Registrant’s Telephone Number, Including Area Code
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the issuer’s common stock, par
value $.01 per share, as of November 12, 2002 was 20,918,686.
INDEX
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Page |
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Part I. FINANCIAL INFORMATION (UNAUDITED) |
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Item 1. |
Financial Statements |
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|
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| |
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Consolidated Balance Sheets |
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1 |
|
| |
|
Consolidated Statements of Operations |
|
|
2 |
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| |
|
Consolidated Statements of Cash Flows |
|
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3 |
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| |
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Notes to Consolidated Financial Statements |
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4 |
|
| |
Item 2. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
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|
10 |
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| |
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
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19 |
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| |
Item 4. |
Controls and Procedures |
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19 |
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Part II. OTHER INFORMATION |
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| |
Item 6. |
Exhibits and Reports on Form 8-K |
|
|
19 |
|
SIGNATURES |
|
|
20 |
|
| |
Certification of Chief Executive Officer |
|
|
21 |
|
| |
Certification of Chief Financial Officer |
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|
22 |
|
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED THERAPEUTICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
September 30, |
|
December 31, |
| |
|
|
|
2002 |
|
2001 |
| |
|
|
|
|
|
|
| |
|
|
|
(Unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
| |
Current assets: |
|
|
|
|
|
|
|
|
| |
|
Cash and cash equivalents |
|
$ |
133,807 |
|
|
$ |
24,373 |
|
| |
|
Marketable investments |
|
|
— |
|
|
|
31,677 |
|
| |
|
Accounts receivable, net of allowance of
$156 for 2002 and $198 for 2001 |
|
|
11,675 |
|
|
|
1,452 |
|
| |
|
Interest receivable |
|
|
114 |
|
|
|
2,772 |
|
| |
|
Prepaid expenses |
|
|
1,692 |
|
|
|
917 |
|
| |
|
Inventories |
|
|
7,334 |
|
|
|
6,025 |
|
| |
|
Other current assets |
|
|
533 |
|
|
|
1,787 |
|
|
|
|
|
|
|
|
|
|
| |
|
Total current assets |
|
|
155,155 |
|
|
|
69,003 |
|
| |
| |
Marketable investments |
|
|
— |
|
|
|
116,249 |
|
| |
Certificate of deposit |
|
|
632 |
|
|
|
605 |
|
| |
Goodwill, net |
|
|
7,465 |
|
|
|
7,465 |
|
| |
Other intangible assets, net |
|
|
7,209 |
|
|
|
7,900 |
|
| |
Property, plant and equipment, net |
|
|
8,585 |
|
|
|
6,403 |
|
| |
Investments in affiliates |
|
|
6,396 |
|
|
|
4,342 |
|
| |
Due from affiliates |
|
|
433 |
|
|
|
— |
|
| |
Note receivable from employee and other assets |
|
|
1,598 |
|
|
|
154 |
|
|
|
|
|
|
|
|
|
|
| |
|
Total assets |
|
$ |
187,473 |
|
|
$ |
212,121 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
| |
Current liabilities: |
|
|
|
|
|
|
|
|
| |
|
Accounts payable |
|
$ |
3,922 |
|
|
$ |
6,349 |
|
| |
|
Accounts payable to affiliates |
|
|
— |
|
|
|
318 |
|
| |
|
Accrued expenses |
|
|
3,787 |
|
|
|
3,454 |
|
| |
|
Due to affiliates |
|
|
1,942 |
|
|
|
500 |
|
| |
|
Current portion of notes and leases payable |
|
|
111 |
|
|
|
102 |
|
| |
|
Other current liabilities |
|
|
34 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
| |
|
Total current liabilities |
|
|
9,796 |
|
|
|
10,798 |
|
| |
| |
Notes and leases payable, excluding current portion |
|
|
1,781 |
|
|
|
1,836 |
|
| |
Due to affiliates |
|
|
1,765 |
|
|
|
3,079 |
|
| |
Other liabilities |
|
|
22 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
| |
|
Total liabilities |
|
|
13,364 |
|
|
|
15,722 |
|
|
|
|
|
|
|
|
|
|
| |
Stockholders’ equity: |
|
|
|
|
|
|
|
|
| |
|
Preferred stock, par value $.01, 10,000,000
shares authorized, no shares issued |
|
|
— |
|
|
|
— |
|
| |
|
Series A junior participating preferred
stock, par value $ .01,
100,000 authorized, no shares issued |
|
|
— |
|
|
|
— |
|
| |
|
Common stock, par value $.01, 100,000,000
shares authorized, 21,445,286 and 20,751,820
shares issued at September 30, 2002 and
December 31, 2001, respectively, and
20,918,686 and 20,225,220 outstanding at
September 30, 2002 and December 31, 2001,
respectively |
|
|
214 |
|
|
|
208 |
|
| |
|
Additional paid-in capital |
|
|
363,996 |
|
|
|
365,235 |
|
| |
|
Translation adjustment |
|
|
(11 |
) |
|
|
— |
|
| |
|
Accumulated deficit |
|
|
(183,216 |
) |
|
|
(162,170 |
) |
| |
|
Treasury stock, 526,600 shares |
|
|
(6,874 |
) |
|
|
(6,874 |
) |
|
|
|
|
|
|
|
|
|
| |
|
Total stockholders’ equity |
|
|
174,109 |
|
|
|
196,399 |
|
|
|
|
|
|
|
|
|
|
| |
|
Total liabilities and stockholders’ equity |
|
$ |
187,473 |
|
|
$ |
212,121 |
|
|
|
|
|
|
|
|
|
|
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
| |
|
|
|
|
|
|
| |
|
|
|
2002 |
|
2001 |
|
2002 |
|
2001 |
| |
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Product sales |
|
$ |
4,358 |
|
|
$ |
505 |
|
|
$ |
15,599 |
|
|
$ |
1,729 |
|
| |
Service sales |
|
|
770 |
|
|
|
572 |
|
|
|
2,499 |
|
|
|
1,746 |
|
| |
Service sales to affiliates |
|
|
— |
|
|
|
186 |
|
|
|
— |
|
|
|
541 |
|
| |
Grant revenue |
|
|
— |
|
|
|
53 |
|
|
|
— |
|
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total revenue |
|
|
5,128 |
|
|
|
1,316 |
|
|
|
18,098 |
|
|
|
4,112 |
|
| |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Research and development |
|
|
6,640 |
|
|
|
8,014 |
|
|
|
18,423 |
|
|
|
26,080 |
|
| |
General and administrative |
|
|
2,580 |
|
|
|
3,378 |
|
|
|
8,108 |
|
|
|
10,374 |
|
| |
Sales and marketing |
|
|
1,170 |
|
|
|
963 |
|
|
|
2,499 |
|
|
|
2,696 |
|
| |
Cost of product sales |
|
|
833 |
|
|
|
535 |
|
|
|
2,724 |
|
|
|
1,094 |
|
| |
Cost of service sales |
|
|
442 |
|
|
|
324 |
|
|
|
1,234 |
|
|
|
1,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses |
|
|
11,665 |
|
|
|
13,214 |
|
|
|
32,988 |
|
|
|
41,539 |
|
| |
| |
|
Loss from operations |
|
|
(6,537 |
) |
|
|
(11,898 |
) |
|
|
(14,890 |
) |
|
|
(37,427 |
) |
| |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest income |
|
|
537 |
|
|
|
2,186 |
|
|
|
4,396 |
|
|
|
7,924 |
|
| |
Interest expense |
|
|
(25 |
) |
|
|
(31 |
) |
|
|
(90 |
) |
|
|
(125 |
) |
| |
Equity loss in affiliate |
|
|
(7 |
) |
|
|
(107 |
) |
|
|
(151 |
) |
|
|
(261 |
) |
| |
Other, net |
|
|
65 |
|
|
|
39 |
|
|
|
10 |
|
|
|
28 |
|
| |
Write-down of investment in
affiliate |
|
|
(2,893 |
) |
|
|
— |
|
|
|
(2,893 |
) |
|
|
— |
|
| |
Loss on marketable investments |
|
|
(3,328 |
) |
|
|
— |
|
|
|
(7,428 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total other income (expense) |
|
|
(5,651 |
) |
|
|
2,087 |
|
|
|
(6,156 |
) |
|
|
7,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss before income tax |
|
|
(12,188 |
) |
|
|
(9,811 |
) |
|
|
(21,046 |
) |
|
|
(29,861 |
) |
| |
Income tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(12,188 |
) |
|
$ |
(9,811 |
) |
|
$ |
(21,046 |
) |
|
$ |
(29,861 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss per common share –
basic and diluted |
|
$ |
(0.58 |
) |
|
$ |
(0.48 |
) |
|
$ |
(1.02 |
) |
|
$ |
(1.47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding –
basic and diluted |
|
|
20,899,094 |
|
|
|
20,250,167 |
|
|
|
20,550,978 |
|
|
|
20,306,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Nine months ended September 30, |
| |
|
|
|
|
|
| |
|
|
|
|
2002 |
|
2001 |
| |
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
| |
Net loss |
|
$ |
(21,046 |
) |
|
$ |
(29,861 |
) |
| |
Adjustments to reconcile net loss to net cash used in
operating activities: |
|
|
|
|
|
|
|
|
| |
|
|
Depreciation and amortization |
|
|
1,532 |
|
|
|
2,115 |
|
| |
|
|
Provision for (reduction in) doubtful accounts receivable |
|
|
(46 |
) |
|
|
331 |
|
| |
|
|
Loss on disposal of equipment |
|
|
— |
|
|
|
16 |
|
| |
|
|
Stock options granted to consultants |
|
|
228 |
|
|
|
742 |
|
| |
|
|
Amortization of premium/discounts on investments |
|
|
1,113 |
|
|
|
42 |
|
| |
|
|
Reserve for inventory obsolescence |
|
|
495 |
|
|
|
— |
|
| |
|
|
Equity loss in affiliate |
|
|
151 |
|
|
|
262 |
|
| |
|
|
Loss on marketable investments |
|
|
7,428 |
|
|
|
— |
|
| |
|
|
Write-down of investment in affiliate |
|
|
2,893 |
|
|
|
— |
|
| |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| |
|
|
Accounts receivable |
|
|
(10,177 |
) |
|
|
(409 |
) |
| |
|
|
Interest receivable |
|
|
2,658 |
|
|
|
(1,617 |
) |
| |
|
|
Inventories |
|
|
(2,195 |
) |
|
|
(1,443 |
) |
| |
|
|
Prepaid expenses |
|
|
(776 |
) |
|
|
(70 |
) |
| |
|
|
Note receivable and other assets |
|
|
(1,855 |
) |
|
|
(707 |
) |
| |
|
|
Accounts payable |
|
|
(2,427 |
) |
|
|
(981 |
) |
| |
|
|
Due to/from affiliates |
|
|
(809 |
) |
|
|
198 |
|
| |
|
|
Accrued expenses |
|
|
333 |
|
|
|
25 |
|
| |
|
|
Other liabilities |
|
|
(28 |
) |
|
|
(165 |
) |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash used in operating activities |
|
|
(22,528 |
) |
|
|
(31,522 |
) |
| |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
| |
|
Purchases of property, plant and equipment |
|
|
(2,644 |
) |
|
|
(436 |
) |
| |
|
Proceeds from disposals of property, plant and equipment |
|
|
1 |
|
|
|
25 |
|
| |
|
Investment in AltaRex |
|
|
(4,913 |
) |
|
|
— |
|
| |
|
Purchases of marketable investments |
|
|
(1,218 |
) |
|
|
(102,444 |
) |
| |
|
Sales and maturities of marketable investments |
|
|
140,576 |
|
|
|
22,779 |
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided by (used in) investing activities |
|
|
131,802 |
|
|
|
(80,076 |
) |
| |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
| |
|
Proceeds from the exercise of stock options |
|
|
206 |
|
|
|
6 |
|
| |
|
Payments to repurchase common stock |
|
|
— |
|
|
|
(2,802 |
) |
| |
|
Principal payments on notes payable |
|
|
(15 |
) |
|
|
(13 |
) |
| |
|
Principal payments on capital lease obligations |
|
|
(31 |
) |
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided by (used in) financing activities |
|
|
160 |
|
|
|
(2,858 |
) |
| |
| |
|
Net increase (decrease) in cash and cash equivalents |
|
|
109,434 |
|
|
|
(114,456 |
) |
| |
| |
|
Cash and cash equivalents, beginning of period |
|
|
24,373 |
|
|
|
200,935 |
|
|
|
|
|
|
|
|
|
|
| |
|
Cash and cash equivalents, end of period |
|
$ |
133,807 |
|
|
$ |
86,479 |
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information: |
|
|
|
|
|
|
|
|
| |
|
Cash paid for interest |
|
$ |
101 |
|
|
$ |
129 |
|
|
|
|
|
|
|
|
|
|
| |
|
Noncash investing and financing activities -
Equipment acquired under a capital lease |
|
$ |
— |
|
|
$ |
115 |
|
|
|
|
|
|
|
|
|
|
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
1. ORGANIZATION AND BUSINESS DESCRIPTION
United Therapeutics Corporation (United Therapeutics) is a
biotechnology company focused on the development and
commercialization of unique therapeutics to treat chronic and
life-threatening diseases. United Therapeutics is active in three
therapeutic areas – cardiovascular medicine, infectious disease and
oncology – with five therapeutic platforms – prostacyclin analogs,
arginine formulations, telemedicine, monoclonal antibody
immunotherapy and glycobiology antiviral agents. United
Therapeutics was incorporated on June 26, 1996 under the laws of the
State of Delaware and has four wholly owned subsidiaries: Lung Rx,
Inc., Unither Pharmaceuticals, Inc. (UPI), Unither Telemedicine
Services Corp. (UTSC), and United Therapeutics Europe, Ltd.
On May 21, 2002, the U. S. Food and Drug Administration (FDA)
approved Remodulin® (treprostinil sodium) Injection for the
treatment of pulmonary arterial hypertension in patients with NYHA
class II-IV symptoms to diminish symptoms associated with exercise.
United Therapeutics agreed with the FDA that it would perform a
post-marketing phase IV clinical study to further assess the
clinical benefits of Remodulin. The phase IV study will commence in
late 2002 and must be completed within 24 months from the May 2002
approval. Continued FDA approval is conditioned on the completion
and outcome of the phase IV study. On October 7, 2002, the Canadian
Therapeutics Products Directorate approved Remodulin for long term
subcutaneous treatment of pulmonary arterial hypertension in NYHA
class III and IV patients who did not respond adequately to
conventional therapy. On October 31, 2002, the Israeli Ministry of
Health, Drug Registration Department, approved Remodulin for the
treatment of primary pulmonary arterial hypertension and pulmonary
arterial hypertension associated with connective tissue disorders.
Remodulin marketing applications are under review in France, Australia and
Switzerland, with additional European filings to follow approval in
France. Additionally, United Therapeutics is planning pre-pivotal
studies of Remodulin in critical limb ischemia to commence in late
2002.
As of October 31, 2002, approximately 500 patients receive
Remodulin therapy worldwide, of which approximately 70% are
reimbursable patients. Virtually all of the currently
non-reimbursable patients reside in countries where Remodulin is not
yet approved.
Non-reimburseable patients are those patients who do not yet pay for Remodulin.
Remodulin is sold and marketed to reimbursable
patients in the U.S. by Priority Healthcare Corporation and Accredo
Therapeutics, Inc. United Therapeutics is the manufacturer of
Remodulin and sells Remodulin in bulk shipments to these
distributors. The timing and extent of United Therapeutics’ sales
of Remodulin are based on the timing and extent of these bulk orders
from distributors. Sales of Remodulin and Remodulin delivery pumps
and supplies are recognized as revenue when delivered to the
distributors.
2. BASIS OF PRESENTATION
The consolidated financial statements included herein have been
prepared, without audit, pursuant to Regulation S-X promulgated by
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in consolidated financial
statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. These consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto contained in
United Therapeutics’ Annual Report on Form 10-K/A for the year ended
December 31, 2001 as filed with the Securities and Exchange
Commission.
In the opinion of United Therapeutics’ management, the
accompanying unaudited consolidated financial statements contain all
adjustments which are of a normal recurring nature necessary to
present fairly its financial
4
position as of September 30, 2002 and its results of operations
and its cash flows for the three and nine-month periods ended
September 30, 2002 and 2001. Interim results are not necessarily
indicative of results for an entire year.
3. MARKETABLE INVESTMENTS
United Therapeutics’ marketable investments, mainly corporate
and federally sponsored debt securities and certificates of deposit,
were historically considered held-to-maturity securities due to
United Therapeutics’ ability and intent to hold those investments
until maturity. Held-to-maturity investments are recorded at
amortized cost in the balance sheet. The portfolio consisted of
over 100 issues and had a weighted average maturity of approximately
1.6 years. In March 2002, United Therapeutics reported a $538,000
write-down due to an other-than-temporary decline in value of one of
its marketable investments. In June 2002, as a result of adverse
changes in the bond markets, United Therapeutics began reassessing
its investment program. As a result of this reassessment, United
Therapeutics decided to liquidate all marketable debt securities in
the portfolio and invest the proceeds in money market funds,
commercial paper and federal instruments. The entire investment
portfolio was sold in July 2002. A write-down of investments
totaling approximately $3.6 million was necessary to adjust the
value of United Therapeutics’ marketable investments to their fair
market value based on quoted market prices at June 30, 2002. In
July 2002, United Therapeutics recorded an additional realized loss
of approximately $3.3 million as a result of the liquidation of the
investment portfolio.
4. INVENTORIES
Inventories are accounted for under the first-in, first-out
method. At September 30, 2002 and December 31, 2001, inventories
consisted of the following (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
September 30, |
|
December 31, |
| |
|
|
|
2002 |
|
20001 |
| |
|
|
|
|
|
|
Remodulin: |
|
|
|
|
|
|
|
|
| |
Raw materials |
|
$ |
242 |
|
|
$ |
211 |
|
| |
Work in progress |
|
|
2,214 |
|
|
|
1,389 |
|
| |
Finished goods |
|
|
1,520 |
|
|
|
1,805 |
|
Remodulin delivery pumps and medical supplies |
|
|
2,602 |
|
|
|
1,283 |
|
Cardiac monitoring equipment components |
|
|
362 |
|
|
|
544 |
|
HeartBar® products |
|
|
394 |
|
|
|
793 |
|
|
|
|
|
|
|
|
|
|
| |
|
Total inventories |
|
$ |
7,334 |
|
|
$ |
6,025 |
|
|
|
|
|
|
|
|
|
|
5. GOODWILL AND OTHER INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board (the
FASB) issued SFAS No. 142, Goodwill And Other Intangible Assets
(SFAS No. 142). SFAS No. 142 addresses the method of identifying and
measuring goodwill and other intangible assets acquired in a
business combination, eliminates further amortization of goodwill
and requires periodic evaluations of impairment of goodwill
balances. United Therapeutics adopted SFAS No. 142 on January 1,
2002.
United Therapeutics reviews the recoverability of goodwill and
other intangible assets annually or more frequently if events occur
which may impair these assets. The measurement of possible
impairment is based primarily on the ability to recover the balance
of the goodwill and other intangible assets from expected future
operating cash flows on an undiscounted basis. Impairment losses are
recognized when expected future cash flows are estimated to be less
than the asset’s carrying value. In management’s opinion, no
impairment of goodwill and other intangible assets exists at
September 30, 2002.
5
The following table compares the financial results for the
three and nine month-periods ended September 30, 2002 and 2001,
respectively, on a basis consistent with SFAS No. 142 (in thousands,
except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
Nine Months Ended |
| |
|
September 30, |
|
September 30, |
| |
|
|
|
|
| |
|
2002 |
|
2001 |
|
2002 |
|
2001 |
| |
|
|
|
|
|
|
|
|
Reported net loss |
|
$ |
(12,188 |
) |
|
$ |
(9,811 |
) |
|
$ |
(21,046 |
) |
|
$ |
(29,861 |
) |
Add back goodwill amortization |
|
|
— |
|
|
|
269 |
|
|
|
— |
|
|
|
808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss |
|
$ |
(12,188 |
) |
|
$ |
(9,542 |
) |
|
$ |
(21,046 |
) |
|
$ |
(29,053 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net loss per share |
|
$ |
(0.58 |
) |
|
$ |
(0.48 |
) |
|
$ |
(1.02 |
) |
|
$ |
(1.47 |
) |
Add back goodwill amortization |
|
|
— |
|
|
|
0.01 |
|
|
|
— |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss per share |
|
$ |
(0.58 |
) |
|
$ |
(0.47 |
) |
|
$ |
(1.02 |
) |
|
$ |
(1.43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangibles assets at September 30, 2002 and December 31,
2001 were comprised as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
September 30, |
|
December 31, |
| |
|
|
|
2002 |
|
2001 |
| |
|
|
|
|
|
|
Noncompete agreement |
|
$ |
273 |
|
|
$ |
273 |
|
Trademarks |
|
|
2,802 |
|
|
|
2,802 |
|
Technology and patents |
|
|
5,864 |
|
|
|
5,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
8,939 |
|
|
|
8,939 |
|
| |
Less — accumulated amortization |
|
|
(1,730 |
) |
|
|
(1,039 |
) |
|
|
|
|
|
|
|
|
|
| |
|
Other intangible assets, net |
|
$ |
7,209 |
|
|
$ |
7,900 |
|
|
|
|
|
|
|
|
|
|
As of January 1, 2002, the aggregate expense related to the
amortization of intangible assets for each of the five succeeding
years is estimated as follows (in thousands):
| |
|
|
|
|
| Year ending |
|
|
|
|
| December 31, |
|
|
|
|
|
|
|
|
|
2002 |
|
$ |
897 |
|
2003 |
|
|
833 |
|
2004 |
|
|
449 |
|
2005 |
|
|
449 |
|
2006 |
|
|
449 |
|
6. SEGMENT INFORMATION
United Therapeutics has two reportable business segments. The
pharmaceutical segment includes all activities associated with the
research, development, manufacture, and commercialization of
therapeutic products. The telemedicine segment includes all
activities associated with the research, manufacture, and delivery
of patient monitoring services. The telemedicine segment is managed
separately because diagnostic services require different technology
and marketing strategies.
6
Segment information as of and for the three-month periods ended
September 30, 2002 and 2001, was as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended September 30, 2002 |
|
Three Months Ended September 30, 2001 |
| |
|
|
|
|
| |
|
Pharmaceutical |
|
Telemedicine |
|
Consolidated Totals |
|
Pharmaceutical |
|
Telemedicine |
|
Consolidated Totals |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
4,188 |
|
|
$ |
940 |
|
|
$ |
5,128 |
|
|
$ |
629 |
|
|
$ |
687 |
|
|
$ |
1,316 |
|
Losses |
|
|
(11,576 |
) |
|
|
(612 |
) |
|
|
(12,188 |
) |
|
|
(8,827 |
) |
|
|
(984 |
) |
|
|
(9,811 |
) |
Interest income |
|
|
531 |
|
|
|
6 |
|
|
|
537 |
|
|
|
2,182 |
|
|
|
4 |
|
|
|
2,186 |
|
Interest expense |
|
|
20 |
|
|
|
5 |
|
|
|
25 |
|
|
|
28 |
|
|
|
3 |
|
|
|
31 |
|
Depreciation and amortization |
|
|
277 |
|
|
|
249 |
|
|
|
526 |
|
|
|
400 |
|
|
|
334 |
|
|
|
734 |
|
Loss on marketable investments |
|
|
(3,328 |
) |
|
|
— |
|
|
|
(3,328 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Equity loss in affiliate |
|
|
(7 |
) |
|
|
— |
|
|
|
(7 |
) |
|
|
(107 |
) |
|
|
— |
|
|
|
(107 |
) |
Total investment in equity method
investees |
|
|
6,396 |
|
|
|
— |
|
|
|
6,396 |
|
|
|
4,302 |
|
|
|
— |
|
|
|
4,302 |
|
Expenditures for long-lived assets |
|
|
2,020 |
|
|
|
155 |
|
|
|
2,175 |
|
|
|
67 |
|
|
|
38 |
|
|
|
105 |
|
Goodwill, net |
|
|
1,287 |
|
|
|
6,178 |
|
|
|
7,465 |
|
|
|
1,812 |
|
|
|
6,414 |
|
|
|
8,226 |
|
Total assets |
|
|
176,202 |
|
|
|
11,271 |
|
|
|
187,473 |
|
|
|
206,582 |
|
|
|
11,496 |
|
|
|
218,078 |
|
Segment information as of and for the nine-month periods ended
September 30, 2002 and 2001, was as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended September 30, 2002 |
|
Nine Months Ended September 30, 2001 |
| |
|
|
|
|
| |
|
Pharmaceutical |
|
Telemedicine |
|
Consolidated Totals |
|
Pharmaceutical |
|
Telemedicine |
|
Consolidated Totals |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
15,267 |
|
|
$ |
2,831 |
|
|
$ |
18,098 |
|
|
$ |
2,226 |
|
|
$ |
1,886 |
|
|
$ |
4,112 |
|
Losses |
|
|
(18,763 |
) |
|
|
(2,283 |
) |
|
|
(21,046 |
) |
|
|
(27,113 |
) |
|
|
(2,748 |
) |
|
|
(29,861 |
) |
Interest income |
|
|
4,387 |
|
|
|
9 |
|
|
|
4,396 |
|
|
|
7,891 |
|
|
|
33 |
|
|
|
7,924 |
|
Interest expense |
|
|
85 |
|
|
|
5 |
|
|
|
90 |
|
|
|
120 |
|
|
|
5 |
|
|
|
125 |
|
Depreciation and amortization |
|
|
812 |
|
|
|
720 |
|
|
|
1,532 |
|
|
|
1,161 |
|
|
|
954 |
|
|
|
2,115 |
|
Loss on marketable investments |
|
|
(7,428 |
) |
|
|
— |
|
|
|
(7,428 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Equity loss in affiliate |
|
|
(151 |
) |
|
|
— |
|
|
|
(151 |
) |
|
|
(261 |
) |
|
|
— |
|
|
|
(261 |
) |
Total investment in equity method
investees |
|
|
6,396 |
|
|
|
— |
|
|
|
6,396 |
|
|
|
4,302 |
|
|
|
— |
|
|
|
4,302 |
|
Expenditures for long-lived assets |
|
|
2,237 |
|
|
|
407 |
|
|
|
2,644 |
|
|
|
216 |
|
|
|
220 |
|
|
|
436 |
|
Goodwill, net |
|
|
1,287 |
|
|
|
6,178 |
|
|
|
7,465 |
|
|
|
1,812 |
|
|
|
6,414 |
|
|
|
8,226 |
|
Total assets |
|
|
176,202 |
|
|
|
11,271 |
|
|
|
187,473 |
|
|
|
206,582 |
|
|
|
11,496 |
|
|
|
218,078 |
|
The segment information shown above equals the consolidated
totals when combined. These consolidated totals equal the amounts
reported in the consolidated financial statements without further
reconciliation for categories which are reported in the consolidated
financial statements.
7. EXCLUSIVE LICENSE AGREEMENT
On April 17, 2002, United Therapeutics acquired an option to
develop and commercialize a platform of five immunotherapeutic
monoclonal antibodies from AltaRex Corp. through an agreement to
exclusively license certain intellectual property from AltaRex.
These products were being developed by AltaRex for use in ovarian,
prostate, lung, breast, multiple myeloma and other forms of cancer.
United Therapeutics will bear the cost of the necessary
research and development and will have full commercialization rights
in all countries other than in Europe and most of the Middle East.
United Therapeutics has
7
agreed to pay AltaRex certain amounts based upon the
achievement of specified milestones together with royalties based
upon sales of products utilizing or incorporating the licensed
technology. As part of these transactions, United Therapeutics
acquired approximately 9.95 percent of the outstanding stock of
AltaRex for $2.5 million in April 2002 and approximately 9.95
percent of the outstanding stock of AltaRex in August 2002 for
approximately $2.1 million. United Therapeutics’ cumulative
ownership in AltaRex is approximately 19.9 percent. This investment
is classified with investments in affiliates in the accompanying
balance sheets. Also
in August 2002, United Therapeutics loaned to AltaRex approximately
$433,000 as a secured convertible debenture due at the end of three
years with interest of six percent due quarterly. The note is
convertible to AltaRex common stock at a price of $0.50 per share at
any time by United Therapeutics. At September 30, 2002, the closing
price of AltaRex common stock was $0.22 per share. The note is
secured by all intellectual property owned by AltaRex, including
intellectual property licensed to United Therapeutics by AltaRex.
For the
past two quarters, the quoted
market price of AltaRex’s common stock was consistently less than
United Therapeutics’ cost. This was determined to be an
other-than-temporary decline in the value of AltaRex’s common stock
held by United Therapeutics. As a result, the investment in AltaRex
was written down to its fair value as determined by quoted market
prices on September 30, 2002. The write-down totaled approximately
$2.9 million. At September 30, 2002, the investment in AltaRex
common stock was reported at approximately $2.0 million and is
classified with investments in affiliates.
During the quarter ended September 30, 2002, United
Therapeutics incurred approximately $1.8 million of research and development expenses paid to AltaRex. At
September 30, 2002, approximately $442,000 was due to AltaRex and is
reported in the balance sheet as due to affiliates.
8. NOTE RECEIVABLE FROM EMPLOYEE
In April 2002, United Therapeutics agreed to loan $1.3 million
to Dr. Roger Jeffs, its President and Chief Operating Officer, to
purchase his primary residence. The loan and accrued interest will
be due at the end of five years or earlier, in part or in full, if
Dr. Jeffs obtains a mortgage on the property, exercises and sells
any United Therapeutics stock options, sells any United Therapeutics
stock, or sells the property. Interest of 6.5 percent per year will
accrue on the note. The loan is secured by the property, United
Therapeutics stock that Dr. Jeffs owns and all compensation due to
Dr. Jeffs from United Therapeutics. The note receivable and accrued
interest are classified as noncurrent assets in the balance sheet at
September 30, 2002. The Audit and Compensation Committee of the
Board of Directors, as well as the full Board of Directors without
the participation of Dr. Jeffs, approved this transaction. In June
2002, Dr. Jeffs was elected to the Board of Directors.
9. STOCKHOLDERS’ EQUITY
Loss per Share
Basic loss per common share is computed by dividing net loss by
the weighted average number of shares of common stock outstanding
during the respective periods. Options and warrants that could
potentially dilute earnings per share in the future were not
included in the computation of diluted loss per share because to do
so would have been antidilutive for the periods presented. As of September 30, 2002, these options and
warrants totaled approximately 152,000 shares.
Accordingly, diluted loss per common share is the same as basic loss per common share.
Cooke PH, Inc.
United Therapeutics acquired certain assets and liabilities of
Cooke PH, Inc., (formerly Cooke Pharma, Inc.) in December 2000. In
accordance with the acquisition agreement, United Therapeutics
issued an additional 669,002 shares of its common stock to Cooke PH, Inc. in May
2002. The effect of this issuance was to decrease additional paid-in
capital by approximately $1.7 million and to increase common stock
outstanding by 669,002 shares.
8
Stock Options
In November 2001, the Compensation Committee of the Board of
Directors approved a one-time plan to allow employees (except for
the Chief Executive Officer) to voluntarily permit up to one-third
of their outstanding options to be cancelled. In exchange for each
cancelled option, United Therapeutics granted a new option in May
2002. There were approximately 453,000 options that were cancelled
with exercise prices ranging from $27.50 to $116.38. The cancelled
options were replaced with options priced at $12.69, the Nasdaq
closing price on the grant date of May 10, 2002. Each of the
employees who participated did not have any options granted to them
in the six months prior to or after the cancellation date in
November 2001. No guarantees or other promises of remuneration were
made to the employees who agreed to participate. In accordance with
FASB Interpretation No. 44, no compensation expense was required to
be recognized upon the grant of the replacement awards.
United Therapeutics applies the principles of APB No. 25 in
accounting for its stock options issued to its employees. Had
United Therapeutics applied the fair value principles of SFAS No.
123 for its employee options, its net loss for the three and
nine-month periods ended September 30, 2002 and 2001, would have been
as follows (in thousands, except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
Nine Months Ended |
| |
|
September |
|
September |
| |
|
|
|
|
| |
|
2002 |
|
2001 |
|
2002 |
|
2001 |
| |
|
|
|
|
|
|
|
|
Reported net loss |
|
$ |
(12,188 |
) |
|
$ |
(9,811 |
) |
|
$ |
(21,046 |
) |
|
$ |
(29,861 |
) |
Stock option expense under SFAS No. 123 |
|
|
(4,369 |
) |
|
|
(3,046 |
) |
|
|
(13,107 |
) |
|
|
(9,138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss |
|
$ |
(16,557 |
) |
|
$ |
(12,857 |
) |
|
$ |
(34,153 |
) |
|
$ |
(38,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net loss per share |
|
$ |
(0.58 |
) |
|
$ |
(0.48 |
) |
|
$ |
(1.02 |
) |
|
$ |
(1.47 |
) |
Stock option expense per share under SFAS No. 123 |
|
|
(0.21 |
) |
|
|
(0.15 |
) |
|
|
(0.64 |
) |
|
|
(0.45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss per share |
|
$ |
(0.79 |
) |
|
$ |
(0.63 |
) |
|
$ |
(1.66 |
) |
|
$ |
(1.92 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. RESEARCH AGREEMENT
In September 2002, United Therapeutics entered into a technical
services agreement with Kurzweil Technologies, Inc. (“KTI”), a
company controlled by Raymond Kurzweil (one of the four non-independent directors
on the ten person Board of Directors). Pursuant to this agreement, United
Therapeutics will pay KTI up to $40,000 monthly for
consulting fees and up to $1,000 monthly for reimbursement of
expenses for certain telemedicine technology development services
relating to Medicomp, Inc., a wholly-owned subsidiary of Unither
Telemedicine Services Corp. In addition, United Therapeutics will
pay KTI a five percent royalty on certain sales of products
reasonably attributed to and dependent upon technology developed by
KTI under the technical services agreement and which are covered by
claims of an issued and unexpired United States patent(s). The
agreement may be terminated by United Therapeutics upon thirty days
advance notice to KTI and by KTI upon 180 days advance notice to
United Therapeutics.
11. LICENSE AGREEMENT
In December 1996, Pharmacia Corporation (formerly Pharmacia &
Upjohn Company) exclusively licensed to United Therapeutics patents
and a patent application for the composition and production of a
prostacyclin analog. The Pharmacia agreement requires milestone
payments of up to $325,000 for orphan indications of a prostacyclin
analog manufactured utilizing technology licensed from Pharmacia and
royalties between 2.5% (in the U.S.) and 5% (in certain other
countries) of all net sales, subject to certain offsets, until the later
of the expiration of the applicable patent or 10 years after the
date of the first commercial sale of a product in a country defined
as a milestone country under the agreement. In October 2002, United
Therapeutics and Pharmacia amended the license agreement to change the
royalties to Pharmacia to 4%, subject to a 50% reduction, on
annual net sales of Remodulin in excess of $25.0 million.
9
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes appearing in
United Therapeutics’ Annual Report on Form 10-K/A for the year ended
December 31, 2001. The following discussion contains
forward-looking statements concerning the expectation of continued
losses, cash needed for clinical trials and product research and
development contract obligations during 2002, the funding for such
expenses, expectations concerning milestone and royalty payments in
2002, the use of net operating loss carryforwards and business tax
credit carryforwards, the completion of in-process research and
development projects, the commencement of material net cash inflows from major research and development
projects, the filing of marketing applications, the outcome and timing of regulatory
approvals, the expected levels and timing of Remodulin sales,
expected levels of future net losses and the adequacy of United
Therapeutics’ resources to fund operations through 2005.
These forward-looking statements reflect the plans and beliefs of
management as of the date of this report. Actual results could
differ materially from those anticipated in the forward-looking
statements. Factors that could cause or contribute to such
differences include those discussed below and in the section “Risk
Factors” in United Therapeutics’ Annual Report on Form 10-K for the
year ended December 31, 2001 and the other cautionary statements,
cautionary language and risk factors set forth in United
Therapeutics’ other reports and documents filed with the Securities
and Exchange Commission.
Overview
United Therapeutics is a biotechnology company focused on the
development and commercialization of unique therapeutic products to
treat chronic and life-threatening cardiovascular, infectious and
oncological diseases. United Therapeutics commenced operations in
June 1996 and, since its inception, has devoted substantially all of
its resources to acquisitions and research and development programs.
United Therapeutics’ lead product is Remodulin. On May 21, 2002,
the U. S. Food and Drug Administration (FDA) approved Remodulin
(treprostinil sodium) Injection for the treatment of pulmonary
arterial hypertension in patients with NYHA class II-IV symptoms to
diminish symptoms associated with exercise. United Therapeutics
agreed with the FDA that it would perform a post-marketing phase IV
clinical study to further assess the clinical benefits of Remodulin.
The phase IV study will commence in late 2002 and must be completed
within 24 months from the May 2002 approval. Continued FDA approval
is conditioned on the completion and outcome of the phase IV study.
On October 7, 2002, the Canadian Therapeutics Products Directorate
approved Remodulin for long term subcutaneous treatment of pulmonary
arterial hypertension in NYHA class III and IV patients who did not
respond adequately to conventional therapy. On October 31, 2002,
the Israeli Ministry of Health, Drug Registration Department,
approved Remodulin for the treatment of primary pulmonary arterial
hypertension and pulmonary arterial hypertension associated with
connective tissue disorders. Remodulin marketing applications are
under review in France, Australia and Switzerland with additional European fillings
to follow approval in France. United Therapeutics has generated
pharmaceutical revenues from sales of Remodulin to U.S. based
distributors and on a government-reimbursed basis in certain
European countries, arginine product sales, chemical synthesis
services, the resale of certain medical supplies used for its
pharmaceutical products and government grants. In addition, United Therapeutics has
generated non-pharmaceutical revenues from telemedicine products and
services. United Therapeutics has funded its operations primarily
from the proceeds of the sales of common stock.
As of October 31, 2002, approximately 500 patients receive
Remodulin therapy worldwide, of which approximately 70% are
reimbursable patients. Virtually all of the currently
non-reimbursable patients reside in countries where Remodulin is not
yet approved. Non-reimburseable patients are those patients who do not yet pay for Remodulin.
In the three-month period ended October 31, 2002, the number of reimburseable patients
receiving Remodulin increased by approximately 20 per month on average.
Remodulin is sold and marketed to reimbursable patients in the U.S.
by Priority Healthcare Corporation and Accredo Therapeutics, Inc.
United Therapeutics is the manufacturer of Remodulin and sells
Remodulin in bulk shipments to these distributors. The timing and
extent of United Therapeutics’ sales of Remodulin are impacted by
the timing and extent of these bulk orders from distributors.
Therefore, sales of Remodulin to distributors in any given quarter may not be
indicative of patient demand in that quarter. Sales
of Remodulin and Remodulin delivery pumps and supplies are
recognized as revenue when delivered to the distributors. Sales of
Remodulin totaled approximately $205,000 in the three months ended
March 31, 2002, approximately $8.7 million in the three months ended
June 30, 2002, and approximately $2.6 million in the three months
ended September 30, 2002. As of November 9, 2002, sales of
Remodulin for the fourth quarter of 2002 totaled
approximately $8.5 million. United Therapeutics does not currently anticipate
substantial additional sales in the fourth quarter of 2002.
10
United Therapeutics has incurred net losses each year since
inception and had an accumulated deficit of approximately $183.2
million at September 30, 2002. United Therapeutics expects to
continue to incur net losses and cannot provide assurances that, in
the future, it will become profitable.
Major Research and Development Projects
The major research and development projects of United
Therapeutics are Remodulin for cardiovascular diseases, monoclonal
antibody immunotherapies for cancer diseases and glycobiology
antiviral agents (a class of small molecules that may be effective
as oral therapies) for infectious diseases. United Therapeutics
incurred expenses of approximately $1.0 million and $4.9 million in
the three-month periods ended September 30, 2002 and 2001,
respectively, and approximately $3.8 million and $17.6 million in
the nine-month periods ended September 30, 2002 and 2001,
respectively, on Remodulin development. Approximately $106.1
million from inception to date has been incurred for Remodulin.
Remodulin was approved by the FDA in May 2002 for the treatment of pulmonary
arterial hypertension in NYHA Class II-IV patients to diminish
symptoms associated with exercise. Remodulin was also approved in
October 2002 in Canada for the treatment of pulmonary arterial
hypertension in NYHA Class III-IV patients who did not respond
adequately to conventional therapy and in Israel for the treatment
of primary pulmonary arterial hypertension and pulmonary arterial
hypertension associated with connective tissue disorders.
Regulatory applications and reviews of Remodulin for pulmonary
arterial hypertension are ongoing in Europe and other countries and
are expected to be completed in 2003 and 2004. A condition of FDA
approval is that a phase IV clinical study must be completed within
two years of the U.S. approval date. Material net cash inflows from
the sales of Remodulin for pulmonary arterial hypertension commenced
in May 2002 after FDA approval was received.
Remodulin is also being developed for the treatment of critical
limb ischemia (the advanced stage of vascular disease affecting blood vessels in the legs). United
Therapeutics has completed one phase II clinical study and planning
is underway for pre-pivotal studies to commence in late 2002. The
pivotal or final study of Remodulin for the treatment of critical
limb ischemia is expected to commence in 2003. Regulatory filings
and approvals for Remodulin for critical limb ischemia in the US are
expected to take place in 2005 and 2006. Material net cash inflows
from the sales of Remodulin for critical limb ischemia are expected
to commence in 2006; however, this is subject to the risks and
uncertainties discussed below with respect to completing the
development within the estimated timeline.
United Therapeutics’ infectious disease program includes drug
candidates in the preclinical and phase I clinical stages of
testing. The drugs in this program are being developed for
hepatitis C, hepatitis B and other infectious diseases. The first
drug candidate for hepatitis C, UT-231B commenced phase I clinical
studies in mid-2002. United Therapeutics incurred expenses of
approximately $2.1 million and $2.0 million in the three-month
periods ended September 30, 2002 and 2001, respectively, and
approximately $4.6 million and $4.5 million in the nine-month
periods ended September 30, 2002 and 2001, respectively, for its
infectious disease programs. Approximately $19.0 million from
inception to date has been incurred for these programs. Clinical
testing of UT-231B is expected to continue through 2005. Material
net cash inflows from the sales of UT-231B are expected to commence
in 2006 or 2007; however, this is subject to the risks and
uncertainties discussed below with respect to completing the
development within the estimated timeline.
United Therapeutics’ monoclonal antibody immunotherapies
(antibodies that activate a patient’s immune response to treat
cancer) were in-licensed in April 2002 from AltaRex Corp. OvaRex is
the lead product and planning is currently underway for a phase III
clinical trial of OvaRex in advanced ovarian cancer patients that is
anticipated to commence in early 2003. United Therapeutics incurred
expenses of approximately $1.8 million and none in the three-month
periods ended September 30, 2002 and 2001, respectively, and
approximately $4.5 million and none in the nine-month periods ended
September 30, 2002 and 2001, respectively, for its monoclonal
antibody cancer programs. Approximately $4.5 million from inception
to date has been incurred for these programs. Clinical testing of
OvaRex is expected to continue through 2005. Material net cash
inflows from the sales of OvaRex are expected to commence in 2006 or
2007; however, this is subject to the risks and uncertainties
discussed below with respect to completing the development within
the estimated timeline.
Due to the inherent uncertainties involved in drug development
and regulatory review and approval processes, the cost of completing
the research and development of the products described above is not
estimable. There are many risks and uncertainties associated with
completing the development of Remodulin, UT-231B and OvaRex in
accordance with the timelines discussed above. These include:
11
| |
• |
|
Products may fail in clinical studies; |
| |
| |
• |
|
Physicians and patients may not be willing to participate in clinical studies; |
| |
| |
• |
|
The drugs may not be effective or may not be perceived as effective; |
| |
| |
• |
|
Other investigational therapies may be viewed as more effective; |
| |
| |
• |
|
Patients may experience severe side effects during treatment; |
| |
| |
• |
|
Patients may die during the clinical study because their disease is too
advanced or because they experience medical problems that are not related to
the drug being studied; |
| |
| |
• |
|
Patients may not enroll in the studies at the rate United Therapeutics expects; |
| |
| |
• |
|
The FDA may delay or withhold its approvals to commence clinical trials; |
| |
| |
• |
|
The FDA may request that additional studies be performed; |
| |
| |
• |
|
Drug supplies may not be sufficient to treat the patients in the studies, and; |
| |
| |
• |
|
The results of preclinical testing may cause delays in clinical trials. |
If these projects are not completed in a timely manner,
regulatory approvals would be delayed and United Therapeutics’
operations, liquidity and financial position could suffer. Without
regulatory approvals, United Therapeutics may not commercialize and
sell these products and, therefore, potential revenues and profits
from these products would be delayed or impossible to achieve.
Financial Position
Cash, cash equivalents and marketable investments at September
30, 2002 were approximately $133.8 million as compared to
approximately $172.3 million at December 31, 2001. The decrease of
approximately $38.5 million is due primarily to cash used in
operating activities totaling approximately $22.5 million, a loss on
marketable investments of approximately $7.4 million, the acquisition of an
investment in AltaRex totaling approximately $4.9 million including
acquisition expenses and the purchase of property next to the Silver
Spring, Maryland headquarters for approximately $1.7 million.
Accounts receivable at September 30, 2002 were approximately
$11.7 million, as compared to approximately $1.5 million at December
31, 2001. The increase of approximately $10.2 million was due
primarily to sales of Remodulin and related infusion pumps and
supplies.
Investments in affiliates at September 30, 2002 were
approximately $6.4 million, as compared to approximately $4.3
million at December 31, 2001. The increase of approximately $2.1
million was due primarily to the acquisition in April and August
2002 of 19.9 percent of the outstanding stock of AltaRex Corp.
United Therapeutics also acquired an option to develop and
commercialize a platform of five immunotherapeutic monoclonal
antibodies from AltaRex through an exclusive license agreement.
At September 30, 2002, total liabilities were approximately
$13.4 million, as compared to approximately $15.7 million at
December 31, 2001, and consisted primarily of trade payables,
accrued expenses, amounts due to affiliates and notes payable. At
September 30, 2002, total stockholders’ equity was approximately
$174.1 million, as compared to $196.4 million at December 31, 2001.
The decrease in stockholders’ equity of approximately $22.3 million
was due primarily to the net loss incurred during the nine-month
period ended September 30, 2002 and a reduction of additional
paid-in capital totaling approximately $1.7 million related to the
settlement of escrow items with the sellers of Cooke PH, Inc.
(formerly Cooke Pharma, Inc.).
Results Of Operations
Three months ended September 30, 2002 and 2001
Revenues for the three months ended September 30, 2002 were
approximately $5.1 million, as compared to approximately $1.3
million for the three months ended September 30, 2001. The increase
was due primarily to United Therapeutics’ sales of approximately $2.6
million of Remodulin and approximately $1.3
million of pumps and supplies to distributors in
connection with Remodulin, with virtually no
12
corresponding revenues in the 2001 period since Remodulin was
approved by the FDA in May 2002. In addition, sales of other
products and services increased by approximately $226,000 to
approximately $1.2 million.
Research and development expenses consist primarily of costs to
acquire pharmaceutical products and product rights for development
and amounts paid to contract research organizations, hospitals and
laboratories for the provision of services and materials relating to
drug development and clinical trials. Research and development
expenses were approximately $6.6 million for the three months ended
September 30, 2002, as compared to approximately $8.0 million for
the three months ended September 30, 2001. The decrease of
approximately $1.4 million was due primarily to a decrease from 2001
to 2002 in expenses related to patient enrollment in United
Therapeutics’ clinical trials of approximately $3.8 million, offset
by an increase in 2002 of approximately $1.8 million related to
expenses for United Therapeutics’ OvaRex program, approximately
$498,000 of increased operating costs and approximately
$314,000 of increased research and development costs related to
UT-231B.
General and administrative expenses consist primarily of
salaries, office expenses, professional fees, provision for doubtful
accounts receivable, inventory reserves and depreciation and
amortization. General and administrative expenses were approximately
$2.6 million for the three months ended September 30, 2002, as
compared to approximately $3.4 million for the three months ended
September 30, 2001. The decrease of approximately $798,000 was due
primarily to a decrease in expenses related to travel totaling
approximately $191,000, amortization of goodwill totaling approximately $269,000 for the three
months ended September 30, 2001 with no corresponding amount in the
2002 period (due to the adoption of SFAS No. 142 on January 1, 2002 which eliminated
goodwill amortization), decreased expenses totaling approximately $177,000 due
to the transfer of certain administrative employees and related
expenses to sales and marketing functions and decreased option
expense to consultants totaling approximately $133,000.
Sales and marketing expenses for the three months ended
September 30, 2002 were approximately $1.2 million, as compared to
approximately $963,000 for the three months ended September 30,
2001. The increase was due to expanded marketing efforts related to
Remodulin and other products.
Cost of product sales was approximately 19% of product
sales for the three-months ended September 30, 2002 as compared to
approximately 100% for the corresponding period in 2001.
The decrease in cost of product sales as a percentage
of product revenues was due primarily to the commercial launch of
Remodulin in May 2002. In 2001, product sales consisted primarily
of Remodulin pumps and supplies which were sold to Remodulin
distributors at their acquisition cost. Cost of service sales was
approximately 57% of services sales for the three months
ended September 30, 2002 as compared to approximately 43% for the corresponding period in 2001.
Interest income for the three months ended September 30, 2002
was approximately $537,000, as compared to approximately $2.2
million for the three months ended September 30, 2001. This
decrease of approximately $1.7 million was attributable primarily to
a decrease in the amount of cash available for investing and lower
yields in 2002 as compared to 2001.
For the past two quarters, the quoted
market price of AltaRex’s common stock was consistently less than
United Therapeutics’ cost. This was determined to be an
other-than-temporary decline in the value of AltaRex’s common stock
held by United Therapeutics. As a result, the investment in AltaRex
was written down to its fair value as determined by quoted market
prices on September 30, 2002. The write-down totaled approximately
$2.9 million.
The loss on marketable investments for the three months ended
September 30, 2002 was approximately
13
$3.3 million, as compared to none for the three months ended
September 30, 2001. In June 2002, United Therapeutics began
reassessing its investment program in light of increasingly adverse
conditions in the bond markets. As a result, the entire investment
portfolio was sold in July 2002. The realized loss of approximately
$3.3 million was a result of the liquidation of the investment
portfolio.
Nine months ended September 30, 2002 and 2001
Revenues for the nine months ended September 30, 2002 were
approximately $18.1 million, as compared to approximately $4.1
million for the nine months ended September 30, 2001. The increase
was due primarily to United Therapeutics’ sales of approximately $11.5
million of Remodulin and approximately $3.3 million
of pumps and supplies to distributors in connection with
Remodulin, with virtually no corresponding revenue in the 2001
period since Remodulin was approved by the FDA in May 2002. In
addition, sales of other products increased by approximately
$295,000 to approximately $3.3 million.
Research and development expenses were approximately $18.4
million for the nine months ended September 30, 2002, as compared to
approximately $26.1 million for the nine months ended September 30,
2001. The decrease of approximately $7.7 million was due primarily
to a decrease from 2001 to 2002 in expenses related to patient
enrollment in clinical trials of approximately $13.8 million offset
by an increase in 2002 of approximately $4.5 million related to
expenses for United Therapeutics’ OvaRex program, approximately
$873,000 of increased operating costs and approximately $765,000 of
increased personnel costs.
General and administrative expenses were approximately $8.1
million for the nine months ended September 30, 2002, as compared to
approximately $10.3 million for the nine months ended September 30,
2001. This decrease of approximately $2.2 million was due primarily
to decreased expenses totaling approximately $562,000 related to the
transfer of certain employees and related expenses from third party
contract manufacturing activities to internal research and
development functions, amortization of goodwill totaling approximately $808,000 for the nine months
ended September 30, 2001 with no corresponding amount in the 2002
period (due to the adoption of SFAS No. 142 on January 1, 2002 which eliminated goodwill
amortization), decreased travel expenses totaling approximately $389,000, decreased
expenses totaling approximately $218,000 related to the transfer of
certain administrative employees and related expenses to sales and
marketing functions and decreased professional fees of approximately
$173,000. These decreases were offset by increases in expenses
related primarily to salaries and benefits totaling approximately
$650,000 and insurance totaling $353,000.
Sales and marketing expenses for the nine months ended
September 30, 2002 were approximately $2.5 million, reflecting no
significant change from sales and marketing expenses of
approximately $2.7 million for the nine months ended September 30,
2001.
Cost of product sales was approximately 17% of product
sales for the nine months ended September 30, 2002 as compared to approximately 63% for the corresponding period in 2001.
The decrease in cost of product sales as a percentage
of product sales was due primarily to the commercial launch of
Remodulin in May 2002. In 2001, product sales consisted primarily
of Remodulin pumps and supplies which were sold to Remodulin
distributors at their acquisition cost. Cost of services sales was
approximately 49% of service sales for the nine months
ended September 30, 2002 as compared to approximately 57% for the corresponding period in 2001.
Interest income for the nine months ended September 30, 2002
was approximately $4.4 million, as compared to approximately $7.9
million for the nine months ended September 30, 2001. This decrease
of approximately $3.5 million was attributable primarily to a
decrease in the amount of cash available for investing and lower
yields in 2002 as compared to 2001.
14
For the past two quarters, the quoted market price of
AltaRex’s common stock was consistently less than United
Therapeutics’ cost. This was determined to be an
other-than-temporary decline in the value of AltaRex’s common stock
held by United Therapeutics. As a result, the investment in AltaRex
was written down to its fair value as determined by quoted market
prices on September 30, 2002. The write-down totaled approximately
$2.9 million.
The loss on marketable investments for the nine months ended
September 30, 2002 was approximately $7.4 million, as compared to
none for the nine months ended September 30, 2001. In March 2002,
United Therapeutics reported a $538,000 write-down due to an
other-than-temporary decline in value of one of its marketable
investments. In June 2002, United Therapeutics began reassessing
its investment program in light of increasingly adverse conditions
in the bond markets. As a result, all marketable investments were
sold in July 2002. A write-down of investments totaling
approximately $3.6 million was necessary to adjust the value of
United Therapeutics’ marketable investments to their fair value
based on quoted market prices at June 30, 2002. In July 2002,
United Therapeutics recorded an additional realized loss of
approximately $3.3 million as a result of the liquidation of the
investment portfolio.
In-Process Research & Development
During 2000, United Therapeutics acquired the assets and
assumed certain liabilities of Cooke PH, Inc. (formerly Cooke
Pharma, Inc.) in a purchase transaction which resulted in a
write-off of in-process research and development (IPR&D) related to
in-process projects that had not yet reached technological
feasibility and had no alternative future uses. The projects under
development at the valuation date were expected to address the
coronary and peripheral arterial disease markets as well as the
market of persons that are at risk of developing some form of heart
disease. It was anticipated that research and development related to
these projects would be completed by 2002. However, United
Therapeutics has decided to initiate studies of arginine in
pulmonary hypertension prior to coronary and peripheral arterial
diseases. These studies in pulmonary hypertension commenced in 2002
and are expected to be completed in 2003. The delay in the coronary
and peripheral arterial disease studies is not expected to have a
material impact on United Therapeutics.
Also during 2000, United Therapeutics acquired the assets of
Medicomp, Inc. in a purchase transaction which resulted in a
write-off of IPR&D related to in-process projects that had not yet
reached technological feasibility and had no alternative future
uses. At the acquisition date, Medicomp was conducting design,
development, engineering and testing activities associated with the
completion of a number of new technological innovations for
next-generation products. It was anticipated that completion of
these projects would occur in 2001, but completion is now expected
to occur in phases during 2003 and 2004. This delay is not expected
to have a material impact on United Therapeutics.
Liquidity And Capital Resources
Until June 1999, United Therapeutics financed its operations
principally through various private placements of common stock. On
June 17, 1999, United Therapeutics completed its initial public
offering. Net proceeds to United Therapeutics, after deducting
underwriting commissions and offering expenses, were approximately
$56.4 million. In 2000, United Therapeutics closed two private
placements and received aggregate net proceeds of approximately
$209.0 million.
United Therapeutics’ working capital at September 30, 2002 was
approximately $145.4 million, as compared with approximately $58.2
million at December 31, 2001. The increase of approximately $87.2
million is due primarily to the sale of noncurrent marketable
investments in July 2002 and their reinvestment in commercial paper
and money market funds which are classified as current assets, and
an increase in accounts receivable due to sales of Remodulin and
related infusion pumps after the May 2002 FDA approval. Current
liabilities at September 30, 2002 were approximately $9.8 million,
as compared with approximately $10.8 million at December 31, 2001.
United Therapeutics’ debt at September 30, 2002 and December 31,
2001 was approximately $1.9 million and consisted of equipment
leases, two mortgage notes, one secured by a certificate of deposit
and both secured by the
15
buildings and property owned by United Therapeutics located at
1106 — 1110 Spring Street in Silver Spring, Maryland. Both
mortgages are due in monthly installments over 30 years.
Net cash used in operating activities was approximately $22.5
million and $31.5 million for the nine-month periods ended September
30, 2002 and 2001, respectively. For the nine-month periods ended
September 30, 2002 and 2001, United Therapeutics invested
approximately $2.6 million and $436,000, respectively, in cash for
property, plant and equipment. In September 2002, United
Therapeutics purchased the property next to its Silver Spring,
Maryland headquarters for approximately $1.7 million in cash. In
April and August 2002, United Therapeutics invested approximately
$4.9 million in AltaRex Corp. For the nine months ended September
30, 2002, United Therapeutics generated approximately $139.4 million
of cash from sales and maturities of marketable investments, net of
reinvestments. For the nine months ended September 30, 2001, United
Therapeutics used approximately $79.7 million of cash to purchase
marketable investments, net of sales and maturities. Net cash
provided by financing activities for the nine-months ended September
30, 2002 was approximately $160,000. Net cash used by financing
activities was approximately $2.9 million for the nine-month period
ended September 30, 2001. Cash flows used in financing activities
for the nine-month period ended September 30, 2001 were primarily
used to repurchase United Therapeutics’ common stock pursuant to a
stock repurchase program that expired in December 2001.
United Therapeutics has contracted with various companies and
research organizations to coordinate and perform clinical trials and
to provide materials and other services related to the development
and commercialization of Remodulin and other products. It is
anticipated that approximately $5.2 million in cash will be used
during the fourth quarter of 2002 under these current
agreements which will be funded from existing working capital.
United Therapeutics expects to make a $100,000 milestone payment
pursuant to existing license agreements during the fourth quarter of
2002. United Therapeutics expects to make royalty payments on sales
of Remodulin, if annual net sales exceed $25.0 million, and on all
HeartBar products during 2002. In December 1996, Pharmacia
Corporation (formerly Pharmacia & Upjohn Company) exclusively
licensed to United Therapeutics patents and a patent application for
the composition and production of a prostacyclin analog. The
Pharmacia agreement requires milestone payments of up to $325,000
for orphan indications of a prostacyclin analog manufactured
utilizing technology licensed from Pharmacia and royalties between
2.5% (in the U.S.) and 5% (in certain other countries) of all net sales,
subject to certain offsets, until the later of the expiration of the
applicable patent or 10 years after the date of the first commercial
sale of a product in a country defined as a milestone country under
the agreement. In October 2002, United Therapeutics and Pharmacia
amended the license agreement to change the royalties to Pharmacia to 4%,
subject to a 50% reduction, on annual net sales of
Remodulin in excess of $25.0 million. Royalties on all products will
range from 1% to 10% of sales of these products.
United Therapeutics believes that sales of Remodulin to
distributors for use by the current base of approximately 350
reimbursable patients in the US and Europe could provide an average
annual revenue to United Therapeutics of approximately $30.0 million
based on current pricing and dosing levels. Based on this current
estimate, United Therapeutics’ believes its net losses will average,
on an annual basis, between approximately $2.0 million and $3.0 million
per month for the foreseeable future. Factors that
could affect the accuracy of these revenue and net loss estimates
include the following:
| |
• |
|
Retention of current patients; |
| |
| |
• |
|
Impact of infusion site pain and reaction and other Remodulin side effects; |
| |
| |
• |
|
Addition of new patients to replace lost patients; |
| |
| |
• |
|
Changes in the current pricing and dosing; |
| |
| |
• |
|
Continued regulatory approval of Remodulin; |
| |
| |
• |
|
Additional regulatory approvals in other countries; |
| |
| |
• |
|
Outcome of the phase IV post-marketing study of Remodulin; |
| |
| |
• |
|
Impact of other approved and investigational competitive products; |
| |
| |
• |
|
Reimbursement of Remodulin by public and private payers; |
16
| |
• |
|
Impact of medical and scientific opinion; |
| |
| |
• |
|
Continued performance by current Remodulin distributors; |
| |
| |
• |
|
Actual expenses incurred in future periods; and |
| |
| |
• |
|
Establishment of additional strategic or licensing arrangements. |
United Therapeutics expects that net cash generated from
Remodulin sales (at the current average annual revenue level of
approximately $30.0 million discussed above) together with existing
capital resources (comprised primarily of cash and cash equivalents)
will be adequate to fund its operations through 2005. United
Therapeutics’ future capital requirements and the adequacy of its
available funds will depend on many factors, including:
| |
• |
|
Continued regulatory approval of Remodulin; |
| |
| |
• |
|
Retention and growth of reimburseable patients treated with Remodulin; |
| |
| |
• |
|
Collection of accounts receivable; |
| |
| |
• |
|
Size, scope and outcome of Remodulin post-marketing Phase IV clinical studies; |
| |
| |
• |
|
Size, scope and outcome of its development efforts for existing and additional products; |
| |
| |
• |
|
Future milestone and royalty payments; |
| |
| |
• |
|
Cost, timing and outcomes of regulatory reviews; |
| |
| |
• |
|
Rate of technological advances; |
| |
| |
• |
|
Status of competitive products; |
| |
| |
• |
|
Defending and enforcing intellectual property rights; |
| |
| |
• |
|
Development of manufacturing resources or
the establishment, continuation or termination of
third-party manufacturing arrangements; |
| |
| |
• |
|
Establishment, continuation or
termination of third-party clinical trial arrangements; |
| |
| |
• |
|
Development of sales and marketing
resources or the establishment, continuation or
termination of third-party sales and marketing
arrangements; |
| |
| |
• |
|
Establishment of additional strategic or licensing arrangements; and |
| |
| |
• |
|
Risks associated with acquisitions, including the ability to integrate acquired businesses. |
As of September 30, 2002, United Therapeutics had available
approximately $111.1 million in net operating loss carryforwards and
approximately $27.4 million in business tax credit carryforwards for
federal income tax purposes that expire at various dates through
2020. The portions of these carryforward items that were generated
prior to June 1999 are subject to certain limitations. United
Therapeutics does not believe that the limitations will cause the
net operating loss and general business credit carryforwards to
expire unused.
Summary of Critical Accounting Policies
Marketable Investments
Currently, United Therapeutics invests portions of its cash in
money market funds and commercial paper. Prior to and during July
2002, United Therapeutics invested portions of its cash in
marketable debt securities. Due to United Therapeutics’ intent and
ability to hold these marketable debt investments until their
maturities, they had historically been reported at their amortized
cost in the consolidated balance sheets. In June 2002, United
Therapeutics began reassessing its investment program. As a result,
United Therapeutics liquidated all its marketable investments in
July 2002 in order to invest the proceeds in money market funds,
commercial paper and federal instruments. As a result, United
Therapeutics was required to reclassify these investments as
available-for-sale and report them in the June 30, 2002 balance
sheet at their current fair market values based on quoted market
prices. This resulted in a write-down of approximately $3.6 million
in the three months ended June 30, 2002 and an additional loss of
approximately $3.3 million upon the sale of these investments in the
three months ended September 30, 2002.
Inventory Capitalization
Prior to FDA approval of Remodulin, United Therapeutics
capitalized inventory costs associated with the synthesis and
manufacture of Remodulin, based on management’s judgment of probable
future commercialization. Remodulin received FDA approval on May
21, 2002.
17
Stock Options
United Therapeutics applies the principles of APB No. 25 in
accounting for its stock options issued to its employees. Had
United Therapeutics applied the principles of SFAS No. 123 for its
employee options, its net loss for the three-month periods ended
September 30, 2002 and 2001 would have been approximately $16.6
million and $12.9 million, respectively, as compared to
approximately $12.2 million and $9.8 million, respectively. Its
net loss for the nine-month periods ended September 30, 2002 and
2001 would have been approximately $34.2 million and $39.0 million,
respectively, as compared to approximately $21.0 million and $29.9
million, respectively.
Investments in Affiliates
The equity method of accounting is used to account for most of
United Therapeutics’ investments in affiliates. The equity method
of accounting generally requires United Therapeutics to report its
share of the affiliates’ net losses or profits in its financial
statements, but does not require that assets, liabilities, revenues
and expenses of the affiliates be consolidated with United
Therapeutics’ financial statements. The equity method of accounting
is being applied generally due to the lack of control over these
affiliates and the levels of ownership held by United Therapeutics.
Other investments in affiliates are accounted for on the cost method generally due to
the lack of control over these affiliates and a less than 20% ownership
by United Therapeutics. The cost method of accounting does not require that United Therapeutics report its
share of the affiliates’ net losses or profits in its financial statements, nor are affiliates’
assets, liabilities, revenues and expenses consolidated with United Therapeutics' financial statements.
Options Issued in Exchange for License
In connection with the license from Toray Industries for the
sustained release formulation of beraprost, United Therapeutics
agreed to grant 500,000 options to Toray upon Toray’s transfer of
clinical trial material for use in clinical trials in the U.S.
These options will not be priced until the clinical trial material
milestone has been met by Toray. Before Toray can produce the
clinical trial material, it will need to complete formulation,
preclinical testing and early clinical studies. Due to the
uncertainties in drug development, it is not yet known if Toray will
provide the appropriate clinical trial material. Therefore, in
accordance with EITF Issue No. 96-18, “Accounting for Equity
Instruments that are Issued to Other than Employees”, these options
are measured at their lowest aggregate fair value at each interim
reporting date, which amount has been zero. As a result, no expense
related to these options has been recorded in the consolidated
financial statements.
Goodwill and Other Intangible Assets
United Therapeutics’ goodwill represents the excess of purchase prices and related costs over the value assigned to the
net tangible and intangible assets of businesses acquired. United Therapeutics' other intangible assets are primarily
comprised of trademarks, patents and technology acquired through businesses acquisitions. At September 30, 2002, United
Therapeutics had approximately $14.7 million of goodwill and other intangible assets, net of accumulated amortization.
Periodically, United Therapeutics reviews the recoverability of goodwill and other intangible assets. If an impairment
of goodwill or other intangible assets is deemed to have occurred, then an impairment loss would be estimated and charged
against earnings in the period in which the impairment occurs. Useful lives of intangible assets are estimated and
intangible assets are amortized to expense over the useful period. Due to the adoption of SFAS No. 142 on January 1,
2002, goodwill is no longer amortized to expense.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (the
FASB) issued SFAS No. 141, Business Combinations (SFAS 141), and
SFAS No. 142, Goodwill And Other Intangible Assets (SFAS 142). SFAS
141 addresses the accounting for acquisitions of businesses and is
effective for acquisitions occurring on or after July 1, 2001. SFAS
142 addresses the method of identifying and measuring goodwill and
other intangible assets acquired in a business combination,
eliminates further amortization of goodwill, and requires periodic
evaluations of impairment of goodwill balances. United Therapeutics
adopted SFAS 142 as of January 1, 2002.
In October 2001, the FASB issued SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets (SFAS 144). The
provisions of SFAS 144 require the use of a consistent accounting
model for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired and extend the
presentation of discontinued operations to include more disposal
transactions. United Therapeutics adopted SFAS 144 as of January 1,
2002. The adoption had no impact on the consolidated financial
statements.
In June 2002, the Financial Accounting Standards Board issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146). SFAS 146 addresses the financial
accounting and reporting for costs associated with exit or disposal
activities and is effective for exit or disposal activities
initiated after December 31, 2002. SFAS No. 146 will be adopted on
January 1, 2003.
18
Item 3. Quantitative and Qualitative Disclosures about Market Risk
At September 30, 2002, a substantial portion of United
Therapeutics’ assets were comprised of investment grade corporate
commercial paper. The market value of these investments fluctuates
with changes in current market interest rates. In general, as rates
increase, the market value of a debt instrument would be expected to
decrease. The opposite is also true. To minimize such market risk,
United Therapeutics holds such instruments to maturity at which time
these instruments would be redeemed at their stated or face value.
At September 30, 2002, United Therapeutics had approximately $20.0
million in commercial paper at various maturity dates through
January 2003 with a weighted average stated interest rate of
approximately 1.73 percent.
Item 4. Controls and Procedures
Based on their evaluation, as of a date within 90 days of the
filing date of this Form 10-Q, United Therapeutics’ Chief Executive
Officer and Chief Financial Officer have concluded that United
Therapeutics’ disclosure controls and procedures (as defined in Rule
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934,
as amended) are effective. There have been no significant changes
in internal controls or in other factors that could significantly
affect these internal controls subsequent to the date of this evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
| |
|
|
| Exhibit No. |
|
Description |
|
|
|
| 3.1 |
|
Amended and Restated Certificate of Incorporation of the
Registration, incorporated by reference to Exhibit 3.1 of the
Registrant’s Registration Statement on Form S-1 (Registration
No. 333-76409) |
| 3.2 |
|
Amended and Restated Bylaws of the Registrant, incorporated by
reference to Exhibit 3.2 of the Registrant’s Registration
Statement on Form S-1 (Registration No. 333-76409) |
| 10.25 |
|
Amendment No. 1 to Exclusive License Agreement, effective as of December 3, 1996,
made as of October 1, 2002 by and between Pharmacia & Upjohn Company and the
Registrant. |
| 10.26 |
|
Technical Services Agreement dated August 27, 2002 between the Registrant
and Kurzweil Technologies, Inc.
|
On August 14, 2002, the Registrant filed a Form 8-K dated
August 14, 2002 reporting an Item 9 event and attaching the
certifications of each of the Registrant’s Chief Executive Officer
and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 that accompanied the Registrant’s Form
10-Q for the quarter ended June 30, 2002.
On August 16, 2002, the Registrant filed a Form 8-K dated
August 16, 2002 reporting Item 5 events and attaching a press
release related thereto and a copy of the exclusive license
agreement between the Registrant and AltaRex Corp.
On August 19, 2002, the Registrant filed a Form 8-K dated
August 19, 2002 reporting an Item 5 event and attaching a press
release related thereto.
On September 4, 2002, the Registrant filed a Form 8-K dated
September 4, 2002 reporting an Item 5 event and attaching a press
release related thereto.
On September 24, 2002, the Registrant filed a Form 8-K dated
September 20, 2002 reporting Item 5 events and attaching a press
release related thereto.
19
SIGNATURES
|
|
| |
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized. |
| |
UNITED THERAPEUTICS CORPORATION |
| Date: November 14, 2002 |
/s/ Martine A. Rothblatt
|
|
By: Martine A. Rothblatt
Title: Chief Executive Officer |
| |
/s/ Fred T. Hadeed
|
| |
By: Fred T. Hadeed
Title: Chief Financial Officer |
20
CERTIFICATION
I, Martine A. Rothblatt, certify that:
| |
1. |
|
I have reviewed this quarterly report on Form 10-Q of United
Therapeutics Corporation; |
| |
| |
2. |
|
Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; |
| |
| |
3. |
|
Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of United Therapeutics as of, and for, the periods presented
in this quarterly report; |
| |
| |
4. |
|
United Therapeutics’ other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for United Therapeutics
and have: |
|
|
|
|
| |
a) |
|
designed such disclosure controls and procedures to
ensure that material information relating to United Therapeutics,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared; |
|
|
|
|
| |
b) |
|
evaluated the effectiveness of United Therapeutics’
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the “Evaluation
Date”); and |
|
|
|
|
| |
c) |
|
presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date; |
| |
5. |
|
United Therapeutics’ other certifying officer and I have disclosed,
based on our most recent evaluation, to United Therapeutics’ auditors
and the audit committee of United Therapeutics’ board of directors (or
persons performing the equivalent functions): |
|
|
|
|
| |
a) |
|
all significant deficiencies in the design or operation
of internal controls which could adversely affect United
Therapeutics’ ability to record, process, summarize and report
financial data and have identified for United Therapeutics’
auditors any material weaknesses in internal controls; and |
|
|
|
|
| |
b) |
|
any fraud, whether or not material, that involves
management or other employees who have a significant role in
United Therapeutics’ internal controls; and |
| |
6. |
|
United Therapeutics’ other certifying officer and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses. |
| Date: November 14, 2002 |
/s/ Martine A. Rothblatt
|
|
By: Martine A. Rothblatt
Title: Chief Executive Officer |
21
CERTIFICATION
I, Fred T. Hadeed, certify that:
| |
1. |
|
I have reviewed this quarterly report on Form 10-Q of United
Therapeutics Corporation; |
| |
| |
2. |
|
Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; |
| |
| |
3. |
|
Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of United Therapeutics as of, and for, the periods presented
in this quarterly report; |
| |
| |
4. |
|
United Therapeutics’ other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for United Therapeutics
and have: |
|
|
|
|
| |
a) |
|
designed such disclosure controls and procedures to
ensure that material information relating to United Therapeutics,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared; |
|
|
|
|
| |
b) |
|
evaluated the effectiveness of United Therapeutics’
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the “Evaluation
Date”); and |
|
|
|
|
| |
c) |
|
presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date; |
| |
5. |
|
United Therapeutics’ other certifying officer and I have disclosed,
based on our most recent evaluation, to United Therapeutics’ auditors
and the audit committee of United Therapeutics’ board of directors (or
persons performing the equivalent functions): |
|
|
|
|
| |
a) |
|
all significant deficiencies in the design or operation
of internal controls which could adversely affect United
Therapeutics’ ability to record, process, summarize and report
financial data and have identified for United Therapeutics’
auditors any material weaknesses in internal controls; and |
|
|
|
|
| |
b) |
|
any fraud, whether or not material, that involves
management or other employees who have a significant role in
United Therapeutics’ internal controls; and |
| |
6. |
|
United Therapeutics’ other certifying officer and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses. |
| |
/s/ Fred T. Hadeed
|
| |
By: Fred T. Hadeed
Title: Chief Financial Officer |
22