mr. Giltner is an audit committee financial expert as defined under the rules and regulations of the SEC and meets the financial sophistication requirements of Nasdaq’s listing standards.

Director Qualifications

Mr. Giltner brings to our Board over 20 years of experience in the financial sector, including international financial markets, financial derivatives, alternative investments and asset management. As our business continues to grow and expand, our Board benefits from Mr. Giltner’s global business and financial experience and his perspective as an institutional investor, as well as his leadership experience in international finance from his service in various management roles at Société Générale.

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      Nilda Mesa, J.D.
Age: 60 Committees:
Director Since: 2018
 
 
 
Compensation

Background

Ms. Mesa has had a long and innovative career in environment, energy and sustainability at the city, state, national and global levels, and now writes and presents extensively on climate, energy, equity and urban systems relating to them. From 2014 to 2016, Ms. Mesa served as Director of the New York City Mayor’s Office of Sustainability, where she led the pathbreaking OneNYC long term sustainability plan for the city. As chief sustainability officer for New York City, she oversaw programs in climate, energy, sustainability, air quality and public health, waste, green buildings, transportation, public education, and other initiatives. In 2016, she returned to Columbia University as an adjunct professor at the School of International and Public Affairs, as well as Director of the Urban Sustainability and Equity Planning Program with Columbia’s Center for Sustainable Urban Development at the Earth Institute, positions she continues to hold today. In 2006, she founded Columbia’s Office of Environmental Stewardship, one of the first in the United States for a university. She also served as Chief Administrative Officer at the Columbia Journalism School from 2012 to 2014. Before joining Columbia, Ms. Mesa served in environmental leadership roles at the White House Council on Environmental Quality, the U.S. Air Force, the U.S. Environmental Protection Agency, and the California Attorney General’s office, and practiced law in both the public and private sectors. Her work has involved extensive international experience, including most recently a 2018 to 2020 appointment as a visiting professor and lecturer at the Paris Institute of Political Studies (Sciences Po), an international research university in France. She is the co-author of a book to be published next year on climate and collaboration, as well as a contributor to the recently published “Smarter New York City: How City Agencies Innovate.” (Columbia University Press). She is a graduate of Harvard Law School and Northwestern University.

Director Qualifications

Ms. Mesa brings to our Board extensive executive leadership experience, particularly in the area of environmental stewardship. As we continue to operate and grow our business in an environmentally sustainable fashion, we expect Ms. Mesa’s insights to be extremely valuable. In addition, our Board benefits from her experience working in a variety of scientific, academic, government, legal, and international settings.

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Our Corporate Governance

      Judy Olian, Ph.D.
Age: 68 Committees:
Director Since: 2015
 
 
 
None

Background

Judy Olian has served as President of Quinnipiac University since July 2018. Previously, she served as dean of the UCLA Anderson School of Management and the John E. Anderson Chair in Management from 2006 to 2018. Her research and business expertise centers on aligning organizational strategies and design with human resource systems and incentives, and managing top management teams. She began her UCLA appointment after serving as dean and professor of management at the Smeal College of Business Administration at Pennsylvania State University. Earlier, she served in various faculty and executive roles at the University of Maryland and its Robert H. Smith School of Business. Ms. Olian serves or has been a member of various advisory boards (including the U.S. Studies Centre at the University of Sydney, Peking University Business School’s International Advisory Board, the Connecticut Governor’s Workforce Council, the Business-Higher Education Forum, New Haven Promise, and Catalyst, a leading global think tank for women in business) and served as Chairman of the Loeb Awards for Business Journalism. Born and raised in Australia, Ms. Olian received her B.S. in Psychology from the Hebrew University, Jerusalem and her M.S. and Ph.D. in Industrial Relations from the University of Wisconsin, Madison. She was the Chairman of AACSB International, the premier thought leadership and accreditation organization for leading global business schools, and currently serves on the board of directors of Ares Management, L.P., a publicly traded global alternative asset management firm, and Mattel, Inc., a publicly traded multinational toy manufacturing company.

Other Current Public Boards

Ares Management, L.P.
Mattel, Inc.

Director Qualifications

As the president of a prestigious university and former dean of one of the world’s leading business schools, Ms. Olian brings valuable expertise in managing and leading a large organization. Her academic expertise, which centers on the alignment of organizational strategies with human resource systems and incentives, provides valuable insight to a growing biotech company like United Therapeutics. In addition, her service as a director of Ares Management and Mattel provides valuable public company board experience.

Director Independence

Our Board has made the following independence determinations:

General Independence: Christopher Causey, Raymond Dwek, Richard Giltner, Katherine Klein, Ray Kurzweil, Nilda Mesa, Judy Olian, Christopher Patusky, Louis Sullivan, and Tommy Thompson are independent in accordance with the Nasdaq listing standards.
Management Director: Martine Rothblatt is not independent due her employment as our Chief Executive Officer.
Audit Committee Standards: Richard Giltner, Christopher Patusky, and Tommy Thompson meet the heightened independence standards for audit committee members set forth in rules promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act).
Compensation Committee Standards: Christopher Causey, Nilda Mesa, and Louis Sullivan meet the heightened independence standards for compensation committee members under the Nasdaq listing standards.

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Our Corporate Governance

Board Structure

Board Leadership

Our Board believes that it is important to evaluate and determine the most appropriate Board leadership structure so that our Board can both provide effective, independent oversight of management and facilitate its understanding of our business. To carry out this responsibility, our Corporate Governance Guidelines empower our Board to periodically evaluate and determine the appropriate leadership structure for our Board. In doing so, our Board considers our specific circumstances and evolving needs at any given time.

Our Board has determined that at this time, the leadership structure best suited to support the dynamic demands of our business is to have Dr. Rothblatt, who founded our company, serve as Chairman of our Board and Chief Executive Officer, and to appoint a Lead Independent Director with robust, well-defined responsibilities. Our Board believes that Dr. Rothblatt serving the combined roles of Chairman and Chief Executive Officer provides an efficient and effective leadership model for a growing entrepreneurial company like ours, as it fosters clear accountability, effective decision making, and alignment on corporate strategy. In addition, because our Board works closely with our executive officers and members of senior management, there is a natural synergy in the combined Chairman and Chief Executive Officer roles that facilitates our Board’s guidance of management.

Our Board also believes that independent leadership is an important aspect of our Board’s leadership structure. As a result, the independent directors on our Board have designated Mr. Patusky as Lead Independent Director.

Lead Independent Director

Our Lead Independent Director is selected annually by the independent directors.
Among other responsibilities, our Lead Independent Director:
coordinates the activities of our independent directors
approves Board meeting schedules and agendas
chairs all meetings of our Board when the Chairman is not present, including executive sessions of our independent directors
serves as principal liaison between our independent directors and our Chairman and senior management
Our Lead Independent Director also has the authority to call executive sessions of the independent directors and is available for consultation and communication with major shareholders.

A more detailed description of the responsibilities of the Lead Independent Director is included in our Corporate Governance Guidelines, which are available on our website at http://ir.unither.com/corporate-governance.

Committees of our Board of Directors

Our Board has three standing committees. A summary of each committee’s duties and each committee’s current composition can be found below. Additional detail on each committee’s duties can be found in each committee’s charter. Each committee’s charter provides that it may delegate responsibilities to subcommittees if it determines such a delegation would be in the best interest of our company.

Audit Committee

Members:

Richard Giltner (Chair)
Christopher Patusky
Tommy Thompson

Meetings in 2019: 5

     

Primary Responsibilities

Representing and assisting our Board in its oversight responsibilities regarding our accounting and financial reporting processes, the audits of our financial statements, and system of internal controls over financial reporting, including the integrity of our financial statements, and the qualifications and independence of Ernst & Young LLP, our independent registered public accounting firm
Retaining and terminating our independent auditors
Approving in advance all audit and non-audit services to be performed by our independent auditors
Approving related party transactions
General oversight of our practices with respect to risk assessment and risk management

For additional information regarding the processes and procedures used by our Audit Committee, see the section entitled Report of our Audit Committee below.

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Our Corporate Governance

Compensation Committee

Members:

Christopher Causey (Chair)
Nilda Mesa
Louis Sullivan

Meetings in 2019: 6

     
Our Compensation Committee oversees our compensation plans and policies, reviews and approves compensation for our executive officers, oversees the administration of our equity incentive and share tracking awards plans and our Supplemental Executive Retirement Plan, and reviews and approves grants of stock options to our executive officers and the methodology and formulae for granting stock options and restricted stock units to other employees.

Primary Responsibilities

Creating a system for awarding long-term and short-term performance-oriented incentive compensation to attract and retain senior management, and reviewing our compensation plans to confirm that they are appropriate, competitive, and properly reflect our goals and objectives while managing risk
Assisting our Board in discharging its responsibilities regarding compensation of our executive officers

For additional information regarding the processes and procedures used by our Compensation Committee, see the section entitled Compensation Discussion and Analysis below.


Nominating and Governance Committee

Members:

Christopher Patusky (Chair)
Christopher Causey
Richard Giltner
Louis Sullivan

Meetings in 2019: 5

     

Primary Responsibilities

In addition to the responsibilities described in the section entitled How We Select Our Director Nominees above, our Nominating and Governance Committee’s primary responsibilities include:
Proposing nominees for election to our Board
Proposing nominees to fill vacancies on our Board and newly created directorships
Reviewing candidates for election to our Board recommended to us by our shareholders
Recommending committee membership and chairmen
Reviewing management succession plans
Evaluating and overseeing issues and developments with respect to corporate governance, and recommending to our Board and monitoring all matters with respect to corporate governance
Overseeing our compliance program

Corporate Governance Guidelines and Committee Charters

Upon the recommendation of our Nominating and Governance Committee, our Board maintains Corporate Governance Guidelines as a framework for the governance of our company. These guidelines are reviewed annually by our Nominating and Governance Committee, which recommends any changes to be submitted to the full Board for approval. Most recently, in March 2020, our Corporate Governance Guidelines were updated to, among other things, reduce the limit on the number of public company boards our directors may serve on, from five to four (including our Board). This change was made in direct response to shareholder feedback. Our Corporate Governance Guidelines, along with the charter for each Board committee, are available electronically in the Corporate Governance section of the Investors page of our website, located at http://ir.unither.com/corporate-governance, or by writing to us at United Therapeutics Corporation, Attention: Corporate Secretary, 1735 Connecticut Avenue N.W., Washington, D.C. 20009.

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Our Corporate Governance

Board Roles and Responsibilities

Risk Oversight

Our Board is responsible for overseeing the risks facing our company. Our Board works directly with our executive officers and other members of our senior management team in carrying out its risk oversight function. Our directors take a proactive, interested and detailed approach to their service on our Board and set expectations to promote our success through the achievement of business objectives while maintaining high standards of responsibility and ethics.

BOARD
At its regularly scheduled meetings, our Board receives reports from our Chairman and Chief Executive Officer, President and Chief Operating Officer, Chief Financial Officer and General Counsel, and may also receive reports from the Committee Chairmen, outside consultants, and other members of senior management, among others. These presentations often include identification and assessment of risks our company currently faces or may face in the future.
Our Board is able to ask questions, discuss and provide guidance to management on the risks presented, as well as any risks that our Board identifies.
Our Board implements its risk oversight function both as a whole and through delegation to various committees. These committees meet regularly and report back to the full Board.
AUDIT COMMITTEE
Our Audit Committee’s responsibilities include general oversight of our company’s practices with respect to financial risk assessment and management, as well as the responsibility to review and discuss the company’s practices with respect to risk assessment and risk management, and risks related to matters including the company’s financial statements and financial reporting processes, and information technology and cybersecurity.
COMPENSATION COMMITTEE
Our Compensation Committee’s duties include overseeing an assessment of the incentives and risks arising from or related to our compensation policies and practices, including but not limited to those applicable to our executive officers, and evaluating whether those incentives and risks are appropriate.
NOMINATING AND GOVERNANCE COMMITTEE
Our Nominating and Governance Committee’s responsibilities include oversight of our company’s practices with respect to legal and regulatory compliance risk.
MANAGEMENT
Our senior management team is responsible for assessing risk on a daily basis. Our Board expects that our senior management team continually identifies, assesses and manages the short-term and long-term risks faced by our company. If members of our senior management team identify risks that are material to United Therapeutics, our Board may convene a special meeting to discuss, assess, and address such risks.

In April 2020, our Compensation Committee reviewed a risk assessment conducted by management and our Compensation Committee’s independent compensation consultant, Radford, to determine whether the design of our employee compensation programs and the amounts and components of employee compensation might create incentives for excessive risk taking by our employees. Based on this review, our Compensation Committee concluded that the risks arising from our employee compensation programs are not reasonably likely to have a material adverse effect on our company. Our Compensation Committee believes that our compensation programs encourage employees, including our executives, to remain focused on a balance of the short-term and long-term operational and financial goals of our company, thereby reducing the potential for actions that involve an excessive level of risk. See the section entitled Compensation Discussion and Analysis below for information regarding certain risk mitigating features of our compensation programs.

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Our Corporate Governance

Shareholder Engagement

How We Engage

Investor Relations and Senior Management
We provide institutional investors with many opportunities to provide feedback to our Board and senior management. We participate in investor conferences throughout the year, and regularly meet with our shareholders.
     
Board Involvement
Directors regularly and actively engage with our shareholders. For several years, our Compensation Committee Chairman has actively sought to engage with our top 25 shareholders at least once, and sometimes twice, per year. Our Nominating and Governance Committee Chairman also engages with our shareholders on other governance topics.
2019 Engagement
In 2019, the Chairmen of our Compensation Committee and Nominating and Governance Committee invited our 25 largest shareholders, representing more than 70% of our outstanding shares, to engage in discussions. We held such discussions with shareholders holding approximately 30% of our outstanding shares. Our Chairmen also engaged with the major proxy advisory firms in 2019. Where appropriate, members of management also participated. Topics included executive compensation, corporate governance, ESG, and corporate strategy.
Outcomes from Shareholder Engagement
Shareholder feedback was carefully considered and led to modifications in our governance practices, executive compensation program, and disclosures. Some of the actions we have taken in response to shareholder feedback over the past several years include:
Adoption of majority voting
Adoption of proxy access
Board support for 2019 shareholder proposal to declassify our Board, and for this year’s proposed amendment to our Certificate of Incorporation to declassify our Board (Proposal 2)
Revised our Corporate Governance Guidelines to reduce the number of public company boards on which our directors may serve
Initiated our ESG disclosure program, with the goal of issuing a Corporate Social Responsibility Report and a new ESG-focused website this year
Enhanced disclosures regarding our executive compensation decisions
Renegotiated our Chief Executive Officer’s employment agreement to eliminate her entitlement to an annual stock option grant based on a market capitalization formula, and to eliminate an excise tax gross-up provision
Added performance vesting criteria to equity awards in 2017 and 2018
Implemented an entirely new equity compensation program in 2019 for our Named Executive Officers, enabling us to reduce overall compensation and dilution levels
In 2019, reduced annualized total direct compensation for our Chief Executive Officer to approximately the 50th percentile of our peer group
Redesigned this year’s Proxy Statement to enhance shareholders’ understanding of our business, our corporate governance system, and our compensation programs

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Our Corporate Governance

Board Education

Our Board participates in a number of educational activities. Key members of management regularly provide scientific presentations to our Board to increase its understanding of the science behind our pipeline and our business activities. Experts regularly provide training sessions on key topics, particularly in complex legal, regulatory, and compliance areas. We also recently joined the National Association of Corporate Directors, and encourage our Board members to take advantage of its numerous additional educational resources and programs.

Meetings of our Board of Directors and Board Attendance at Annual Meetings of Shareholders

Our full Board held four meetings during 2019. In addition, during 2019, our Audit Committee held five meetings, our Compensation Committee held six meetings, and our Nominating and Governance Committee held five meetings. Each of our directors attended more than 75% of the total number of meetings of our Board and the committees on which he or she served during 2019, with 98% attendance on average. In accordance with applicable Nasdaq listing standards, the independent members of our Board met without management present four times during 2019.

Our Board encourages all of its members to attend our annual meeting of shareholders, although attendance is not mandatory. Eight of our directors attended our 2019 annual meeting of shareholders.

Shareholder Communication with Directors

Shareholders are encouraged to address any director communications to our Corporate Secretary by overnight or certified mail, signature acceptance or return receipt required, at: United Therapeutics Corporation, Attention: Corporate Secretary, 1735 Connecticut Avenue N.W., Washington, D.C. 20009. Our Corporate Secretary has the authority to disregard or take other reasonable action with respect to any inappropriate shareholder communications. After confirming the stock ownership of the author of the communication, our Corporate Secretary will review the appropriateness of a shareholder communication based on the relevance of the communication to Board decisions. If deemed an appropriate communication, our Corporate Secretary will submit the shareholder communication to our Lead Independent Director, who may share it with the Nominating and Governance Committee or the full Board.

Stock Ownership Guidelines

In 2011, our Board adopted Stock Ownership Guidelines applicable to our directors and our Named Executive Officers in order to further align the financial interests of our directors and Named Executive Officers with those of our shareholders, to foster a long-term management orientation, and to promote sound corporate governance. For non-employee members of our Board, our Stock Ownership Guidelines provide an ownership target equal to the lesser of 5,000 shares or a value equivalent to five times the annual cash Board retainer. The policy includes procedures for granting exemptions in the case of hardship. Ownership targets for our Named Executive Officers (including those serving on our Board) are described below under Compensation Discussion and Analysis—Other Executive Compensation Policies and Practices—Stock Ownership Guidelines.

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Our Corporate Governance

Non-Employee Director Compensation

Overview

In 2019, our non-employee director compensation program was comprised of three main elements:

an annual cash retainer (payable quarterly) for service as a member of our Board
additional annual cash retainers (payable quarterly) for service on Board committees and for service as Lead Independent Director
stock options or restricted stock units (in either case, granted initially upon joining our Board, and thereafter on an annual basis) for service as a member of our Board

Directors may also be compensated for special assignments from our Board. On July 31, 2019, at our request, Christopher Causey joined the board of a private company in which we own a minority equity interest. United Therapeutics pays him a stipend of $35,000 per year for this special assignment, which was approved by our Compensation Committee without his participation. Employee directors do not receive any compensation for service on our Board in addition to their regular compensation as employees.

Our Compensation Committee generally reviews non-employee director compensation levels approximately once every two years, and final decisions with respect to any changes in non-employee director compensation levels are made by our Board upon the recommendation of our Compensation Committee. In 2019, our Compensation Committee’s independent consultant reviewed the market competitiveness of our non-employee director compensation program relative to our compensation peer group (as described in more detail below under Compensation Discussion and Analysis—2019 Compensation Program Design—Compensation Peer Group). Based on this review, our Compensation Committee did not recommend any changes to the non-employee director compensation program in 2019. Our current non-employee director compensation levels were established by our Board in February 2016. The following table outlines the non-employee director compensation levels in effect for 2019:

Value of Equity
Based Awards
(3)
Annual Cash Initial Annual
Board Membership               $ 60,000       $ 400,000       $ 400,000
Lead Independent Director(1) $ 35,000
Committee Chairmanship(2):
Audit Committee $ 25,000
Compensation Committee $ 25,000
Nominating and Governance Committee $ 25,000
Committee Membership(2):
Audit Committee $ 15,000
Compensation Committee $ 15,000
Nominating and Governance Committee $ 15,000
(1)

Compensation for service as Lead Independent Director is paid in addition to amounts paid for membership on our Board and for any committee chairmanship or membership.

(2)

Committee chairmen receive the compensation indicated for committee chairmanship in lieu of the compensation for committee membership. Compensation for committee chairmanship and committee membership is paid in addition to amounts paid for Board membership.

(3)

Annual awards are generally granted once per year on the date of the first meeting of our Board following our annual meeting of shareholders or for newly appointed directors, on or shortly following appointment to our Board.

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Our Corporate Governance

Equity-Based Awards

Non-employee directors are eligible to receive equity-based awards under the United Therapeutics Corporation Amended and Restated 2015 Stock Incentive Plan (the 2015 SIP), as follows:

Form of Awards: Initial Grants and Annual Grants are paid in the form of stock options, restricted stock units (RSUs), or a combination of the two. For each grant, directors may elect to receive awards in any one of the following forms:
100% stock options
100% RSUs
50% stock options / 50% RSUs
Value of Awards: The aggregate value of each director’s annual equity-based award is $400,000. The aggregate value of an initial equity-based award upon joining our Board is $400,000, plus a pro rata portion of the annual equity-based award value based on the number of months remaining in our Board service year at the date of grant.
Deferral for RSUs: For directors who elect RSUs, our Compensation Committee has implemented a deferral program enabling directors to defer delivery of shares of common stock following vesting of the RSUs.
Calculation Methodology: Our Compensation Committee also sets the methodology for determining the precise numbers of stock options and/or RSUs for each grant. For the annual grants, generally occurring in June of each year, the following applies (subject to modification by our Compensation Committee in its discretion):
Stock Options: The number of stock options is calculated by dividing the equity value ($400,000, or $200,000, if the director has elected 50% options and 50% RSUs) by the fair value of each stock option, calculated in accordance with the Black Scholes Merton methodology utilized in calculating share-based compensation for financial reporting purposes. Black Scholes Merton inputs are the same as those used in our most recent quarterly report on Form 10-Q, except that the stock price input is the average closing price of our common stock over a recent time period prior to the date of grant (May 10 through June 10, in the case of annual grants).
RSUs: The number of RSUs is calculated by dividing the equity value ($400,000, or $200,000, if the director has elected 50% options and 50% RSUs) by the average closing price of our common stock over a recent time period prior to the date of grant (May 10 through June 10, in the case of annual grants).
Rounding: The resulting number of stock options or RSUs, calculated as above, is rounded to the nearest 10 shares.

The grant-date fair value of RSUs and stock options reported in the Non-Employee Director Compensation table each year often varies from the $400,000 target for each director, because the methodology used to calculate the number of RSUs and/or stock options delivered is based on an average stock price over a specified one-month period prior to the date of grant, whereas the amount reported in the table represents the grant date fair value of the RSUs and stock options on the date of grant. See 2019 Non-Employee Director Compensation below.

Exercise Price: Stock options granted to non-employee directors have an exercise price equal to the closing price of our common stock as reported on the Nasdaq Global Select Market on the date of grant, or on the preceding trading day if the award is granted on a date when the Nasdaq is not open.
Grant Timing:
The date of grant for a new non-employee director’s initial award, consisting of the initial membership award and a prorated amount of the annual award for the remainder of the board service year, is the date of a director’s appointment or election to our Board.
The date of grant for annual awards is the date of the first meeting of our Board following our annual meeting of shareholders in the year of grant.
Vesting: Non-employee director awards become fully vested on the one year anniversary of the grant date, but only if the director attends at least 75% of the regularly scheduled meetings of our Board and his or her committee meetings from the date of grant until the date of our next annual meeting of shareholders.

Previously, non-employee directors were also eligible to receive awards under the 2011 United Therapeutics Corporation Share Tracking Awards Plan (collectively with its predecessor plan adopted in 2008, the STAP), which settle only in cash. However, since the approval of the 2015 SIP on June 26, 2015, all equity-based awards for non-employee directors have been granted in the form of stock options and RSUs.

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Our Corporate Governance

2019 Non-Employee Director Compensation

The following table lists the compensation earned in 2019 by each non-employee director:

Name Fees
Earned or
Paid in
Cash
(1)
Restricted
Stock
Units(2)
Stock
Options(2)
All Other
Compensation
Total
Christopher Causey       $      100,000       $       $ 351,945       $         14,767 (3)        $ 466,712
Raymond Dwek $ 60,000 $      351,256 $ $ $ 411,256
Richard Giltner $ 100,000 $ 351,256 $ $ $ 451,256
Katherine Klein $ 60,000 $ $      351,945 $ $ 411,945
Ray Kurzweil $ 60,000 $ 175,628 $ 176,112 $ $ 411,740
Nilda Mesa $ 67,665 $ 175,628 $ 176,112 $ $ 419,405
Judy Olian $ 67,335 $ 175,628 $ 176,112 $ $ 419,075
Christopher Patusky $ 144,864 $ 175,628 $ 176,112 $ $ 496,604
Louis Sullivan $ 90,000 $ 175,628 $ 176,112 $ $ 441,740
Tommy Thompson $ 75,000 $ $ 351,945 $ $      426,945
(1)

Includes (as applicable) annual cash retainer and fees for serving on our Board, the committees of our Board, as a committee chairman and as Lead Independent Director.

(2)

On June 26, 2019, each of our non-employee directors was granted stock options and/or RSUs. Each stock option had an exercise price of $76.36 per share and a grant date fair value of $27.91 per share, and each RSU had a grant date fair value of $76.36 per share. Amounts shown in these columns represent the aggregate grant date fair value of these stock options and RSUs, which were the only awards granted to non-employee directors in 2019, computed in accordance with applicable accounting standards. For a discussion of the valuation assumptions for stock options, see Note 9—Share-Based Compensation to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.

The grant-date fair value of RSUs and stock options presented in this table differs from the $400,000 target for each director due to the methodology used to calculate the number of RSUs and/or stock options delivered, which is based on an average stock price over a specified one-month period prior to the date of grant.

(3)

Consists of retroactive compensation paid to Mr. Causey in 2020 for his 2019 service, commencing July 31, 2019, on the board of directors of a private company in which we maintain a minority equity interest.

Each non-employee director held the following number of stock options, STAPs and RSUs as of December 31, 2019:

Name       Stock
Options
      STAP
Awards
      RSUs
Christopher Causey 41,060 27,000
Raymond Dwek 15,000 65,000 4,600
Richard Giltner 30,000 60,000 4,600
Katherine Klein 55,080 29,375
Ray Kurzweil 35,050 33,750 2,300
Nilda Mesa 12,870 2,300
Judy Olian 45,930 2,300
Christopher Patusky 39,670 40,000 2,300
Louis Sullivan 30,430 51,000 2,300
Tommy Thompson 49,850 53,059

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Our Corporate Governance

Approval of Amendment to our Amended and Restated Certificate of Incorporation to Declassify our Board of Directors

We are asking our shareholders to approve an amendment to our Amended and Restated Certificate of Incorporation (Certificate) to phase out the classification of our Board and provide for the annual election of all directors, as described below (Declassification Amendment). Our Board has unanimously adopted, approved and declared advisable the Declassification Amendment and recommends that shareholders approve and adopt the Declassification Amendment.

Approval of the Declassification Amendment requires the affirmative vote of the holders of a majority of the shares of our outstanding common stock entitled to vote thereon. Abstentions and broker non-votes, if any, have the same effect as an “against” vote. Brokers do not have authority to vote on the Declassification Amendment without instructions from the beneficial owner.

Our Board of Directors recommends that you vote FOR the amendment to our Amended and Restated Certificate of Incorporation to declassify our Board of Directors.

Why You Should Vote for the Declassification Amendment

Our Certificate currently divides our Board into three classes, with each class elected to serve a three-year term. As a result, at each annual meeting of shareholders, approximately one-third of our directors are elected to serve for a three-year term. Our Board regularly reviews our governance structure, including the continued appropriateness of our classified board structure. In connection with our 2019 annual meeting, a shareholder submitted a proposal asking our Board to take the steps necessary to declassify our Board. The proposal was advisory in nature. Our Board determined that shareholders should have an opportunity to express their views on this important topic by voting on the shareholder proposal at the 2019 annual meeting, and our Board recommended that shareholders vote “for” the proposal. 98% of the votes cast on that non-binding proposal supported it. Approval of the Declassification Amendment would now implement the necessary changes to our Certificate to declassify our Board.

Our Board believes that removing the classified board structure and moving to annual director elections would further enhance practices our Board has already adopted to promote director accountability and independent oversight, including majority voting in uncontested director elections, proxy access, a strong Lead Independent Director, and an executive compensation program that is heavily weighted toward at-risk, equity-linked, performance-based compensation. In evaluating the Declassification Amendment, our Board considered the results of the vote on the shareholder proposal at the 2019 annual meeting. Our Board also considered (as it did in 2019) that many shareholders and others believe that directors should be elected annually.

Our Board also took into account the potential benefits of classified boards, as described in our 2019 Proxy Statement. These benefits include: (1) promoting stability and continuity of leadership by ensuring that our Board always includes directors with prior experience who can help our Board maintain a long-term perspective; (2) enhancing non-management directors’ independence from special interest groups or other parties whose goals may not be in the best interests of all of our shareholders; and (3) helping our Board achieve value for our shareholders in the event of an unsolicited takeover. By increasing the time necessary to elect directors who constitute a majority of the board, a classified board provides a board of directors with the time and flexibility necessary to evaluate the adequacy and fairness of any takeover proposal, negotiate on behalf of all shareholders and weigh alternative methods of maximizing value for all shareholders, without the threat of imminent removal of a majority of board members. In addition, because our Board is classified, currently directors can be removed only for cause, whereas under Delaware law directors elected to a board that is not classified can be removed with or without cause. If the Declassification Amendment is approved and implemented, it would be easier for one or more shareholders holding a large number of shares, whether an existing or long-term shareholder or one that accumulates a large position in or for a short period of time, to replace the entire Board at once.

Our Nominating and Governance Committee and our Board evaluated the Declassification Amendment in light of the considerations described above. Based on these considerations, upon the recommendation of the Nominating and Governance Committee, our Board adopted resolutions setting forth the Declassification Amendment, declared the Declassification Amendment advisable and in the best interests of United Therapeutics and our shareholders, and unanimously resolved to submit the Declassification Amendment to our shareholders for approval.

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Description of Declassification Amendment

Article VII, Section (c) of the Certificate currently provides that our Board is divided into three classes of approximately equal size, composed of directors each serving terms of office of three years. The Declassification Amendment would amend Section (c) to provide for the annual election of directors and add a new Section (d) on removal of directors to Article VII.

If the Declassification Amendment is approved by our shareholders, it would provide for the annual election of directors beginning at the 2021 annual meeting of shareholders, and the declassification of our Board would be phased in over a period of three years. The Declassification Amendment would not shorten the existing terms of our directors. Accordingly, a director who has been elected to a three-year term (including directors elected at the 2020 annual meeting) may complete that term. Beginning with the 2023 annual meeting of shareholders, the declassification of our Board would be complete and all directors would be subject to annual election for one-year terms. Consistent with Delaware law, the Declassification Amendment also provides that directors elected annually may be removed either for or without cause. Directors elected for and serving out the remainder of a three-year term would continue to be removable only for cause. Removal will be governed by the default standard under the Delaware General Corporation Law, which requires approval by a majority of the shares entitled to vote thereon.

The general description of the proposed Declassification Amendment set forth above is qualified in its entirety by reference to the text of the Declassification Amendment, which is attached as Annex A to this Proxy Statement. Additions to the Certificate are indicated by underlining and deletions to the Certificate are indicated by strike-outs.

Related Changes to the By-laws

In connection with the Declassification Amendment, our Board approved conforming amendments to Article III, Sections 3.1 and 3.2 of our Seventh Amendment and Restated By-laws (By-laws), contingent upon shareholder approval and implementation of the Declassification Amendment. The By-law amendments also clarify that any director elected to fill a new Board seat resulting from an increase in the number of directors after the effective date of the Declassification Amendment would be elected for a term expiring at the next succeeding annual meeting of shareholders. Directors elected by our Board to fill vacancies would have the same remaining terms as that of their predecessors.

Additional Information

The Declassification Amendment is binding. If our shareholders approve the Declassification Amendment, it will become effective upon filing of a certificate of amendment to our Amended and Restated Certificate of Incorporation with the Delaware Secretary of State, which we anticipate doing as soon as practicable following shareholder approval of the Declassification Amendment. In addition, we intend to file a Restated Certificate of Incorporation to integrate the Declassification Amendment and other amendments that have been adopted in the past into a single document. However, even if our shareholders approve the Declassification Amendment, our Board retains discretion under Delaware law not to implement it. If our Board were to exercise such discretion, it will publicly disclose that fact, and our Board would remain classified.

If our shareholders do not approve the Declassification Amendment, our Board will remain classified, the certificate of amendment will not be filed with the Delaware Secretary of State, and the By-law amendments described above will not take effect.

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EXECUTIVE COMPENSATION

 3 

Advisory Resolution to Approve Executive Compensation

We are asking our shareholders to vote on an advisory resolution, commonly known as a “Say-on-Pay” proposal, to approve executive compensation as reported in this Proxy Statement. Our Board and our Compensation Committee strongly value the opinions of our shareholders, and we have made substantial modifications to our executive compensation program specifically to address concerns raised by shareholders in previous years. Our Compensation Committee, which is responsible for designing and administering our executive compensation program, has designed our executive compensation program to provide a competitive and internally equitable compensation and benefits package that reflects company performance, job complexity, and the value provided, while also promoting long term retention, motivation, and alignment with the long term interests of our shareholders.
As described elsewhere in this Proxy Statement, we have evolved our compensation practices significantly in recent years, in large part in response to shareholder feedback. We were therefore very disappointed that shareholders did not approve our 2019 Say-on-Pay proposal following positive shareholder support and feedback in 2018. Based upon our shareholder outreach efforts in both the spring and fall of 2019, we believe changes made in 2019 to our compensation program address the concerns evidenced by our negative Say-on-Pay outcome in 2019.
In connection with your vote on this proposal, we urge you to read the Letter from Our Compensation Committee Chairman, the Compensation Discussion and Analysis section of this Proxy Statement and the Summary Compensation Table and other related compensation tables and narratives that follow, which provide detailed information on the compensation of our Named Executive Officers. Our Compensation Committee and our Board of Directors believe that the policies and procedures articulated in these sections of this Proxy Statement, including the modifications we have made to our executive compensation programs, are effective in achieving our goals, and that the compensation of our Named Executive Officers reported in this Proxy Statement has supported and contributed to both our recent and long term success. Our Compensation Committee’s and Board’s decisions and payments reflected in this Proxy Statement, including the Compensation Discussion and Analysis section, with respect to 2019 performance and with respect to 2020 compensation programs were made in early 2020 before the global extent of the COVID-19 pandemic became apparent.
In accordance with Section 14A of the Exchange Act, and as a matter of good corporate governance, we are asking shareholders to approve the following advisory resolution at the Annual Meeting:
RESOLVED, that the shareholders of United Therapeutics Corporation (our “Company”) approve, on an advisory basis, the compensation of our Company’s Named Executive Officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in the Proxy Statement for our Company’s 2020 Annual Meeting of Shareholders.
This advisory resolution is non-binding on our Board of Directors. Although non-binding, our Board and our Compensation Committee will review and consider the voting results when making future decisions regarding our executive compensation program. Based on the results of our 2017 shareholder advisory vote on the preferred frequency of holding future advisory votes to approve executive compensation, our Board of Directors has adopted a policy providing for an annual advisory resolution to approve executive compensation. Unless our Board modifies its policy on the frequency of future “Say-on-Pay” advisory votes, the next “Say-on-Pay” advisory vote will be held at our 2021 annual meeting of shareholders. The affirmative vote of the holders of a majority of the outstanding shares of common stock present, online or by proxy, at our Annual Meeting, and entitled to vote on the matter, is required for approval of this proposal. Abstentions have the same effect as an “against” vote. Broker non-votes, if any, have no impact on the vote.
Our Board of Directors recommends that you vote FOR the advisory resolution to approve executive compensation.

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Executive Compensation

Letter from Our Compensation Committee Chairman

Dear Fellow United Therapeutics Shareholders:

STRONG PERFORMANCE UNDER CHALLENGING CIRCUMSTANCES

On behalf of our Compensation Committee, I am delighted to report that 2019 continued our business transformation. We entered 2019 facing generic competition for two of our five commercial products: Adcirca and Remodulin. Nevertheless, we closed 2019 with more patients than ever before being treated with our treprostinil-based therapies. We were incredibly pleased that we achieved our revenue target of $1.45 billion, delivered through strong execution and growth in three of our key products: Orenitram, Tyvaso, and Unituxin. Further, Remodulin revenues held strong despite facing generic competition for most of 2019. Profitability also remained strong and our balance of cash, cash equivalents, and marketable securities grew from $1.86 billion to $2.25 billion from December 31, 2018 to 2019. We relaunched Orenitram with an expanded label following our successful FREEDOM-EV study and we made substantial progress on several critical research and development programs intended to produce new therapies and delivery devices as well as expand the use of our existing products into new indications. All of these advancements have continued to build on our strong foundation and have created a platform for future growth for our shareholders. Our past, ongoing, and future success is rooted in the strength of our leadership team, which has delivered consistently strong performance over time.

I have reflected over the past year on the cyclical nature of our industry. As a director and shareholder of United Therapeutics, I have enjoyed the tremendous experience of helping to lead this company through 15 straight years of revenue growth (2002-2017) as our approved product portfolio grew to include five FDA-approved drugs for rare, life-threatening diseases. As our leadership team continues to develop a pipeline of potential remedies and groundbreaking technologies to improve the way we address and treat these and other rare, life-threatening conditions, they are also delivering operational excellence. In 2018 and 2019, we faced our first — and what we anticipate will be temporary — revenue trough. Despite having profit and revenue goals that appear “lower” than the previous year’s performance, with two products facing generic competition, our team is working harder than ever to achieve the rigorous goals we have set. Guiding and incentivizing our leadership team to successfully implement our long-term strategy — including a return to revenue growth — requires a balanced approach to compensation. Our human capital management priorities are of high urgency to the Committee at this pivotal point in our growth.

OUR COMPENSATION PROGRAM INCENTIVIZES, RETAINS, AND REWARDS WHILE REDUCING ANNUALIZED PAY VOLUME

         

We achieved our revenue target of $1.45 billion, delivered through strong execution and growth in three of our key products: Orenitram, Tyvaso and Unituxin

Our balance of cash, cash equivalents and marketable securities grew from $1.86 billion to $2.25 billion

All of our advancements have continued to build a foundation and platform for future growth for our shareholders

In 2018 and 2019, we faced our first — and what we anticipate to be temporary — revenue trough


With an objective to incentivize and retain our leadership team, as well as balance and incorporate shareholder feedback and concerns into our total compensation program, our Compensation Committee put together a unique and thoughtfully designed long-term incentive plan in 2019. We made the decision to grant our Named Executive Officers a four-year stock option grant in March 2019 to cover the four-year performance period of 2019 through 2022 to align with our four-year business plan. This single grant is intended to cover four years of equity awards and replaces the prior annual program. This grant was awarded in two equal tranches. One-half of the stock options were awarded with a 15% premium exercise price and the other half were awarded with an exercise price equal to our stock price on the date of grant. We do not intend to grant any additional equity compensation during this four-year period to our Named Executive Officers.

As with prior years, we have continued to issue equity to our Named Executive Officers exclusively in the form of stock options in order to fully align their interests with those of shareholders and incentivize superior performance. Our Named Executive Officers will realize value from these awards if our stock price increases above the exercise prices. These stock options were granted with exercise prices of $117.76 and $135.42 per share, and our stock price at year end 2019 was $88.08. As a result, these stock options were all substantially underwater at year end 2019. Our stock price must experience double-digit growth for the Named Executive Officers to realize the full reported value from these stock options. That same growth provides value creation for our shareholders, directly aligning pay with performance.

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OPTIONS INCENTIVIZE SHAREHOLDER VALUE CREATION


Our 2019 program uniquely achieves the strategic objectives of our compensation philosophy and is intended to ensure the retention and motivation of our executive leadership team while returning value to our shareholders by incentivizing long-term growth, reducing dilution, and aligning realizable pay with shareholder interests.

In this letter, I also want to emphasize how our 2019 equity compensation program was designed to address shareholder concerns, while balancing shareholder interests in retaining and incentivizing our executive leadership team. We understand that awarding equity as a four-year grant, instead of separate grants each year, results in grant values reported in our Summary Compensation Table that are higher than our typical practice. However, the annualized value of these grants, as shown in our Supplementary Summary Compensation Table, has enabled us to significantly reduce the volume of pay to our Named Executive Officers when compared to the prior program. In fact, the annualized compensation to our Chief Executive Officer fell from the top quartile in 2018 to approximately the 50th percentile of our peer group in 2019.

Below is an illustrative example of our Chief Executive Officer’s compensation over the four-year period covered by this equity program, as disclosed in the Summary Compensation Table, assuming she earns 100% of her annual cash bonus at target and her annual base salary remains unchanged from her current salary:

Pay Component      2019      2020      2021      2022      Average
Annualized
Base Salary* $1,275,000 $1,275,000 $1,275,000 $1,275,000 $1,275,000
Cash Bonus* $1,402,500 $1,402,500 $1,402,500 $1,402,500 $1,402,500
Equity Compensation $40,010,000 $— $— $— $10,002,500
Total Compensation $42,687,500 $2,677,500 $2,677,500 $2,677,500 $12,680,000
*

For purposes of this illustration, we assume that 2019-2022 annual salary and cash bonus target remain unchanged over the four-year period, and that the annual bonus is earned at target each year.

When evaluating the annual compensation of our Chief Executive Officer and our other Named Executive Officers, our Compensation Committee evaluated the four-year grant on an annualized basis over the four-year period, as represented in the “Average Annualized” column above in the case of our Chief Executive Officer.

We believe that our shareholders should evaluate our 2019 compensation program taking into consideration that this equity grant is intended to cover four years of equity as we do not anticipate granting any additional equity to our Chief Executive Officer or other Named Executive Officers until 2023. Therefore, we strongly suggest our shareholders view the four-year grant on an annualized basis.

If the four-year grant is viewed on an absolute basis (treating the entire amount as compensation paid in 2019), then this grant should result in dramatically reduced compensation shown in the Summary Compensation table for the next three years (2020-2022) given that our Compensation Committee does not intend to grant further equity through 2022.

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When viewed on an annualized basis, this four-year grant significantly reduces both the volume of Chief Executive Officer pay and shareholder dilution when compared to our previous program assuming it was carried forward for four more years. We believe this unique program directly addresses shareholder concerns and hope that shareholders understand our intent in asking them to view this grant across the four-year period when evaluating our compensation programs for 2019.

For the charts below, we compared the annualized and aggregate impact of the four-year grant to our Chief Executive Officer, versus carrying forward the previous program from 2018 for the period 2019-2022. In carrying forward the previous program, we assume an annual Chief Executive Officer target stock option grant valued at $14 million at target, with 50% of this award subject to above target payout of up to 150% for stretch performance, and the other 50% subject to above target payout of up to 200% for stretch performance. For the dilution chart, we show three different potential stock price scenarios to provide an illustrative view of how our new program may significantly reduce dilution to shareholders. 

CEO Stock Option Value Granted
2019-2022 (Aggregate)
      CEO Stock Option Value Granted
2019-2022 (Annualized)

CEO Long-Term Equity Grant Dilution Comparison


The chart above is illustrative only, and is intended to compare the calculated dilution of our four-year grant to the potential aggregate dilution of carrying forward the previous program from 2018 for 2019-2022. All of the above dilution calculations assume 44 million shares outstanding. 

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Executive Compensation

Say-On-Pay Outcome and Shareholder Outreach

We value the opinions of our shareholders. Over the past several years, we have worked with our management team to lead increased and ongoing engagement with our shareholders on compensation matters and we have significantly evolved our compensation program as a result of those discussions. Our shareholders have communicated directly to me not only their concerns, but their appreciation of many of our fundamentals and our goal of evolving the executive compensation program, over time, in order to retain, motivate and incentivize our executive team — a team which has consistently delivered market leading long-term performance. Additionally, we have enjoyed great dialogue with our shareholders on our governance best practices, and have appreciated suggestions to enhance our ESG transparency as we continue to grow. Indeed, our 2018 executive compensation program, which was 92% performance-based for our Chief Executive Officer, was designed to directly address shareholder feedback. We were therefore disappointed with our negative Say-On-Pay result last year, with holders of only 27% of shares voting in favor. We understand that certain elements of our compensation program design did not align with certain shareholders’ pay-for-performance expectations and have responded with a goal of remedying this.

In 2019, we reached out to shareholders holding approximately 70% of our outstanding shares and met with shareholders holding approximately 30% of our outstanding shares. This included an outreach effort in the spring of 2019, as well as outreach in the fall following our 2019 annual meeting. We also held discussions with the two largest proxy advisory firms. These outreach efforts and discussions were led by myself and the Chairman of our Nominating and Governance Committee, Christopher Patusky. These conversations included, where appropriate, representatives of human resources, legal, and investor relations, and sometimes included representatives of Radford, our independent compensation consultant. In reviewing feedback received to date, we believe there are five key issues that contributed to our 2019 Say-on-Pay result, as described in the table below along with how we have addressed each issue. Notably, the design of our four-year equity grant for 2019-2022 was in direct response to feedback received during our ongoing shareholder engagements. This new equity program creatively balances our human capital management needs, responds to the feedback and expectations of our shareholders, and is consistent with best practices. These changes continue to align and reinforce our key strategic and talent objectives.

 
Shareholder Concern             Compensation Committee Action
Volume of Chief Executive Officer pay relative to peers Chief Executive Officer total target direct compensation has decreased from the top quartile to approximately the 50th percentile of our peer group, when viewing the four-year grant on an annualized basis. Our new equity program reduces Chief Executive Officer equity compensation expense compared to our 2018 program by 29% at target and by 59% at max.
Overlapping goals between short-term and half of our long-term incentive equity program reward the same performance twice The 2019 grant has removed the Milestones from the long-term incentive program, eliminating this concern
Over-emphasis on short-term performance with the use of a 1-year performance period in half of our 2018 long-term incentive program The 2019-2022 equity program is based on stock appreciation over a multi-year period, eliminating this concern
Goals were lower in 2018 when compared to 2017 actual performance, and operational results for the 2018 performance year resulted in a maximum payout for both cash bonus and half of the equity award for 2018 We apply a rigorous goal-setting process that is designed to incentivize stretch performance in light of a challenging environment following introduction of generic competition. In setting these goals, our Compensation Committee reviews a number of data points including analyst expectations, market opportunity, individual product performance history, and the expected impact of generic product competition for two of our products in order to set this target for 2019. We increased our 2019 revenue and cash profit goals compared to 2018, but the goals were below 2018 actual performance in light of the anticipated impact of generic competition. These goals were substantially higher than analyst expectations and were very challenging. Nevertheless, they were only relevant to cash bonuses in 2019, significantly muting their impact compared to 2018 where these goals also drove equity payouts.
Certain shareholders have a preference for relative metrics in the long-term incentive program Our Compensation Committee takes a balanced view to setting goals to motivate and retain our executives for the long term. We believe that stock options provide a strong relative metric because they only provide realizable value if our stock price grows (even if stock values for our peers are declining).

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Strengthening Our Pay-For-Performance Philosophy

Since our founding, we have been strong believers in pay-for-performance. In fact, our 2018 program demonstrated this belief, with 92% of our Chief Executive Officer compensation at-risk based on performance in 2018. However, we understand that certain elements of the design of our 2018 program did not align with our shareholders’ pay-for-performance expectations. Our executive compensation program has always involved a predominant focus on at-risk pay, tied directly to company performance via our cash incentive and long-term incentive plans. This philosophy is strengthened by our 2019 equity program. Demonstrating our commitment to pay-for-performance, half of our 2019 equity program was awarded as premium-priced stock options, granted with an exercise price of $135.42 which was 15% above our closing stock price on the date of the grant. The other half was granted in the form of stock options with an exercise price equal to our closing stock price on the date of grant. The vesting of these options is weighted toward the end of a four-year period, and with only an eight-year term. We believe this program is entirely performance-based, as it ties the realizable pay for our executives directly to shareholder interests in driving stock performance. Combined with a performance-based cash incentive program, we believe that shareholders should agree that our Chief Executive Officer’s total compensation program is strongly performance-based. Notably, the vast majority of pay for our Chief Executive Officer (89.9%) and our other Named Executive Officers (83.0%) is at-risk and heavily dependent on goal attainment and share price growth in order to deliver any realizable value, as shown in the charts below.

CEO       Other NEOs

We Appreciate Your Support

I hope this letter conveys the sincerity with which we have addressed the requests and ideas our shareholders raised regarding our executive compensation program in 2019 and in prior years. On that note, I want to personally thank those shareholders with whom we have had the opportunity to meet over the past several years, and in particular those shareholders who provided us with input and guidance around best practices for explanation and disclosure of our new equity program. As our responsiveness demonstrates, we very much value the dialogue. Our Compensation Committee has implemented a balanced, performance-driven program for 2019-2022 that we believe will benefit our company and our shareholders going forward. While there is an unfortunate, anomalous impact on the compensation values we are required to report for 2019, we hope this letter clarifies why this is so and provides an understanding of the one-time nature of that impact.

Please review the Compensation Discussion and Analysis beginning on the following page for further information and detail about our executive compensation program. We look forward to your continued support of United Therapeutics generally, and your support of our Say-on-Pay proposal this year.

Sincerely,

CHRISTOPHER CAUSEY
Compensation Committee Chairman

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Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes the compensation objectives and policies set by our Compensation Committee for our Named Executive Officers, including executive pay decisions and processes and all elements of our executive compensation program. In this Compensation Discussion and Analysis and elsewhere in this Proxy Statement, the term Compensation Committee refers to the Compensation Committee of our Board of Directors, and the terms we and our refer to United Therapeutics.

Our Named Executive Officers

Our 2019 Named Executive Officers (or NEOs) are:


   Martine Rothblatt, Ph.D., J.D., M.B.A.
65, Chairman, Chief Executive Officer and Director
Dr. Rothblatt founded United Therapeutics in 1996 and served as Chairman and Chief Executive Officer since its inception through January 2015, when she became Chairman and Co-Chief Executive Officer. She was promoted to her current role as Chairman and soul CEO in June 2016. Prior to founding United Therapeutics, she created several satellite communications technologies, and she is the Founder of SiriusXM. She is the co-inventor on six of our patents pertaining to treprostinil, and the inventor of our recently-awarded patent on a brain-computer interface device for patients with debilitating cognitive conditions.

   Michael Benkowitz
48, President and Chief Operating Officer
Mr. Benkowitz joined United Therapeutics in 2011 as our Executive Vice President, Organizational Development. In this role, he was responsible for most companywide administrative functions, including human resources, information technology, corporate real estate and risk management, and was also responsible for many of our business development efforts and oversight of several of our key collaborations. He was promoted to President and Chief Operating Officer in June 2016, when he also became responsible for all of our commercial and medical affairs activities.

   James C. Edgemond
52, Chief Financial Officer and Treasurer
Mr. Edgemond joined United Therapeutics in January 2013 as Treasurer and Vice President, Strategic Financial Planning. Mr. Edgemond was promoted to Chief Financial Officer and Treasurer in March 2015. Prior to joining United Therapeutics, he was Vice President, Corporate Controller and Treasurer of Clark Construction Group from 2008 through January 2013. He also served in a variety of roles at The Corporate Executive Board Company from 1998 to 2008, serving as Executive Director, Finance from 2005 to 2008. He began his career as a public accountant at KPMG Peat Marwick LLP, from 1990 through 1998, where he served in a variety of roles, including as a Senior Manager prior to his departure.

   Paul A. Mahon, J.D.
56, Executive Vice President, General Counsel and Corporate Secretary
Mr. Mahon has served as General Counsel and Corporate Secretary of United Therapeutics since its inception in 1996. In 2001, Mr. Mahon joined United Therapeutics full-time as Senior Vice President, General Counsel and Corporate Secretary. In 2003, Mr. Mahon was promoted to Executive Vice President, General Counsel and Corporate Secretary. Prior to 2001, he served United Therapeutics, beginning with its formation in 1996, in his capacity as principal and managing partner of a law firm specializing in technology and media law.

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2019 Performance Highlights

2019 continued the strategic transformation for United Therapeutics with several important milestones for our patients and our shareholders, including:

$1.45 billion in revenues, which exceeded analyst consensus estimates in the face of generic competition. $1.6 million in revenue per employee, which ranked fourth in our compensation peer group and ninth out of the 200+ companies in the Nasdaq Biotech Index

       

We commenced or progressed key research and development programs critical to the execution of our long-term strategy to build our pipeline, including:

Filed our NDA for Trevyent, a drug-device combination product for treatment of PAH
Commenced two phase III clinical trials for ralinepag, a next generation prostacyclin treatment candidate for pulmonary arterial hypertension
Commenced our phase III BREEZE study for Treprostinil Technosphere, a drug device combination product for treatment of PAH
Continued development of LNG01 (formerly SM04646), a phase I drug candidate for treatment of idiopathic pulmonary fibrosis
Prepared for the launch of the Implantable System for Remodulin for PAH, pending Medtronic satisfying certain regulatory conditions
Continued progress on the Remunity pump system for Remodulin
Completed enrollment of our phase III INCREASE study of Tyvaso in patients with pulmonary hypertension associated with interstitial lung disease

For the second year in a row, we reached record numbers of PAH patients being treated with our treprostinil-based therapies — once again reaching more patients than ever before

The expansion of our Orenitram label, with the FDA approval of our NDA supplement on October 18, 2019

These efforts in 2019 have already led to two key developments in early 2020:

FDA clearance of the 510(k) application for the pharmacy-filled version of Remunity, enabling us to launch the product in the near term
Successful completion of the INCREASE study, which we believe will enable us to obtain FDA approval of a label expansion to extend our Tyvaso product to patients with a new indication, pulmonary hypertension associated with interstitial lung disease, which impacts about 30,000 patients in the U.S. alone, with no approved treatment options

We were disappointed in our stock price performance in 2019, and continue to believe this was largely due to the short-term focus by many analysts on the anticipated impact the launch of generic versions of Remodulin (which occurred in the United States in March 2019) would have on our revenues. Our overall performance in 2019 demonstrated that generic Remodulin had very little impact on our revenue, with Tyvaso, Orenitram and Unituxin all delivering an increase over 2018, and Remodulin revenues holding very strong despite nine months of generic competition. We firmly believe that the continued strength of our core commercial products, as well as our extensive pipeline of new products, will deliver a return to revenue growth and improved stock price performance in the short to medium term. We note that in our cyclical industry, our long-term business plans have historically delivered significant value to our shareholders, and our long-term focus on research and development does not always fit neatly into 12-month performance measurement periods. Notwithstanding our stock price performance in 2018 and 2019, as of the end of the year our stock price remained approximately 634% above the price of our common stock in our 1999 initial public offering.

Overview of our 2019 Executive Compensation Program

Compensation Program Objectives

Our executive compensation program is designed to retain and motivate our executive team, while achieving four critical objectives: pay-for-performance (with at-risk pay representing 90% of overall Chief Executive Officer pay and 83% of our other Named Executive Officers’ pay); incentivize alignment with shareholder interests based on delivering operating performance and stock appreciation; balancing incentives over the short-term and long-term; and market competitiveness.

Sustainable, Long-Term Shareholder Value Creation

Pay-for-Performance     Shareholder Alignment     Balance Short- and
Long-Term Perspectives
    Market Competitiveness

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Pay Program Elements

We accomplish these objectives through the following compensation elements, as summarized below:

Objective
Compensation Element       Pay-for-
Performance
      Shareholder
Alignment
      Balance Short-
and Long-Term
Perspectives
      Market
Competitiveness
Base Salary
Cash Incentive Awards
Long-Term Incentives (Stock Options)
Benefits/Perquisites
Supplemental Executive Retirement Plan (SERP)
Severance/Change-of-Control Benefits
Stock Ownership Guidelines

Key Compensation Decisions in 2019

In 2019, we introduced a new equity program for our Named Executive Officers. This program consists of a four-year equity award, intended to cover four years of equity awards for our Named Executive Officers for the performance years of 2019-2022. This award was granted in two tranches:

50% of the stock option award was granted with a 15% premium exercise price over our stock price at close on the date of grant, and vests in full (i.e., “cliff” vests) on the fourth anniversary of the grant date
50% of the stock option grant was granted with an exercise price equal to the closing price of our common stock on the date of grant, and vests in three equal installments on the second, third and fourth anniversary of the grant date

We chose to use stock options as our equity award vehicle given that an option does not provide value to the executive unless the stock price appreciates beyond the exercise price. As a result, our Compensation Committee views the design of the 2019-2022 equity program as being entirely performance-based. We strongly believe the use of stock options ensures management alignment with shareholders, enhances retention, and emphasizes long-term performance. The use of premium-priced, performance stock options for half of the stock award further aligns our executives’ interests with those of our shareholders. Finally, this grant has an 8-year term, which further emphasizes the alignment of our long-term incentives with our shareholders.

Grant Type       Percent of
Total Grant
      Vesting
Period
      Vesting Rules       Term       Performance
Feature
Premium-Priced Stock
Options
50% 4 years Vest in full on the fourth anniversary of the grant date 8 years 15% premium exercise price at grant
Market-Priced Stock
Options
50% 4 years Vest in 1/3 increments on the second, third and fourth anniversary of the grant date 8 years Stock price appreciation needed in order to deliver realizable value

We do not anticipate awarding any other equity during 2020-2022 to our Named Executive Officers, which should have the effect of dramatically reducing reported compensation values for 2020-2022.

2019 Compensation Program Design

Roles of Management, Compensation Committee and Compensation Consultant

Role of Our Compensation Committee and Management

Our Compensation Committee is composed entirely of independent directors, as defined by Rule 6505(a)(2) of the Nasdaq listing standards. Our Compensation Committee meets as often as it determines necessary to carry out its duties and responsibilities through regularly scheduled meetings and, if necessary, special meetings. Our Compensation Committee also has the authority to take certain actions by written consent of all members. In 2019, our Compensation Committee met six times.

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Our Compensation Committee reviews and oversees our compensation policies, plans and programs and reviews and determines the compensation to be paid to our Named Executive Officers, with the input and advice from its independent compensation consultant. Our Compensation Committee also considers the input of our Chief Executive Officer in making compensation decisions related to our other Named Executive Officers.

Role of Independent Compensation Consultant

Our Compensation Committee has the authority to engage advisors to assist it in carrying out its responsibilities. In accordance with this authority, our Compensation Committee directly engaged Radford, part of the Rewards Solutions practice at Aon, plc, as its compensation consultant during 2019 to provide advice to our Compensation Committee on our executive and non-employee director compensation practices and policies. Our Compensation Committee, in its discretion, may replace its independent compensation consultant or hire additional consultants at any time. Radford performed additional services during 2019, namely consulting services for non-executive employee compensation matters and broad-based compensation survey data, and was paid fees for these services totaling approximately $63,860. In addition, Radford affiliates (Aon plc and its related entities) performed actuarial services relating to our SERP, insurance advisory services, and retirement plan advisory services, along with risk management consulting and insurance brokerage services for United Therapeutics during 2019, for which we paid approximately $483,743 during 2019. Additional insurance premiums and related fees were paid to Aon plc and passed through to insurance companies not affiliated with Aon plc. Our Compensation Committee approved these services and did not find that they impaired Radford’s independence. Our Compensation Committee considered the independence of Radford in light of SEC rules regarding conflicts of interest involving compensation consultants and Nasdaq listing standards regarding compensation consultant independence. Based on its review, our Compensation Committee determined that Radford was independent, and that Radford’s work did not raise any conflicts of interest. In making the foregoing determination, our Compensation Committee considered the following six factors, as well as other factors it deemed relevant: (i) the provision of other services to us by Radford; (ii) the amount of fees Radford received from us, as a percentage of their total revenue; (iii) the policies and procedures of Radford that are designed to prevent conflicts of interest; (iv) the lack of any business or personal relationships of the Radford consultants with any member of our Compensation Committee; (v) the lack of any United Therapeutics stock owned by the Radford consultants performing services for our Compensation Committee; and (vi) the lack of any business or personal relationships of the Radford consultants or Radford itself with any of our executive officers.

Our Compensation Committee engaged Radford during 2019 to review and advise our Compensation Committee on all principal aspects of executive and non-employee director compensation. This included base salaries, cash incentive awards and long-term incentive awards for our executive officers, as well as cash compensation and long-term incentive awards for non-employee directors. Radford performed the following tasks for our Compensation Committee in 2019, among others:

Reviewing and advising on the structure of our compensation arrangements (i.e., base salary levels, cash incentive award target levels and the size of long-term incentive award targets) for our Chief Executive Officer and our other Named Executive Officers
Reviewing and advising on the structure of our compensation arrangements for our non-employee directors
Providing recommendations regarding the composition of our peer group
Analyzing publicly available proxy data for companies within our peer group and survey data relating to executive compensation
Conducting pay and performance analyses relative to our peer group
Updating our Compensation Committee on industry trends and best practices with respect to executive long-term incentive compensation program design, including types of long-term incentive compensation awards, size of long-term incentive compensation grants, and aggregate long-term incentive compensation grant usage
Reviewing our equity incentive awards against our design/cost targets and against industry norms
Reviewing the Compensation Discussion and Analysis for our Proxy Statement
Advising our Compensation Committee in connection with its risk assessment relating to our compensation programs
Preparing for and attending shareholder engagement sessions
Working on special or ad hoc projects for, or at the request of, our Compensation Committee as they arose

In the course of fulfilling these responsibilities, Radford regularly communicated with our Compensation Committee Chairman outside of and prior to most Compensation Committee meetings. Our Compensation Committee regularly invites its independent compensation consultant to attend its meetings. In 2019, Radford representatives attended each of our Compensation Committee’s six meetings.

While our Compensation Committee considered its independent consultant’s recommendations in 2019, our Compensation Committee’s decisions, including the specific amounts paid to our executive officers and directors, were its own and may reflect factors and considerations in addition to the information and recommendations provided by its independent consultant.

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Compensation Peer Group

On an annual basis, our Compensation Committee reviews Named Executive Officer compensation levels relative to a peer group of industry and labor market competitors. As we communicated last year, we changed how we define our peer group for 2019, considering revenue when selecting peers instead of market capitalization. We made this change in order to capture companies that are commercializing products and generating product revenue, and therefore have executives with responsibilities that more directly reflect the roles of our Named Executive Officers. Our changed methodology for 2019 defines our peer group as the top 25 companies other than United Therapeutics, ranked by revenue, in the Nasdaq Biotechnology Index. These peers were selected in 2018, and were used to develop market data as an input into our compensation program for 2019. This peer group includes only companies that are U.S. based or based in jurisdictions with similar compensation disclosure requirements as U.S. companies. Our methodology for selecting compensation peers uses an objective metric, which our Compensation Committee believes results in a peer group that includes biopharmaceutical and biotechnology companies that are similar to us in terms of financial performance, shareholder value creation and drug development and commercialization, and generally reflects the universe of companies from which we recruit, and against which we retain, executive talent. This resulted in a peer group that more closely approximates United Therapeutics across a number of measures than would have resulted if we had continued relying on market capitalization criteria to select our peer group.

Each year, a number of peers have added or removed from the list and replaced with other companies for various reasons, including merger and acquisition activities. We have provided below for reference the profile of our compensation peer group for 2019, showing changes made from our 2018 peer group. For clarity, the 2018 peer group was selected in 2017 and used for setting 2018 compensation policies. The 2019 peer group was selected in 2018 and used for setting 2019 compensation policies.

Compensation Peer Group

2018 PEER GROUP  

ACADIA
Alexion Pharmaceuticals
Alkermes
Alnylam Pharmaceuticals
Amgen
Biogen
BioMarin
Bio-Techne
Celgene
Exelixis
Gilead
Illumina
Incyte

Ionis Pharmaceuticals
Jazz Pharmaceuticals
Kite Pharma
Mylan N.V.
Neurocrine
Opko Health
PRA Health Sciences
Regeneron
Seattle Genetics
Shire
Tesaro
Vertex

ADDITIONS FOR 2019
Acorda Therapeutics
Akorn
AMAG Pharmaceuticals
Bruker


Endo International
Horizon Pharma
Myriad Genetics
Syneos

 

DELETIONS FOR 2019
ACADIA
Alnylan Pharmaceuticals
Exelixis
Ionis Pharmaceuticals


Kite Pharma
Seattle Genetics
Tesaro

 

2019 PEER GROUP
Acorda Therapeutics BioMarin Illumina PRA Health Sciences
Akorn Bio-Techne Incyte Regeneron
Alexion Pharmaceuticals Bruker Jazz Pharmaceuticals Shire
Alkermes Celgene Mylan N.V. Syneos
AMAG Pharmaceuticals Endo International Myriad Genetics Vertex
Amgen Gilead Neurocrine
Biogen Horizon Pharma Opko Health

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The following table shows how United Therapeutics ranks within its 2019 peer group on a variety of metrics.

      Revenue(1)       Operating
Income(1)
      Net
Income(1)
     ROIC(1)       Return on
Equity(1)
      Return on
Assets(1)
      Market Cap Per
Employee(2)
2019 Peer Group Median ($ in millions)       $2,162.5 $240.8      $112.0      2.6% 5.5% 4.4% $3.2
United Therapeutics ($ in millions) $1,744.0 $1,068.2 $483.8 20.7% 28.4% 23.9% $5.9
United Therapeutics Percentile Rank(3) 44th 71st 65th 99th Highest Highest 69th
(1) Revenue, operating income, net income, ROIC (return on invested capital), return on equity, and return on assets all reflect trailing twelve-month data as of May 2018 when the peer group was approved
(2) Market capitalization per employee as of May 2018 when the peer group was approved
(3) The percentile rank shown above reflects values at the time of approval by our Compensation Committee

Our Compensation Committee’s approach to peer group selection is to apply an objective external measure for selecting companies. This results in a number of peers being larger than United Therapeutics based on revenue as well as a number of peers being smaller. Our goal each year is to place our company within the peer group statistics of the 25th to 75th percentile for revenue as close to the median as possible while managing changes each year due to sector volatility, industry consolidation and differences in business and organization models. Furthermore, our Compensation Committee views it as critical to measure ourselves against industry-leading peers (including those that are both larger and smaller than we are) because, in addition to being companies with which we compete for talent, many of these larger and smaller companies are also our business competitors. By placing our company at around the 50th percentile of our peer group for revenue, we believe our peer group reflects companies of similar scope and complexity.

Impact of 2019 Advisory Resolution on Executive Compensation

At our 2019 annual meeting of shareholders, our shareholders did not approve our Say-on-Pay proposal, with only approximately 27% of the votes cast in favor of the proposal. This was a disappointing outcome following three years of shareholder support. We have, over the past five years, conducted an ongoing and active shareholder engagement program, in order to gain feedback on the design of our executive compensation programs, compensation governance, and other compensation related topics. Based on these discussions and changes in our business objectives, we have implemented numerous changes to our executive compensation program in recent years which were directly based on shareholder feedback.

During the spring of 2019, and again in the fall of 2019 following our annual meeting, we reached out to shareholders whose holdings represented approximately 70% of our then-outstanding shares and ultimately held discussions with shareholders whose holdings represented approximately 30% of our then-outstanding shares. The purpose of these meetings was to gather feedback regarding our executive compensation and general governance policies, understand their Say-on-Pay vote, and share the structure and design of our 2019 equity compensation program. We also held meetings with the two largest proxy advisory firms in the fall of 2019, discussing similar topics. We believe our new equity program responds to many of the concerns raised by shareholders and proxy advisory firms that led to our low Say-on-Pay result, as described above in the Letter from Our Compensation Committee Chairman. This information was also shared with our Compensation Committee as it considered other potential changes to our executive compensation program, along with information on how our 2019 equity program addresses many of the concerns we heard about from our shareholders. Our Compensation Committee Chairman and our Nominating and Governance Committee Chairman led these discussions. Where appropriate, participants also included the Compensation Committee’s independent compensation consultant, and representatives of our human resources, investor relations, and legal departments. Our Compensation Committee also considered the proxy voting reports from major proxy advisory firms with respect to our compensation programs.

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Key Governance Features of our Executive Compensation Program

Our Compensation Committee periodically assesses the effectiveness of our compensation policies and practices in achieving its pay-for-performance objective while aligning the interests of executive officers with those of shareholders, balancing short-term and long-term elements, and maintaining market competitiveness. Our Compensation Committee also reviews risk mitigation and governance items, which are designed to help ensure that our compensation programs are functioning to achieve such objectives. In conjunction with this assessment and review, we have adopted the following best practices:

✓      WHAT WE DO                         ✗      WHAT WE DON’T DO
         
Design our executive compensation program to align pay and performance
Maintain an appropriate balance between short-term and long-term compensation which discourages short-term risk taking at the expense of long-term results
Grant performance-based long-term incentive awards
Maintain stock ownership guidelines to align executive officer and share ownership with that of our directors and our shareholders
Prohibit hedging and pledging by executives and directors*
Employ a compensation recovery, or clawback, policy**
Conduct annual risk assessments of our compensation policies and practices
Hold Compensation Committee executive sessions without management
Engage an independent compensation consultant who reports directly to the compensation committee
No backdating of stock options
No repricing of stock options without shareholder approval
No liberal share recycling under 2015 Stock Incentive Plan
No vesting prior to the first anniversary of grant, subject to limited exceptions
No discounted or reloaded stock options
No excessive perquisites
No excise tax gross ups
No guaranteed base salary and/or bonus payments
* Pursuant to our insider trading policy, directors, officers and employees are prohibited from purchasing our securities on margin, engaging in “short” sales of our common stock, or buying or selling puts, calls, futures contracts or other forms of derivative securities relating to our securities. In addition, our Board has adopted a policy prohibiting our directors and executive officers from pledging of shares of our common stock.
** Our Board has the authority, to the extent permitted by governing law, to make retroactive adjustments to any cash award or equity award-based incentive compensation paid to our Named Executive Officers and certain other senior managers where the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a restatement.

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2019 Compensation Program Components

    Element / Percent of TDC       Why We Pay This Element       Key Characteristics       How We Determine Amount

Base Salary

Provides market competitive levels of fixed pay to attract and retain our NEOs
Cash
Annual
Market rate, internal pay equity, experience and critical skills

Bonus

Provides competitive incentives to achieve difficult, annual company-wide performance criteria
Pay-for-Performance
Shareholder Alignment
Cash
Performance-Based
Annual
50% Financial
25% Cash Profits
25% Revenues
50% Operational
25% Manufacturing
25% R&D
Payout 0-150% of target

Stock Options

Incentivizes achievement of four-year business plan toward multiple-fold increase in revenues, driving shareholder value.
Pay-for-Performance
Shareholder Alignment
At-Risk
Performance-Based
Four-Year Grant
50% premium-priced ($135.43/share) (cliff vesting at year 4)
50% market-priced ($117.76/share) (ratable vesting at years 2, 3 and 4)
No intrinsic value unless stock price grows
Market rate, internal pay equity, experience and critical skills
Substantial reduction in market positioning on an annualized basis

The following charts illustrate the extent to which pay for our Chief Executive Officer and our other Named Executive Officers is at risk, as payout levels are based entirely on performance. For each chart, the amounts shown represent 2019 base salary (on an annualized basis, following the February 2019 salary increases), 2019 target cash bonus, and the annualized grant-date fair value of long-term incentive awards granted in March 2019, which were granted 50% in the form of premium-priced stock options and 50% in the form of market-priced stock options.

CEO Pay Mix       Other NEO Pay Mix

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2019 Compensation Decisions

Summary of 2019 Compensation

The components of our Named Executive Officers’ target total direct compensation are base salary and variable compensation, including cash incentives and long-term incentive compensation in the form of stock options. The following table shows our Named Executive Officers’ base salaries and the annualized grant date value of the stock options awarded for 2019 and the amount of any increase of such compensation over 2018. The basis for our Compensation Committee’s decisions with respect to each of these components for 2019 is discussed in greater detail below.

Summary 2019 Target Total Direct Compensation

NEO     2019 Base
Salary
(1)
    % Increase
Over
2018
Base
Salary
    2019 Cash
Incentive
Bonus Target
as % of Base
Salary
    Change in
Cash
Incentive
Bonus
Target %(2)
    2019
Long-Term
Incentive
Award Target(3)
    % Decrease
Compared to
2018(3)
    2019
Total Target
Direct
Compensation
    % Decrease
Compared to
2018
Martine Rothblatt $1,275,000 4.1% 110%               0%        $10,002,500              (29% ) $12,680,000              (23% )
James Edgemond $675,000 3.8% 75% 0% $3,250,813 (12% ) $4,432,063 (8% )
Michael Benkowitz $885,000 4.1% 85% 0% $3,750,938 (11% ) $5,388,188 (7% )
Paul Mahon $850,000 3.7% 65% 0% $3,000,750 (25% ) $4,403,250 (18% )
(1) Reflects increases in annual base salaries effective February 25, 2019 and first reflected in pay on March 15, 2019
(2) Represents the difference in cash incentive award target as a percentage of salary, between 2018 and 2019
(3) Represents the Black-Scholes-Merton grant date value of the stock options granted on March 15, 2019. The value shown is the annualized value, that is the total value divided by four, as the grant is intended to cover four years of equity for the performance years of 2019-2022. Half of the award was granted as market-priced stock options, which vest in equal thirds on the second, third and fourth anniversary of the grant. The remaining half of the award granted on March 15, 2019 were premium-priced stock options, granted with an exercise price at 115% of our closing stock price on the date of grant, and which vest in full on the fourth anniversary of the grant date. Percentage decrease compares the annualized value of these options to the target value of stock options granted in 2018.

Base Salary

Base salary is the primary fixed element of the compensation packages for our Named Executive Officers. Our Compensation Committee reviews and establishes base salary levels for our Named Executive Officers each year taking into consideration one or more of the following factors, depending on the circumstances: (i) a qualitative evaluation of individual performance, including contribution to the advancement of corporate objectives, impact on financial results, and strategic accomplishments; (ii) our overall performance, financial condition, and prospects; (iii) the annual compensation received by executives holding comparable positions at our peers as described in the section entitled Overview of our 2019 Executive Compensation Program above; (iv) our annual company-wide budget for salary increases; and (v) the input of our Chief Executive Officer (in the case of the other Named Executive Officers). Base salaries are also typically reviewed when there is a material change in the executive’s responsibilities during the year.

In early 2019, our Compensation Committee approved salary increases for our Named Executive Officers, as shown in the table below, effective February 2019. Salary increases were determined based on a review of competitive pay positioning, taking into consideration internal pay equity among Named Executive Officers and the importance of the Named Executive Officers, and approximate the company-wide salary increases for our employees.

NEO       2019 Base
Salary
      % change
from 2018
Martine Rothblatt $1,275,000 4.1%
James Edgemond $675,000 3.8%
Michael Benkowitz $885,000 4.1%
Paul Mahon $850,000 3.7%

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Cash Incentive Award Program

Each year, our Compensation Committee establishes cash incentive award targets for each of our Named Executive Officers, taking into consideration the same factors it uses to determine base salaries (other than our company-wide budget for salary increases). For 2019, our Compensation Committee established cash incentive award targets for our Named Executive Officers as a percentage of base salary, at the levels shown in the Summary 2019 Target Total Direct Compensation table above. These percentages were unchanged from 2018.

These stated incentive targets are comparable to those of executives holding similar roles and levels of responsibility at our peer group companies. Cash incentives are earned for achieving our Company-Wide Milestones (described below) and three of our four Milestones are subject to a threshold, or minimum, level of performance before earning credit for those Milestones. In addition, each of our Named Executive Officers had the opportunity to earn up to 150% of their respective target cash incentive award for 2019, based on above-target performance on our cash profit and revenue-based Milestones. We believe that by setting a threshold level of performance as well as a maximum under the plan we have aligned these policies with market norms and have also responded to feedback from our shareholders.

Cash incentive bonus targets (as a percentage of salary) remained constant in 2019 compared with 2018, as shown below.

     2019 Cash Incentive Award Opportunity      % change from
NEO as % of base salary (at target) 2018
Martine Rothblatt 110% No change
James Edgemond 75% No change
Michael Benkowitz 85% No change
Paul Mahon 65% No change

2019 Company-Wide Milestone Program

The Milestones (or performance goals) under our 2019 Company-Wide Milestone Program are intended to create company-wide incentives relating to significant corporate objectives, falling into two categories (i) financial metrics, consisting of revenue and profitability targets; and (ii) operational metrics, tied to manufacturing and research and development (R&D) objectives. Our Compensation Committee approved the specific goals and weightings based on management input at the beginning of the year based on a desire to reflect core performance measures and priorities for the business for the fiscal year, including our commitment to compliance, and to set goals that translate most directly into short-, medium- and long-term value growth.

The goal-setting process for 2019 was rigorous, involving multiple lengthy discussions. The Milestone performance targets are difficult to meet and require significant leadership and execution excellence on the part of our Named Executive Officers. Based on these factors, our Compensation Committee established the following Company-Wide Milestones and weightings for 2019:

     Percentage of
2019 Company-Wide Milestones Award Opportunity
Milestone 1—Financial Performance-Cash Profits*: Achieve the cash profit level for 2019 included in our long-range business plan ($650 million) 25%
Milestone 2—Financial Performance-Revenue: Superior financial performance as evidenced by achieving the net revenues for 2019 included in our long-range business plan ($1.45 billion) 25%
Milestone 3—Manufacturing: Adequate manufacturing capabilities, evidenced by a two-year inventory of Remodulin, Tyvaso and Orenitram finished drug product and passing all GMP-related FDA inspections at our facilities without any issues that prevent the use or approval of any of our drug products 25%
Milestone 4—Research & Development: Conduct insightful research and development programs, taking into account regulatory approvals, label extensions and the quantity and quality of trials that support our business goals 25%
* Cash profit is defined as net income for 2019 as reported in our Annual Report on Form 10-K for the year ended December 31, 2019, adjusted to add the following expenses, net of relevant benefits (or subtracted, to the extent the expense item is a net benefit):
Interest expense
Non-cash charges (including, without limitation, amortization and depreciation)
Tax expense (including penalties and interest)
Extraordinary, non-recurring and unusual items (including without limitation, license fees, milestone payments, gains/losses on acquisition/disposal of assets, asset impairments; restructuring costs; foreign currency adjustments; discontinued operations)
Legal expenses related to (a) intellectual property prosecution and defense; (b) litigation and government investigation and enforcement proceedings; and (c) amounts paid to settle/resolve legal disputes, litigation and government investigations and enforcement proceedings
Share-based compensation expense

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Our Compensation Committee carefully crafted these Milestones, which represent rigorous, objective standards by which to measure company and executive officer performance. Our Compensation Committee believes that all four Milestones are strategically important to our continued success and therefore should be weighted equally in determining incentive awards. Cash profits and revenue objectives are important to maintaining industry-leading financial performance. Our 2019 goals are tied to our long-term strategic objectives, which include aggressive revenue targets over near-term, medium-term and long-term time horizons, and are designed to achieve profitability at the top quintile of our peers. Our financial performance goal involved a rigorous review of many factors, including market opportunity for each product, analyst expectations, and historical individual product performance. Our Compensation Committee also considered the expected impact of generic competition for Adcirca and Remodulin in setting individual product revenue goals. Our total revenue goal for 2019 was determined by our Compensation Committee to be challenging, and was set at a level that was above analyst consensus expectations. Our cash profit performance Milestone is set at a very high bar, incentivizing top-quintile profitability performance by the management team and ensuring thoughtful and rigorous budget and spend management. Our manufacturing Milestone is intended to ensure a continuous supply of our treprostinil-based therapies, which generate the vast majority of our revenues. Our R&D Milestone was intended to ensure that we have a robust pipeline of products capable of delivering future revenues sufficient to drive industry-leading growth.

In 2019, we reduced the number of corporate Milestones from five to four, removing the previous 5th Milestone related to ethics and compliance. This was not because ethics and compliance are not a top priority at United Therapeutics; on the contrary, our Compensation Committee reconfirmed that ethical and compliant conduct is a basic condition of employment for all employees, and therefore there was no need to have a broad corporate milestone focused on this topic. Our compliance-based performance evaluation policy drives this accountability, requiring that each employee be evaluated against their compliance with all company policies and procedures, along with our Code of Conduct and Ethics — which emphasizes the importance of ethical and compliant conduct for all employees at all levels of our business.

The details of our framework for determining 2019 Milestone performance are provided below. As a general matter, under the terms of our Company-Wide Milestone Program, our Compensation Committee has the authority to exercise negative (downward) discretion in the event of partial attainment under any of the Milestones. The financial targets (cash profits and revenues) are set considering the market opportunity for our existing products, potential entrants of generic competition into the market during the performance period, analyst expectations and our broader business plans. For 2019, above-target cash incentive awards were possible (up to 150% of target) based only on the achievement of financial performance against the pre-established revenue and cash profit goals, as follows:

       Range (Target to Stretch)
Cash Profit Performance $650 million           $715 million
Revenue Performance $1.45 billion $1.6 billion
Multiplier for each Metric* 0% 25%
* Multiplier calculated independently for each metric; interpolate between performance levels

Financial Performance — Cash Profits


Financial Performance — Revenues


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Manufacturing

We award pro rata credit based on the number of quarters for which: (1) pre-specified inventory levels are achieved (i.e., 2-year supply of Orenitram, Remodulin and Tyvaso); and we pass any GMP-related FDA inspections. A minimum of two quarters is a threshold condition for any credit under this Milestone.

Research & Development

Performance under the research and development Milestone is based on a system of R&D points, where expected points (i.e., the goal) are determined at the beginning of the year based on our pipeline, and progress is measured at the end of the year (subject to potential adjustment to the formula for research and development efforts commenced and/or terminated during the year).

Award pro rata credit 100% credit (at target)
< 100% of Goal 100%+ of Goal

2019 Milestone Performance

For 2019, our Compensation Committee determined that 100% of the Milestones were achieved, plus an additional 25% multiplier for above-maximum performance under our cash profit Milestone, as shown below:

          Attainment           % of Award
Level % Weighting Earned
Milestone Performance (A) (B) (A × B)

1
(Cash Profit)

2019 cash profits were $847 million, representing 130% of the target of $650 million. Because the result exceeded the maximum ($715 million) a full 25% multiplier was applied.

100% 25%

25%

2
(Revenue)

2019 net revenues for Remodulin, Tyvaso, Adcirca, Orenitram and Unituxin were $1.45 billion, representing full achievement at target.

100% 25%

 25%

3
(Mfg)

Maintained greater than two-year inventory of all strengths of Remodulin, Tyvaso and Orenitram and passed all FDA inspections at our facilities, for the entirety of 2019.

100% 25% 25%

4
(R&D)

Achieved the full 25 R&D points (details provided below).

100% 25% 25%

Total

100%

Financial Multiplier (based on cash profit Milestone performance)

25%

Total (including multiplier)

125%

A word about our financial performance goals in light of generic competition.

Revenue. At the time we established our 2019 Company-Wide Milestones, we anticipated generic competition for both Adcirca and Remodulin in 2019, but still set a very aggressive revenue goal for our management team, far above analyst consensus (as shown below). This goal required growth in Tyvaso, Orenitram and Unituxin and required very strong performance from Remodulin despite generic competition for the majority of the year. Our industry is cyclical, and the impact of generic competition is a reality in our sector that must be considered when determining revenue performance expectations year over year. The entry of generic competition directly impacts revenue performance, resulting in occasional years without revenue growth over the prior year. For this reason, among others, our 2019 revenue target was lower as compared to our 2018 actual performance (although it was higher than our 2018 target). Ultimately, we were able to achieve our revenue goal by delivering strong performance with increased revenue for

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Tyvaso, Orenitram and Unituxin for 2019 over 2018, and successfully delivered strong performance with Remodulin, noting very little impact to revenues even with nine months of generic competition in 2019.
 
Cash Profit. The same competitive dynamics inherently impact cash profits, and as a result we set our 2019 cash profit target below our 2018 actual cash profit (although above our 2018 target). Despite heavy investment in our R&D pipeline to drive future revenue generation, we believe it is important to maintain industry-leading profitability. When viewed as a percentage of revenue, our cash profit target consistently leads to profit margins at the top quintile of our peer group, as shown by the chart below. Because not all companies report the same non-GAAP financial measures, the chart below shows how our cash profit performance led to top-quintile performance in 2019 based on a uniform profitability metric: adjusted EBITDASO margin, or earnings before interest, taxes, depreciation, amortization, and share-based compensation expense (as further adjusted for one-time items that were excluded from the company’s reported adjusted earnings), divided by revenues:
 

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Balance Sheet Strength. Our historically strong profitability, which has been appropriately incentivized and rewarded by our Company-Wide Milestone Program, has generated strong free cash flow resulting in an extremely healthy balance sheet. At December 31, 2019, we had cash, cash equivalents and marketable securities totaling $1.4 billion (net of our outstanding indebtedness of $850 million). This is incredibly important, especially in light of current concerns surrounding the COVID-19 pandemic, which could have lasting impacts on a number of companies within our industry. Indeed, on March 23, 2020, Jefferies Equity Research screened over 1,000 companies, and highlighted United Therapeutics among a list of just six companies (along with Home Depot, Honeywell and T. Rowe, for example) with a “Fortress Balance Sheet” that are best positioned to weather the storm.

Additional detail regarding our research and development performance.

In evaluating performance under Milestone 4 (Research and Development), our Compensation Committee reviewed the clinical and registration-stage products being developed within our pipeline, the unmet medical need they are intended to address, and the significance of potential revenues if approved. The following is a list of these programs, several of which represent multi-billion-dollar revenue opportunities, and in some cases addressing potential indications for which there are no FDA-approved therapies:

FDA Approvals: 12 points (full credit) awarded for achieving two key FDA approvals, compared to a goal of one FDA approval. Specifically, the FDA approved our label expansion for Orenitram reflecting the successful results of our FREEDOM-EV study and granted initial clearance for the Remunity system pump (patient filled)
Late-Stage R&D Programs: Ten points (full credit) awarded for progressing eight registration-stage programs (compared to a goal of six programs), listed below:
INCREASE, a phase III study of Tyvaso for WHO Group 3 pulmonary hypertension associated with interstitial lung disease
DISTINCT, a phase III study of Unituxin for small cell lung cancer
SAPPHIRE, a phase II/III study of a gene therapy product for PAH
Registration study of ex-vivo lung perfusion technology to increase the utilization of donated lungs for transplantation
PERFECT, a phase III study of Tyvaso for WHO Group 3 pulmonary hypertension associated with chronic obstructive pulmonary disease
Submission of an NDA for Trevyent, a registration-stage drug-device combination product for PAH
ADVANCE OUTCOMES, a phase III event-based study of ralinepag in PAH patients
ADVANCE CAPACITY, a phase III study of the effect of ralinepag on exercise capacity in PAH patients
Earlier-Stage R&D Programs: Two points (full credit) awarded for progressing two early stage development programs (compared to a goal of one):
Treprostinil Technosphere, a dry powder inhalation form of treprostinil
LNG01 (formerly SM04646), a Wnt pathway inhibitor for treatment of idiopathic pulmonary fibrosis
New Product Candidates: One point (full credit) awarded for progressing two new product candidates into early stage development (compared to a goal of one):
RemoPro, a less painful form of Remodulin for subcutaneous delivery
Unexisome™, an exosome product for the treatment of bronchopulmonary dysplasia

2019 Cash Incentive Awards under the Company-Wide Milestone Program

The cash incentive awards earned by our Named Executive Officers and approved by our Compensation Committee for the 2019 performance year were as follows:

NEO 2019
Base Salary
(A)
2019 Cash
Incentive Award
Target as % of
Base Salary
(B)
2019 Milestone
Attainment
(C)
2019 Financial
Multiplier
(D)
Total Cash
Incentive
Bonus Earned
(A × B × C × D)
Martine Rothblatt $1,275,000 110% 100% 125% $1,753,125
James Edgemond $675,000 75% 100% 125% $632,813
Michael Benkowitz $885,000 85% 100% 125% $940,313
Paul Mahon $850,000 65% 100% 125% $690,625

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Long-Term Incentive Compensation

2019-2022 Long-Term Incentive Compensation

Our long-term incentive compensation program is structured to support our pay-for-performance and shareholder alignment objectives. As discussed above, we implemented a new long-term incentive compensation program in 2019, uniquely designed to motivate and retain our executive leadership team, while carefully and thoughtfully integrating shareholder feedback and alignment. This program significantly reduces overall equity expense and dilution to shareholders on an annualized basis, when compared to our 2017 and 2018 programs, while actively engaging and retaining our leadership team over the next critical four year period. We awarded a four-year grant of stock options to our Named Executive Officers, intended to cover four years of equity awards for the performance years 2019 through 2022. This grant consisted of stock options under the United Therapeutics Corporation Amended and Restated 2015 Stock Incentive Plan (the 2015 SIP).

Our Compensation Committee does not have a set benchmark or formula for setting the long-term incentive award target for these individuals. It reviews and establishes long-term incentive target opportunities based on several factors, including: (i) the fair value of the long-term target opportunity in relation to our peer group; (ii) past grant levels including the retention value of these holdings; (iii) individual and company performance; and (iv) the potential gain to be realized from these awards based on the appreciation in the price of our common stock. The four-year 2019-2022 awards were granted in two forms of stock options, as follows:

Premium-Priced Stock Options. 50% of each Named Executive Officer’s equity award covering grants for 2019-2022 was granted in March 2019 in the form of stock options with an exercise price equal to 115% of our closing stock price on the date of the grant. Therefore, our stock price will have to grow by more than 15% above the grant date before our Named Executive Officers can realize any value from the award. As a result, the first 15% return goes to our shareholders before we reward our executives. These performance stock options will vest in full (i.e., “cliff” vest) on the fourth anniversary of the grant date for retention.

2019-2022 Premium-Priced Stock Option Award
(Granted on March 15, 2019) (50% of Overall Award)
NEO        # of Premium-Priced
Stock Options Granted
Exercise Price
Martine Rothblatt 500,000 $135.42
James Edgemond 162,500 $135.42
Michael Benkowitz 187,500 $135.42
Paul Mahon 150,000 $135.42

Market-Priced Stock Options. 50% of each Named Executive Officer’s equity award covering grants for the period of 2019-2022 was granted in March 2019 in the form of stock options with an exercise price equal to our closing stock price on the date of grant. These awards will vest in equal thirds on the second, third and fourth anniversary of the date of the grant, which also aids in retention.

2019-2022 Market-Priced Stock Option Award
(Granted on March 15, 2019) (50% of Overall Award)
NEO        # of Time-Based Stock
Options Granted
Exercise Price
Martine Rothblatt 500,000 $117.76
James Edgemond 162,500 $117.76
Michael Benkowitz 187,500 $117.76
Paul Mahon 150,000 $117.76

Our Compensation Committee views the entirety of the 2019-2022 four-year grant as a performance-based equity award, given our stock price must grow in order for the grant to deliver any realizable value. Both types of stock options expire eight years from the date of grant, subject to earlier expiration upon termination of employment with us. Additionally, both Dr. Rothblatt and Mr. Mahon have waived their contractual provision providing for stock option vesting acceleration if they resign while continuing as a senior advisor, with respect to the four-year grants.

Why did we grant four-year stock options up-front?

We recognize that so-called “front-loaded” equity grants are not standard practice, and this decision was made after careful deliberation by our Compensation Committee with due consideration for the need to drive long-term revenue growth following the 2018-2019 revenue “trough” caused by the commencement of generic competition. To this end, we have a four-year business plan that is focused on delivering new products to the market which we believe will return our company to significant revenue growth. We believe with great science, strong execution and operating performance, this business plan should drive shareholder return over the four-year period. Our Compensation Committee felt that the simplest way to motivate and reward the attainment of these goals, and to stay focused on strategy and execution, was to grant an equity award aligned with the four-year strategy, rather than in annual increments. This also provides the opportunity to align pay and performance over that period and provides a retention incentive aimed at locking in the leadership team. We chose to award the grant in the form of stock options to reward the executives for future appreciation from executing the strategy and not the underlying

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value of our past success. As noted above under the Letter from our Compensation Committee Chairman, the design of our 2019-2022 equity grant was based on feedback from our shareholders and the proxy advisory firms including addressing the following:

50% of the award was awarded as a stock option with a 15% premium exercise price. That means the first 15% of stock price appreciation goes to our shareholders before we reward our executives
The award will not have any intrinsic value unless we have stock price growth over a multi-year period. This long-term focus addresses concerns raised by certain shareholders regarding the necessity of reducing short-term financial goals in light of generic competition
The award eliminates the one-year performance period in our prior program, which was the source of concern for some of our shareholders
The award eliminates the duplicated metrics between our short-term and long-term incentive programs, addressing a shareholder concern
The vesting of the award is weighted toward the end of the four-year period with the majority of the vesting occurring in years three and four for the market-priced portion and the premium-priced award cliff-vests on the fourth anniversary
The award has an eight-year term, meaning our share price must grow more quickly than the more typical ten-year term of a stock option
The total volume of pay, when measured on an annualized basis, is significantly reduced as compared with the continuation of the program utilized in 2017 and 2018, which also addresses a concern raised by shareholders
Total shareholder dilution over the four-year period is also reduced, as compared with the 2017 and 2018 program

Additional questions and answers regarding the four-year grant

Q                                   A                          

Why a four-year period, instead of a shorter period (e.g., three years)?

 

We have a very aggressive four-year business plan that will require execution on the part of our management team. The four-year period covered by these awards aligns with critical business objectives that must be met in order to achieve this plan and drive shareholder returns. This includes launching new products (e.g. Remunity, ISR, Treprostinil Technosphere), tackling new indications (e.g. PH-ILD and PH-COPD), and overcoming the generic challenges to Remodulin. This four-year grant incentivizes the delivery of these key objectives over this critical four-year period.

Will you issue additional equity awards during the four-year period?

 

Our Compensation Committee does not intend to award any additional equity-based awards to our Named Executive Officers during the four-year period 2019-2022.

How did you decide on a 15% performance premium 50% of the award?

 

Our Compensation Committee reviewed this element of the program carefully, reviewing recent trading history of our common stock, and taking account of the general rule of thumb that a 10% premium is often deemed sufficient by proxy advisory firms and shareholders to constitute a “performance-based” award. Our Compensation Committee ultimately decided to apply an even more rigorous 15% premium after reviewing the broader performance of our peer group seeking to ensure our performance goals remained in the top quartile of our peers.

Why didn’t you add in a relative metric, like relative total shareholder return (TSR) as a performance condition?

 

Our Compensation Committee does not believe relative TSR would appropriately balance our incentives at this time. In fact, our Compensation Committee regarded our four-year grants as even more robust than a relative TSR metric, given that our stock price has to increase (even in a market downturn) in order for the awards to deliver value to the executives. We also examined the practices of our peer group, and only 28% use a relative TSR metric for their CEOs. We also believe that there are macro geopolitical and sector-specific dynamics that can result in valuation disconnects — both positively and negatively — that place undue pressure on developing a perfect peer group for comparisons. We believe in setting goals, holding executives accountable, and aligning their long-term rewards to performance they can control. In our view relative TSR has too many external and extraneous factors that are not aligned with our strategy and would not be motivational.

Why 100% stock options? Why not a mix of options, RSUs and/or PSUs?

 

Our Compensation Committee feels strongly that stock options are the best lever for incentivizing our executives at this time. They have inherent performance criteria in that our executive team has to grow our stock price in order to realize any value, and in the case of premium-priced options they must grow the stock price an additional 15%. We prefer to reward executives for creating future value, not providing the embedded value that exists when you grant time-vested RSUs. We considered performance RSUs instead of options, but this would require setting metrics that we believe are already captured in our annual incentive plan. Our intention with this grant was to avoid redundant metrics between the annual and long-term plan, consistent with the requests and feedback of our shareholders.

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Vesting of 2017 Long-Term Incentive Awards

In 2017, we awarded two tranches of performance-based stock options to our Named Executive Officers with a performance condition tied to achieving average cash profit margin of at least 50% over 2017-2019. One tranche was granted in respect of our 2016 compensation program (the 2016 Cash Profit Performance Options), and the other tranche was granted in respect of our 2017 compensation program (the 2017 Cash Profit Performance Options). Both tranches were granted on March 15, 2017, with a cliff-vesting feature on the third anniversary of the date of grant, to the extent earned, and both tranches will expire on the tenth anniversary of the date of grant. Vesting of both tranches was subject to a threshold performance criterion of 45% average cash profit margin, at which one-half of the target number of shares would have vested. Below this threshold, zero shares would have vested and between 45% and 50% average cash profit margin, the number of shares earned would have been determined by linear interpolation. In the case of the 2017 Cash Profit Performance Options, up to 200% of the target number of shares could be earned if the average cash profit margin equaled or exceeded 55%, with the number of shares earned between target and maximum determined by linear interpolation. The 2016 Cash Profit Performance Options did not include an opportunity for above-target payouts for stretch performance.

As a result of achieving an average cash profit margin of 61% during the 2017-2019 period, all of these options vested at maximum levels as of March 15, 2019, as shown in the table below.

NEO Tranche Threshold Target Max Options
Earned/Vested
Martine Rothblatt 2016 Cash Profit Performance Options 50,000 100,000 100,000 100,000
2017 Cash Profit Performance Options 61,031 122,061 244,122 244,122
James Edgemond 2016 Cash Profit Performance Options 9,375 18,750 18,750 18,750
2017 Cash Profit Performance Options 13,078 26,156 52,312 52,312
Michael Benkowitz 2016 Cash Profit Performance Options 13,125 26,250 26,250 26,250
2017 Cash Profit Performance Options 17,438 34,875 69,750 69,750
Paul Mahon 2016 Cash Profit Performance Options 15,625 31,250 31,250 31,250
2017 Cash Profit Performance Options 17,438 34,875 69,750 69,750

Other Executive Compensation Policies and Practices

Long-Term Incentive Awards Grant Timing Policy

Our long-term incentive award grant timing is designed so that awards are granted after the market has had an opportunity to react to our announcement of annual earnings. As such, as a general matter awards to our employees and Named Executive Officers are typically granted on March 15th each calendar year (or the preceding trading day if markets are not open on March 15th). We also believe this timing helps us avoid broad internal communication of highly confidential financial results prior to public announcement of our annual financial results. Our Compensation Committee may also approve awards at other times, in connection with significant personnel events, such as new hire, promotion, new directorship, achievement of a significant corporate objective, or appointment to a Board committee.

Beginning in 2021, our Compensation Committee will also be permitted the flexibility to grant awards on the 15th day of any month (or the preceding trading day if markets are not open on the 15th).

All long-term incentive awards granted to our Named Executive Officers and other employees have an exercise price equal to at least the closing price of our common stock on the Nasdaq on the date of grant or, if the award is granted on a date when the Nasdaq is not open, an exercise price equal to at least the closing price of our common stock on the Nasdaq on the preceding trading day.

Benefits and Perquisites

The benefits offered to our Named Executive Officers are substantially the same as those offered to all employees, with the exception of the supplemental executive retirement plan (SERP) discussed in the section entitled Supplemental Executive Retirement Plan below. We provide a tax-qualified retirement plan (a 401(k) plan) and medical and other benefits to executives that are generally available to other full-time employees. Under our 401(k) plan, all employees are permitted to contribute up to the maximum amount allowable under applicable law (i.e., $19,000 in 2019 or $25,000 for eligible participants who are age 50 or older). We make matching contributions equal to 40% of eligible employee contributions with such matching contributions vesting 33 1/3% per year based on years of service, not the amount of time an employee has participated in the 401(k) plan. Therefore, once an employee completes three years of service, his or her account is fully vested, and any future matching funds will vest immediately. The 401(k) plan and other generally available benefits programs allow us to remain competitive for executive talent. We also provide limited perquisites to our Named Executive Officers, including participation in either our vehicle lease program, which covers the monthly lease payment and cost of insurance and maintenance on vehicles, or a monthly car allowance of up to $1,000. Our Compensation Committee believes that the availability of these benefit programs generally enhances executive recruitment, retention, productivity, and loyalty to us.

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For additional details on certain benefits and perquisites received by our Named Executive Officers, see the Summary Compensation Table below.

Supplemental Executive Retirement Plan

We maintain our SERP for select executives to enhance the long-term retention of individuals who have been and will continue to be vital to our success. Currently, only our Named Executive Officers and two other members of senior management participate in the SERP. The SERP provides each participant with a lifetime annual payment after retirement (or at his or her election, a lump-sum payment) of up to 100% of final average three-year gross salary less estimated social security benefit, provided that he or she is employed by us or one of our affiliates until age 60. Participants in the SERP are prohibited from competing with us or soliciting our employees for a period of twelve months following his or her termination of employment or, if earlier, upon attainment of age 65. Violation of this covenant will result in forfeiture of all benefits under the SERP.

Additional details regarding the SERP, including provisions in connection with a participant’s death or disability or change in control, are provided under the Pension Benefits in 2019 table below.

Post-Employment Obligations for Named Executive Officers

Each of our Named Executive Officers is eligible for certain severance payments in the event his or her employment terminates under specified circumstances, including in connection with a change in control, as provided in their employment agreements as well as the terms of the SERP, the 1997 United Therapeutics Corporation Amended and Restated Equity Incentive Plan (EIP), the 2015 SIP and the STAP. These payments vary based on the type of termination but may include cash severance, stock option and STAP vesting acceleration, SERP vesting acceleration, and/or continuation of health and other benefits.

Our Compensation Committee approved these arrangements in order to promote the loyalty and productivity of our Named Executive Officers and to align executive and shareholder interests by enabling executives to consider corporate transactions that are in the best interests of our shareholders and our other constituents without undue concern about whether the transaction may jeopardize their employment. Our Compensation Committee wants our Named Executive Officers to be free to think creatively and promote the best interests of our company without worrying about the impact of those decisions on their employment.

Details regarding severance and change in control arrangements for our Named Executive Officers are contained in the text following the Potential Payments Upon Termination or Change in Control table below.

Stock Ownership Guidelines

As noted above under Our Corporate Governance—Board Roles and Responsibilities—Stock Ownership Guidelines, in 2011, our Board adopted Stock Ownership Guidelines in order to further align the financial interests of our directors and Named Executive Officers with those of our shareholders, to foster a long-term management orientation, and to promote sound corporate governance. Our Stock Ownership Guidelines set targets for each Named Executive Officer according to the lesser of a multiple of base salary or fixed number of shares of common stock as follows:

Title of NEO Ownership Target
Chairman and Chief Executive Officer Lesser of 6x base salary or 100,000 shares
President and Chief Operating Officer Lesser of 3x base salary or 30,000 shares
Chief Financial Officer and Treasurer Lesser of 3x base salary or 20,000 shares
Executive Vice President and General Counsel Lesser of 3x base salary or 30,000 shares

The policy provides procedures for granting exemptions in the case of hardship.

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Policy Regarding Tax Deductibility of Executive Compensation

For fiscal year 2017 and prior years, Section 162(m) of the Internal Revenue Code (the Code) generally limited the deductibility of compensation to $1 million per year for certain of our Named Executive Officers, unless compensation in excess of the limit qualified as “performance-based compensation.” Following the changes to the tax laws effective as of January 1, 2018 that eliminate the exception for “performance-based compensation,” we expect we will be unable to deduct compensation payable to Named Executive Officers in excess of $1,000,000.

While our Compensation Committee considers the impact of this tax treatment, the primary factor influencing program design is the support of our business objectives. Generally, whether incentive compensation will be deductible under Section 162(m) of the Code will be a consideration, but not the decisive consideration, with respect to our Compensation Committee’s compensation determinations. Accordingly, our Compensation Committee retains flexibility to structure our compensation programs in a manner that is not tax-deductible in order to achieve a strategic result that our Compensation Committee determines to be more appropriate.

Compensation Committee Report

The Compensation Committee of our Board of Directors has reviewed and discussed the Compensation Discussion and Analysis contained within this Proxy Statement with management and, based on such review and discussions, our Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated into United Therapeutics’ Annual Report on Form 10-K for the year ended December 31, 2019.

Submitted by the Compensation Committee:

CHRISTOPHER CAUSEY (Chair)
NILDA MESA
LOUIS SULLIVAN

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Compensation Tables

Summary Compensation Table

The following table shows compensation information for 2017, 2018 and 2019 for our Named Executive Officers, calculated in accordance with SEC regulations. We refer your attention to the Supplementary Summary Compensation Table that immediately follows for an understanding of (a) 2017 compensation in a way that eliminates the effect of a onetime overlap in equity awards for the 2016 and 2017 performance periods, due to a transition in our equity compensation program to entirely performance based awards using prospective performance conditions, and (b) 2019 compensation in a way that shows the value of the 2019 four-year equity grants to our Named Executive Officers on an annualized basis.

Name and Principal Position      Year       Salary(1)
($)
      Stock
Options(2)
($)
      Non-Equity
Incentive Plan
Compensation(3)
($)
      Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(4)
($)
      All Other
Compensation(5)
($)
      Total
($)
Martine Rothblatt
Chairman and Chief
Executive Officer
2019 1,218,038(6) 40,010,000 1,753,125 2,643,874 10,000 45,635,037
2018 1,208,447(6) 12,796,803 2,021,250 9,800 16,036,300
2017 1,163,707(6) 33,122,078 1,598,163 1,239,653 9,600 37,133,201
James Edgemond
Chief Financial Officer
and Treasurer
2019 645,192 13,003,250 632,813 1,668,041 19,600 15,968,896
2018 645,833 3,382,085 731,250 467,161 16,400 5,242,729
2017 620,833 6,583,317 577,148 854,747 17,000 8,653,045
Michael Benkowitz
President and Chief
Operating Officer
2019 845,577 15,003,750 940,313 2,829,195 17,171 19,636,006
2018 833,333 3,839,015 1,083,750 835,680 17,480 6,609,258
2017 733,333 9,017,790 738,750 1,043,171 24,433 11,557,477
Paul Mahon
Executive Vice President
and General Counsel
2019 812,692 12,003,000 690,625 3,038,484 22,000 16,566,801
2018 820,000 3,656,242 799,500 21,800 5,297,542
2017 815,950 9,977,780 656,256 1,399,858 21,600 12,871,444
(1) Increases in base salaries for each of our Named Executive Officers became effective on March 1, 2017, 2018 and February 25, 2019
(2)

Amounts shown represent the aggregate grant date fair value of stock options granted in each reported year, computed in accordance with applicable accounting standards. For a discussion of valuation assumptions for stock options for 2019 see Note 9—Share Based Compensation to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. The stock options were awarded under our 2015 SIP. The value of 2017 and 2018 stock option awards with performance conditions are reported at target, calculated using the Black Scholes Merton value in accordance with GAAP. For awards granted in respect of the 2017 and 2018 performance years, the number of shares earned may exceed target for “stretch” performance, up to a maximum number of shares. If the maximum number of shares were used in calculating the Black Scholes Merton value of these awards, the grant date fair value would be as follows


      Name

    

Year

     

Number of
Shares
(at target)

     

Grant-Date
Fair Value
(at target)

     

Number of
Shares
(at maximum)

     

Grant-Date
Fair Value
(at maximum)
Martine Rothblatt 2018 285,102 $ 12,796,803 498,930   $ 22,464,680
2017 244,122 $ 13,922,278 427,214 $ 24,447,015
James Edgemond 2018 75,350 $3,382,085 131,861 $5,937,136
2017 52,312 $2,983,354 91,546 $5,238,654
Michael Benkowitz 2018 85,530 $3,839,015 149,679 $6,739,404
2017 69,750 $3,977,842 122,062 $6,984,912
Paul Mahon 2018 81,458 $3,656,242 142,552 $6,418,505
2017 69,750 $3,977,842 122,062 $6,984,912
(3) Amounts shown for each year represent the total cash awards earned by each Named Executive Officer under our Company-Wide Milestone Program for the respective year, although the awards were not paid until March of the following year. The payouts were determined based on our attainment of specific, pre-established performance Milestones. For example, the amounts reported for 2019 reflect cash earned in respect of 2019 performance but paid in March 2020. For information on the amounts earned for 2019, see the section entitled Cash Incentive Award Program in the Compensation Discussion and Analysis above.
(4) Amounts shown represent the change in the actuarial present value of retirement benefits under the SERP calculated in accordance with GAAP under SEC requirements. The assumptions used in calculating the change in the actuarial present value of SERP benefits are described

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in the footnotes to the Pension Benefits in 2019 table below. The change in pension value from year to year as reported in the table will vary based on these assumptions and may not represent the value that a Named Executive Officer will accrue or receive under the SERP. The change in the amounts reported for 2019 compared to 2018 was primarily driven by the decrease in the discount rate and the lump sum interest rate. We note that there were no changes in the terms of our SERP in 2019 versus 2018.
(5) The amounts shown represent the aggregate incremental cost that can be attributed to lease, insurance, and maintenance payments made on vehicles used by a Named Executive Officer or for monthly automobile allowances, travel expenses for family members to our functions (collectively, the perquisites), and “matching contributions” under our 401(k) Plan equal to 40% of each participant’s qualifying salary contributions.
(6) Our Canadian subsidiary paid a portion of Dr. Rothblatt’s total base salary in the amount of 120,000 Canadian dollars. The value of this portion in U.S. dollars has been estimated for the purposes of disclosure here by using the average exchange rate for each respective year. In 2017, 2018, and 2019, our Canadian subsidiary paid the equivalent of US$92,407, US$92,614, and US$90,436 of Dr. Rothblatt’s total base salary, respectively.

Supplementary Summary Compensation Table

The following table provides an “annualized” view of our compensation programs for 2017 and 2019, as follows:

Elimination of 2017 Grant Overlap. In 2017, we made a major shift in our equity grant practices. Historically, we established the size of an equity award at the start of the year for a performance year (e.g. Q1 2016) and then issued an award after the close of the fiscal year based on performance against pre-established Milestone goals (e.g. Q1 2017). The award was then subject to time-based vesting for retention and incentivization to drive sustainable future performance. As a result of shareholder feedback and to enhance the performance aspect of these awards, we modified our equity award policy in 2017 to be prospective in nature. This means that for the 2017 performance year, we made grants in March 2017 and these awards will only vest if the performance conditions are achieved over a prospective measurement period. However, this transition from retrospective grants to prospective grants resulted in grants being issued in March 2017 to reward Milestone performance under the 2016 performance year as well as to start the 2017 performance and pay cycle. Both sets of grants are presented for 2017 in the Summary Compensation Table, and as a result, the table overstates the actual compensation set for 2017. As such, in order to provide a clear summary of 2017 compensation that eliminates the effect of this overlap, the following table presents 2017 compensation information for each Named Executive Officer exactly as shown above in the Summary Compensation Table, except that the Option/STAP Awards column only shows the grant date value of the prospective options granted for the 2017 compensation year. The equity awards granted in 2017 related to 2016 equity opportunities have been eliminated.

Annualizing the 2019 four-year Equity Grant. In 2019, we made another major change in our equity compensation program, issuing four-year equity grants to our Named Executive Officers covering equity compensation for the years 2019-2022. As described elsewhere in this Proxy Statement, we believe it is important to view the value of these grants on an annualized basis, by dividing the aggregate grant date fair value by four (representing the number of years of equity compensation covered by the grant). The following table presents the annualized view of our equity program for 2019.

Name and Principal Position     Year       Salary(1)
($)
      Option/
STAP
Awards(2)
($)
      Non-Equity
Incentive Plan
Compensation(3)
($)
      Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(4)
($)
      All Other
Compensation(5)
($)
      Total
($)
Martine Rothblatt
Chairman and Chief
Executive Officer
2019 1,218,038 (6)  10,002,500 1,753,125 2,643,874 10,000 15,627,537
2018 1,208,447 (6)  12,796,803 2,021,250 9,800 16,036,300
2017 1,163,707 (6)  13,922,278 1,598,163 1,239,653 9,600 17,933,401
James Edgemond
Chief Financial Officer
and Treasurer
2019 645,192 3,250,813 632,813 1,668,041 19,600 6,216,459
2018 645,833 3,382,085 731,250 467,161 16,400 5,242,729
2017 620,833 2,983,354 577,148 854,747 17,000 5,053,082
Michael Benkowitz
President and Chief
Operating Officer
2019 845,577 3,750,938 940,313 2,829,195 17,171 8,383,194
2018 833,333 3,839,015 1,083,750 835,680 17,480 6,609,258
2017 733,333 3,977,842 738,750 1,043,171 24,433 6,517,529
Paul Mahon
Executive Vice President
and General Counsel
2019 812,692 3,000,750 690,625 3,038,484 22,000 7,564,551
2018 820,000 3,656,242 799,500 21,800 5,297,542
2017 815,950 3,977,842 656,256 1,399,858 21,600 6,871,506
(1) Increases in base salaries for each of our Named Executive Officers became effective on March 1, 2017, 2018 and February 25, 2019.

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(2)

Amounts shown reflect the aggregate grant date fair value of stock options granted in each reported year, computed in accordance with applicable accounting standards. For a discussion of valuation assumptions for stock options for 2019 see Note 9—Share Based Compensation to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. The stock options were awarded under our 2015 SIP. 2017 was a transition year where we issued equity awards in March 2017 based on 2016 performance (based on the timing of our historical program), as well as awards reflecting each Named Executive Officer’s 2017 equity award opportunity. The value of 2017 and 2018 stock option awards with performance conditions are reported at target, calculated using the Black Scholes Merton value in accordance with GAAP. For awards granted in respect of the 2016 performance year, target and maximum are equivalent. For awards granted in respect of the 2017 and 2018 performance years, the number of shares earned may exceed target for “stretch” performance, up to a maximum number of shares. If the maximum number of shares were used in calculating the Black Scholes Merton value of these awards, the grant date fair value would be as follows:

Name Year Number of
Shares
(at target)
Grant-Date
Fair Value
(at target)
Number of
Shares
(at maximum)
Grant-Date
Fair Value
(at maximum)
Martine Rothblatt 2018 285,102 $12,796,803 498,930 $22,464,680
  2017 244,122 $13,922,278 427,214 $24,447,015
James Edgemond 2018 75,350 $3,382,085 131,861 $5,937,136
  2017 52,312 $2,983,354 91,546 $5,238,654
Michael Benkowitz 2018 85,530 $3,839,015 149,679 $6,739,404
  2017 69,750 $3,977,842 122,062 $6,984,912
Paul Mahon 2018 81,458 $3,656,242 142,552 $6,418,505
  2017 69,750 $3,977,842 122,062 $6,984,912

(3)

Amounts shown represent the total cash awards earned by each Named Executive Officer under our Company-Wide Milestone Program for the year, although the awards were not paid until March of the following year. The payouts were determined based on our attainment of specific, pre-established performance Milestones. For example, the amounts reported for 2019 reflect cash earned in respect of 2019 performance but paid in March 2020. For information on the amounts earned for 2019, see the section entitled Cash Incentive Award Program in the Compensation Discussion and Analysis above.

(4)

Amounts shown represent the change in the actuarial present value of retirement benefits under the SERP calculated in accordance with GAAP under SEC requirements. The assumptions used in calculating the change in the actuarial present value of SERP benefits are described in the footnotes to the Pension Benefits in 2019 table below. The change in pension value from year to year as reported in the table will vary based on these assumptions and may not represent the value that a Named Executive Officer will accrue or receive under the SERP. The change in the amounts reported for 2019 compared to 2018 was primarily driven by the decrease in the discount rate and the lump sum interest rate. We note that there were no changes in the terms of our SERP in 2019 versus 2018.

(5)

The amounts shown represent the aggregate incremental cost that can be attributed to lease, insurance, and maintenance payments made on vehicles used by a Named Executive Officer or for monthly automobile allowances, travel expenses for family members to our functions (collectively, the perquisites), and “matching contributions” under our 401(k) Plan equal to 40% of each participant’s qualifying salary contributions.

(6)

Our Canadian subsidiary paid a portion of Dr. Rothblatt’s total base salary in the amount of 120,000 Canadian dollars. The value of this portion in U.S. dollars has been estimated for the purposes of disclosure here by using the spot exchange rate on the dates on which Dr. Rothblatt was paid. In 2017, 2018, and 2019, our Canadian subsidiary paid the equivalent of US$92,407, US$92,614, and US$90,436 of Dr. Rothblatt’s total base salary, respectively.

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Grants of Plan-Based Awards in 2019



Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
All Other
Option Awards:
Number of
Securities
Underlying
Options
(#)
Exercise or
Base Price
of Stock
Option
Awards
($/Sh)
Grant Date
Fair Value
of Stock
Option
Awards(4)
($)
Name Grant Date Threshold(3)
($)
Target(3)
($)
Maximum(3)
($)
Martine Rothblatt 3/15/2019 (1) 500,000 135.42 19,060,000
  3/15/2019 (2) 500,000 117.76 20,950,000
  N/A (3) N/A 1,402,500 2,103,750
James Edgemond 3/15/2019 (1) 162,500 135.42 6,194,500
  3/15/2019 (2) 162,500 117.76 6,808,750
  N/A (3) N/A 506,250 759,375
Michael Benkowitz 3/15/2019 (1) 187,500 135.42 7,147,500
  3/15/2019 (2) 187,500 117.76 7,856,250
  N/A (3) N/A 752,250 1,128,375
Paul Mahon 3/15/2019 (1) 150,000 135.42 5,718,000
  3/15/2019 (2) 150,000 117.76 6,285,000
N/A (3) N/A 552,500 828,750

(1)

This award of stock options represents 50% of the Named Executive Officer’s four-year equity grant of stock options covering the 2019-2022 period. These options were granted with an exercise price equal to 115% of the fair market value of our common stock on the date of grant. These stock options cliff vest on the fourth anniversary of the date of grant and expire on the eighth anniversary of the date of grant. See the Compensation Discussion and Analysis above for more details on the 2019-2022 equity program for our Named Executive Officers.

(2)

This award of stock options represents 50% of the Named Executive Officer’s four-year equity grant of stock options covering the 2019-2022 period. These options were granted with an exercise price equal to the fair market value of our common stock on the date of grant. These stock options vest in equal installments on the second, third and fourth anniversaries of the date of grant and expire on the eighth anniversary of the date of grant. See the Compensation Discussion and Analysis above for more details on the 2019-2022 equity program for our Named Executive Officers.

(3)

Actual cash incentive awards earned under the program in 2019 are reported in the Summary Compensation Table under the column entitled “Non-Equity Incentive Plan Compensation.” While there are threshold performance criteria and payout levels for 75% of the cash incentive program (based on the Milestones related to cash profits, revenues and manufacturing), there is no threshold performance level for the entirety of the program because the R&D Milestone does not contain threshold / minimum performance criteria.

(4)

The grant date fair value of stock options is generally the amount that we will recognize as an expense over the award’s vesting period, computed in accordance with applicable accounting standards.

Narratives to Summary Compensation Table and Grants of Plan-Based Awards in 2019 Table

Named Executive Officer Employment Agreements

The material terms of each Named Executive Officer’s employment agreement are described below.

Dr. Rothblatt

In April 1999, we entered into an employment agreement with Dr. Rothblatt. This agreement was amended from time to time and we entered into an Amended and Restated Executive Employment Agreement with Dr. Rothblatt effective January 1, 2009 in order to clarify the effectiveness of certain prior amendments, and to make other immaterial amendments. This agreement was further amended effective January 1, 2015, to remove her entitlement to an annual grant of stock options based on a market capitalization growth formula and to provide us flexibility to grant her incentive-based compensation in a variety of forms at our Compensation Committee’s discretion. The amendment also eliminated Dr. Rothblatt’s right to an Internal Revenue Code Section 280G excise tax gross up payment, among other changes.

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Dr. Rothblatt’s employment agreement provides for an initial five-year term, which is automatically extended for an additional year at the end of each year unless either party gives at least six months’ notice of termination. If either party provided such a notice of termination, it would result in a four-year remaining term. We note that this rolling five-year term has no bearing on potential severance payments upon termination, which are described under Potential Payments Upon Termination or Change in Control.

Dr. Rothblatt’s compensation in 2019 was paid pursuant to this employment agreement, which entitles her to a minimum base salary of $180,000, annual cash and long-term incentive compensation and participation in employee benefits generally available to other executives. The level of Dr. Rothblatt’s base salary is subject to annual review and increase by our Compensation Committee. Her annual salary was reviewed in early 2019, and beginning February 25, 2019, was set at $1,275,000. Her employment agreement also requires us to pay the cost of leasing, maintaining and insuring an automobile for Dr. Rothblatt.

Dr. Rothblatt’s employment agreement prohibits her from engaging in activities competitive with us for five years following her last receipt of compensation from us. She is also subject to a permanent confidentiality obligation. For information regarding severance and change in control arrangements for Dr. Rothblatt, see the text following the Potential Payments Upon Termination or Change in Control table below.

Mr. Edgemond, Mr. Benkowitz and Mr. Mahon

We have entered into employment agreements with each of Messrs. Edgemond, Benkowitz and Mahon. The agreement for Mr. Mahon provides for an initial five-year term, which is automatically extended for an additional year at the end of each year. Either party may terminate the agreement a certain time period prior to an annual renewal, which would result in a four-year remaining term. The agreements for Messrs. Benkowitz and Edgemond provide an initial term of three years, following which the agreement continues from year to year for one-year terms unless either party provides written notice to terminate a certain time period prior to the end of the then current term. Each employment agreement provides for an annual minimum base salary, which is subject to annual review and increase by our Compensation Committee. Annual salaries for each of these executives were reviewed in early 2019, with raises becoming effective February 25, 2019. The following table outlines these details for each executive:

Name Month/Year of
Agreement
Minimum Base Salary
under Agreement
Base Salary as of
February 25, 2019
James Edgemond March 2015 $400,000 $675,000
Michael Benkowitz June 2016 $650,000 $885,000
Paul Mahon June 2001 $300,000 $850,000

Under these agreements, each executive is eligible to participate in our broad-based employee benefit plans. In accordance with our executive automobile policy, Messrs. Edgemond, Benkowitz and Mahon each receives either a monthly car allowance of $1,000 per month or the use of a company owned or leased vehicle.

Each of these employment agreements prohibits the executive from accepting employment, consultancy or any other business relationships with an entity that directly competes with us or from engaging in the solicitation of our employees on behalf of a competitor for a period of time following his last receipt of compensation from us (two years in the case of Mr. Mahon and one year in the case of Mr. Edgemond and Mr. Benkowitz). Each agreement includes an obligation of confidentiality for three years after termination of the executive’s employment.

Messrs. Edgemond and Benkowitz are each party to a change in control severance agreement providing benefits in the event of his termination following a change in control. In particular, these benefits include a cash severance payment equal to two times base salary, plus two times the highest of (i) the cash incentive award paid to the individual for the year immediately preceding the year in which the change in control occurs, (ii) the cash incentive award payable to the individual for the year immediately preceding the year in which the termination of employment occurs, or (iii) the individual’s annual target cash incentive award. This cash severance would become payable in lieu of any severance payment under the respective employment agreements unless severance under the employment agreement would result in a greater benefit. The change in control severance agreement also provides for continuation of medical benefits for 24 months following termination, and outplacement benefits with a value of $10,000.

For further information regarding severance and change in control arrangements for these Named Executive Officers, see the text following the Potential Payments Upon Termination or Change in Control table below.

Summary of Terms of Plan-Based Awards

Stock Options under the 2015 SIP

In 2017, 2018 and 2019, our Named Executive Officers were granted stock options under our 2015 SIP.

These long-term incentive awards were granted annually in 2017, 2018 and 2019 concurrently with the cash incentive awards.

Stock options granted under the 2015 SIP in 2017 and 2018 vest in one-third increments on the first three anniversaries of the date of grant (in the case of stock options granted as a result of 2016 performance under our Company-Wide Milestone Program, and Milestone Performance Options granted with respect to 2017 and 2018 performance, to the extent earned), or cliff vest on the third anniversary of the

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date of grant to the extent earned based on performance (in the case of Cash Profit Performance Options as described in last year’s Proxy Statement), in each case subject to the Named Executive Officer’s continued employment. Each stock option granted in 2017 and 2018 has a ten-year term. Stock options granted under the 2015 SIP in 2019 cover four years of equity compensation (2019 through 2022), and have been designed such that: (i) overall equity compensation expense on an annualized basis, and overall dilution, are both expected to be lower than if we had continued with the previous equity compensation program for four additional years; (ii) the Named Executive Officer will be incented to achieve our business objectives over the four-year period; and (iii) vesting is heavily weighted toward the end of the four-year period, in order to aid in retention over that timeframe. 50% of the 2019 option grant was granted with an exercise price equal to the closing price of our common stock on the date of grant, and vests in equal installments on March 15, 2021, 2022 and 2023. The other 50% is has an exercise price equal to 115% of the closing price of our common stock on the date of grant, and cliff vests (100%) on March 15, 2023. All of the 2019 stock options have an expiration date of the eighth anniversary of the date of grant. For information regarding acceleration of vesting upon certain employment termination events, see the text following the Potential Payments Upon Termination or Change in Control table below.

Outstanding Equity Awards at 2019 Fiscal Year-End

The following table sets forth information regarding unexercised stock options or STAP awards held by each of our Named Executive Officers as of December 31, 2019.

Award Type Number of Securities
Underlying Unexercised
Options or STAP Awards
Equity Incentive
Plan Awards:
Number of Securities
Underlying Unexercised
Unearned Options (#)
Option or
STAP Award
Exercise
Price ($)
Option or
STAP Award
Expiration
Date
Name and Grant Date (#)
Exercisable
(#)
Unexercisable
Martine Rothblatt
12/31/2010 Stock Option(1) 364,834 63.22 12/31/2020
12/31/2012 Stock Option(1) 55,488 53.42 12/31/2022
12/31/2013 Stock Option(1)(2) 1,000,000 113.08 12/31/2023
12/31/2014 Stock Option(1)(2) 723,869 129.49 12/31/2024
03/15/2016 Stock Option(3) 220,500 73,500 120.26 03/15/2026
03/15/2017 Stock Option(4) 160,000 80,000 146.03 03/15/2027
03/15/2017 Stock Option(5) 100,000 146.03 03/15/2027
03/15/2017 Stock Option(7) 100,192 50,096 146.03 03/15/2027
03/15/2017 Stock Option(5) 244,122 146.03 03/15/2027
03/15/2018 Stock Option(6) 285,103 111.00 03/15/2028
03/15/2018 Stock Option(7) 71,275 142,552 111.00 03/15/2028
03/15/2019 Stock Option(9) 500,000 135.42 03/15/2027
03/15/2019 Stock Option(10) 500,000 117.76 03/15/2027
James Edgemond
01/14/2013 STAP Award(8) 5,000 52.12 01/14/2023
03/14/2014 STAP Award(3) 2,411 94.96 03/14/2024
03/13/2015 STAP Award(3) 25,000 163.30 03/13/2025
03/13/2015 STAP Award(3) 15,160 163.30 03/13/2025
03/15/2016 Stock Option(3) 36,750 12,250 120.26 03/15/2026
03/15/2017 Stock Option(4) 30,000 15,000 146.03 03/15/2027
03/15/2017 Stock Option(5) 18,750 146.03 03/15/2027
03/15/2017 Stock Option(7) 21,470 10,735 146.03 03/15/2027
03/15/2017 Stock Option(5) 52,312 146.03 03/15/2027
03/15/2018 Stock Option(6) 75,349 111.00 03/15/2028
03/15/2018 Stock Option(7) 18,837 37,675 111.00 03/15/2028
03/15/2019 Stock Option(9) 162,500 135.42 03/15/2027
03/15/2019 Stock Option(10) 162,500 117.76 03/15/2027

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Award Type Number of Securities
Underlying Unexercised
Options or STAP Awards
Equity Incentive
Plan Awards:
Number of Securities
Underlying Unexercised
Unearned Options (#)
Option or
STAP Award
Exercise
Price ($)
Option or
STAP Award
Expiration
Date
Name and Grant Date (#)
Exercisable
(#)
Unexercisable
Michael Benkowitz
04/04/2011 STAP Award(3) 21,750 68.14 04/04/2021
03/15/2012 STAP Award(3) 6,450 47.50 03/15/2022
01/02/2013 STAP Award(11) 100,000 53.83 01/02/2023
03/15/2013 STAP Award(3) 18,400 61.06 03/15/2023
03/14/2014 STAP Award(3) 40,000 94.96 03/14/2024
03/13/2015 STAP Award(3) 37,200 163.30 03/13/2025
03/15/2016 Stock Option(3) 29,400 9,800 120.26 03/15/2026
06/24/2016 Stock Option(3) 39,375 13,125 102.11 06/24/2026
03/15/2017 Stock Option(4) 42,000 21,000 146.03 03/15/2027
03/15/2017 Stock Option(5) 26,250 146.03 03/15/2027
03/15/2017 Stock Option(7) 28,626 14,314 146.03 03/15/2027
03/15/2017 Stock Option(5) 69,750 146.03 03/15/2027
03/15/2018 Stock Option(6) 85,531 111.00 03/15/2028
03/15/2018 Stock Option(7) 21,382 42,766 111.00 03/15/2028
03/15/2019 Stock Option(9) 187,500 135.42 03/15/2027
03/15/2019 Stock Option(10) 187,500 117.76 03/15/2027
Paul Mahon
03/14/2014 STAP Award(3) 113,500 94.96 03/14/2024
03/13/2015 STAP Award(3) 116,250 163.30 03/13/2025
03/15/2016 Stock Option(3) 91,875 30,625 120.26 03/15/2026
03/15/2017 Stock Option(4) 50,000 25,000 146.03 03/15/2027
03/15/2017 Stock Option(5) 31,250 146.03 03/15/2027
03/15/2017 Stock Option(7) 28,626 14,314 146.03 03/15/2027
03/15/2017 Stock Option(5) 69,750 146.03 03/15/2027
03/15/2018 Stock Option(6) 81,458 111.00 03/15/2028
03/15/2018 Stock Option(7) 20,364 40,730 111.00 03/15/2028
03/15/2019 Stock Option(9) 150,000 135.42 03/15/2027
03/15/2019 Stock Option(10) 150,000 117.76 03/15/2027

(1)

These stock options were fully vested upon grant pursuant to Dr. Rothblatt’s employment agreement

(2)

These stock options have been transferred to trusts beneficially owned by Dr. Rothblatt and her spouse, for estate planning purposes

(3)

These stock options or STAP awards vest in one-fourth increments on each of the first four anniversaries of the date of grant

(4)

These stock options vest in one-third increments on each of the first three anniversaries of the date of grant

(5)

These stock options were subject to a three-year (2017-2019) performance threshold tied to average cash profit margin. These stock options were fully earned as of December 31, 2019 and vested at March 15, 2020.

(6)

These stock options are subject to a three-year (2018-2020) performance threshold tied to average cash profit margin. To the extent earned, these stock options vest at the end of the three-year performance period. Given performance to-date has fallen above target, the number of shares shown is at “maximum”. The number of shares that are ultimately earned may be lower, depending on performance over the relevant three-year period.

(7)

These stock options were subject to a one-year performance threshold tied to Company-Wide Milestone Performance. Once earned, shares vest in equal installments over a three-year period. The number of shares shown reflect the number of shares earned based on actual performance.

(8)

One-time STAP award granted upon Mr. Edgemond’s commencement of employment, which vested in full on February 28, 2015

(9)

These stock options cliff vest (100%) on the fourth anniversary of the date of grant

(10)

These stock options vest in one-third increments on the second, third and fourth anniversaries of the date of grant

(11)

These STAP awards cliff vested (100%) on the fifth anniversary of the date of grant

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Option Exercises and Stock Vested in 2019

The following table shows (i) the number of shares of our common stock acquired upon exercise of stock options; and (ii) the number of STAP awards exercised by each of our Named Executive Officers during the year ended December 31, 2019. We did not have any stock awards that vested in 2019.

     Option Awards      STAP Awards
Name Number of
Shares
Acquired
on Exercise
(#)
     Value
Realized
on Exercise
($)(1)
Number of
STAP
Awards
Exercised
(#)
     Value
Realized on
Exercise
($)(1)
Martine Rothblatt 148,137(2) 9,183,928
James Edgemond
Michael Benkowitz
Paul Mahon 36,000 1,597,080
(1) Represents the difference between the exercise price of the stock options or STAP award and the fair market value of our common stock on the date of exercise, multiplied by the number of options or STAP awards exercised. STAP awards convey the right to receive an amount in cash equal to the positive difference between the exercise price and the closing price of our common stock on the date of exercise.
(2) All options exercised by Dr. Rothblatt during 2019 had been held for nearly 10 years, and were nearing their expiration date of December 31, 2019

Pension Benefits in 2019

The table below describes the present value of the accumulated benefit for our Named Executive Officers under the SERP.

Name      Plan Name      Number of Years
of Credited
Service
(1)
     Actual Years of
Service(2)
     Present Value of
Accumulated
Benefit ($)(3)
Martine Rothblatt SERP 15.0 23.5 17,504,210
James Edgemond SERP 7.0 7.0 4,029,624
Michael Benkowitz SERP 8.8 8.7 6,010,639
Paul Mahon SERP 15.0 18.6 12,624,851
(1) Reflects the number of years (up to the maximum of 15 years under the terms of the SERP) since each Named Executive Officer commenced employment with us, through December 31, 2019
(2) Reflects the number of years since each Named Executive Officer commenced employment with us, through December 31, 2019
(3) The present values of accumulated benefits are based on assumptions used in the financial disclosures for the year ended December 31, 2019 including a discount rate of 2.63% and a lump sum interest rate of 3.00%. The present value represents the lump sum value of the accrued benefit which is based on service and earnings as of December 31, 2019, and assumes payment at age 60, the normal retirement date under the SERP. No preretirement death, disability, or termination is assumed. For a discussion of valuation assumptions, see Note 12—Employee Benefit Plans to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.

 

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Executive Compensation

Supplemental Executive Retirement Plan

In 2006, our Compensation Committee approved our SERP, which is a non-qualified supplemental defined benefit retirement plan for select key executives intended to enhance the long-term retention of individuals that have been and will continue to be vital to our success. Participants in the SERP generally must remain in the employ of United Therapeutics or one of its affiliates until age 60 to receive a benefit except in the event of death, disability or a change in control. If a participant terminates employment with us for any reason prior to age 60 (other than due to death or disability or following a change in control), no benefit will be paid. The benefit to be paid under the plan is based on when an executive commenced participation in the plan. In general, a participant will be eligible for an unreduced benefit under the plan after 15 years of service. Upon a change in control before a participant reaches age 60, he or she will immediately vest in and receive a prorated benefit based on years of service to date.

The SERP is administered by our Compensation Committee. Currently, our Named Executive Officers and two other members of senior management participate in the SERP. Each of our Named Executive Officers is eligible, upon retirement after the age of 60, to receive monthly payments equal to the monthly average of the total gross base salary received by the participant over his or her last 36 months of active employment (the Final Average Compensation), reduced by the participant’s estimated social security benefit (determined as provided under the SERP), for the remainder of the participant’s life (the aggregate amount of such payments, the Normal Retirement Benefit), commencing on the first day of the sixth month after retirement. For executives who began participating in the plan after July 1, 2006, the retirement benefit is generally calculated as 100% of the final three year average gross base salary reduced by the estimated social security benefit they would receive in retirement, multiplied by a fraction (not to exceed 1) the numerator of which is their years of service and the denominator of which is 15 (the Normal Retirement Benefit). This means that for participants who have less than 15 years of service with us, the retirement benefit is prorated by the number of years of actual service divided by 15 years. By age 60, all current participants will have had 15 years of service if they remain employed by us. In the event of termination of employment due to disability prior to the age of 60 or death prior to retirement, a participant or the participant’s beneficiary, as applicable, will be entitled to a percentage of the Normal Retirement Benefit, as determined under the SERP (the aggregate amount of such payments referred to as the Disability Retirement Benefit), commencing on the first day of the sixth month after termination of employment in the event of a Disability and as soon as administratively practicable in the event of death. All of our Named Executive Officers have elected to receive their benefit in the form of a lump sum, although they were also offered a choice of a single life annuity or an actuarially equivalent joint or survivor annuity.

In the event of a change in control, as defined in the SERP, a participant who is actively employed on the date of the change in control will be entitled to a lump sum payment equal to the actuarial equivalent present value of a monthly single life annuity equal to (i) the participant’s Final Average Compensation, reduced by the participant’s estimated future social security benefit (determined as provided under the SERP), multiplied by (ii) a fraction (no greater than one), the numerator of which equals the participant’s years of service and the denominator of which equals 15, to be paid as soon as administratively practicable following the change in control. In the event that a participant is entitled to a Normal Retirement Benefit or Disability Retirement Benefit at the time of a change in control, all such payments (or any remaining payments, with respect to any participant who is receiving payments under the SERP at the time of the change in control) will be made in a lump sum as soon as administratively practicable following such change in control. Participants in the SERP will be prohibited from competing with us or soliciting its employees for a period of twelve months following his or her termination of employment (or, if earlier upon attainment of age 65). Violation of this covenant will result in forfeiture of all benefits under the SERP.

Rabbi Trust

In December 2007, our Compensation Committee adopted the United Therapeutics Corporation Supplemental Executive Retirement Plan Rabbi Trust Document (Rabbi Trust Document), providing for the establishment of a trust (Rabbi Trust), the assets of which will be contributed by us and used to pay benefits under the SERP. We entered into the Rabbi Trust Document with Wilmington Trust Company, which serves as trustee of the Rabbi Trust. The Rabbi Trust is irrevocable, and SERP participants will have no preferred claim on, nor any beneficial ownership interest in, any assets of the Rabbi Trust.

Currently, the Rabbi Trust does not contain any assets. Generally, we may contribute additional assets to the Rabbi Trust at our sole discretion. However, pursuant to the terms of the Rabbi Trust Document, within five days following the occurrence of a potential change in control (as defined in the Rabbi Trust Document), or if earlier, at least five days prior to the occurrence of a change in control (as defined in the Rabbi Trust Document), we will be obligated to make an irrevocable contribution to the Rabbi Trust in an amount sufficient to pay each SERP participant or beneficiary the benefits to which they would be entitled pursuant to the terms of the SERP on the date on which the change in control occurred. The Rabbi Trust will not terminate until the date on which SERP participants or their beneficiaries are no longer entitled to benefits pursuant to the terms of the SERP.

72     United Therapeutics


Table of Contents

Executive Compensation

Potential Payments Upon Termination or Change in Control

Each of our Named Executive Officers is eligible to receive certain payments and benefits if his or her employment is involuntarily terminated without “Cause”, terminated by the executive for “Good Reason”, terminated by the executive voluntarily with continued status as a “Senior Advisor” to us, terminated due to disability or death, or terminated in connection with a “Change in Control” of our company in accordance with the applicable terms of their respective employment agreements, change in control severance agreements, the SERP, our equity compensation plans (the EIP and 2015 SIP) and related stock option agreements, and the STAP and related award agreements, as reported in the Potential Payments Upon Termination or Change in Control table below and described in the narrative table that follows. The summary of these benefits is qualified in its entirety by the specific language of the various agreements and plans that have been filed with the SEC. The amounts shown in the Potential Payments Upon Termination or Change in Control table below are estimates of the value of these payments and benefits, assuming that such termination or triggering event was effective as of December 31, 2019 (except as otherwise noted below with respect to those Named Executive Officers who terminated during the year). The actual compensation to be paid to a Named Executive Officer can only be determined at the time such Named Executive Officer’s employment is terminated and may vary based on factors such as the timing during the year of any such event, our stock price, the Named Executive Officer’s age, and any changes to our benefit arrangements and policies. In addition to the benefits described below, our Named Executive Officers will be eligible to receive any benefits accrued under our broad-based benefit plans, such as distributions under life insurance and disability benefit plans.

Executive Benefits and
Payments Upon Separation
     Involuntary
Termination Without
Cause/Resignation
for Good Reason/
Resignation While
Continuing as
Senior Advisor
(1)
     Disability      Death      Termination upon a
Change in Control
     Change In
Control without
Termination of
Employment
Martine Rothblatt
Salary and cash incentive $ 11,910,000 $ 1,275,000 $ 1,275,000 $ 11,910,000 $
Stock option vesting acceleration(2) $ $ $ $ $
Supplemental Executive Retirement Plan $ 17,504,210  (3) $      17,504,210 $ 11,961,450 $ 17,504,210 $      17,504,210
Health and other benefits(4) $ 179,604 $ $ $ 179,604 $
Total