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Securities and Exchange Commission
Washington, DC 20549

Form 10-K

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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002
OR

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TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to               

Commission File Number 0-26301

UNITED THERAPEUTICS CORPORATION
(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (301) 608-9292

Securities registered under Section 12(b) of the Exchange Act:
None.

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
and associated preferred stock purchase rights
(Title of Class)

     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       

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in PART III of this Form 10-K or any amendment to this Form 10-K.   o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes   X   No       

     The number of shares outstanding of the registrant’s Common Stock, par value $0.01 per share, as of March 12, 2003 was 20,924,120 shares. The aggregate market value of the Common Stock held by non-affiliates of the registrant, based on the closing price on June 28, 2002 as reported by the Nasdaq National Market was approximately $258.3 million.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s definitive proxy statement for the registrant’s 2003 annual shareholders meeting are incorporated by reference in Part III of this Form 10-K.

PART I

ITEM 1.  BUSINESS

          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, which are stable synthetic forms of prostacyclin, an important molecule produced by the body that has powerful effects on blood-vessel health and function. United Therapeutics’ drug Remodulin® has been approved in the United States for the treatment of pulmonary arterial hypertension in patients with NYHA Class II-IV symptoms to diminish symptoms associated with exercise, and in Canada and Israel for similar uses;
	•		Immunotherapeutic Monoclonal Antibodies, which are antibodies that activate patients’ immune systems to treat cancer, including OvaRex® that is being developed for the treatment of metastatic ovarian cancer;
	•		Glycobiology Anti-viral Agents, which are a class of small molecules that may be effective as an oral therapy for hepatitis C and other infections;
	•		Telemedicine, which involves portable digital devices that enable physicians to remotely monitor patients’ bodily measurements such as heart function, including the CardioPal® cardiac event recorder; and
	•		Arginine Formulations, including the HeartBar® product line, which deliver the amino acid arginine that is necessary for the promotion of vascular function.

          Most of United Therapeutics’ resources are focused on its prostacyclin analogs for the treatment of pulmonary hypertension and peripheral vascular disease. United Therapeutics’ other principal focus areas are the development of immunotherapeutic monoclonal antibodies for the treatment of cancers and glycobiology anti-viral agents for the treatment of hepatitis and other diseases. United Therapeutics also devotes resources to the commercialization and further development of arginine supplementation therapy, especially in cardiovascular health, and of telecardiology, principally for cardiac arrhythmia.

          United Therapeutics was incorporated in June 1996 in Delaware under the name Lung Rx, Inc. The company changed its name to United Therapeutics Corporation in December 1997. United Therapeutics’ wholly owned subsidiaries include Unither Pharmaceuticals, Inc., Unither Telemedicine Services Corp., Lung Rx, Inc., United Therapeutics Europe, Ltd., Unither Pharma, Inc., Medicomp, Inc. and Unither Nutriceuticals, Inc.

United Therapeutics’ Products

     United Therapeutics’ product portfolio includes the following:

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except Europe and the Middle East.

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     Remodulin®

          In December 1996 and January 1997, United Therapeutics obtained worldwide rights for all indications to Remodulin® (also known as UT-15 and formerly known as Uniprost), a prostacyclin analog, from Glaxo Wellcome, Inc. and Pharmacia & Upjohn Company (see Patent and Proprietary Rights below). In October 1999, United Therapeutics acquired all the outstanding stock of SynQuest, Inc., the manufacturer of treprostinil, the bulk active ingredient in Remodulin. Remodulin, United Therapeutics’ main product, was approved in May 2002 in the United States and in October 2002 in Canada and Israel.

     Pulmonary Arterial Hypertension

          United Therapeutics has focused primarily on developing Remodulin as its lead product for treating pulmonary arterial hypertension. Pulmonary arterial hypertension is a vascular disease that affects the blood vessels between the heart and lungs known as the pulmonary blood vessels. Pulmonary arterial hypertension is characterized by the degradation of the blood-vessel wall lining, the aggregation of platelets and the disruption of smooth muscle cell function. These conditions cause blockages and affect the ability of the blood vessels to dilate and then constrict as blood flows to the lungs. The resulting elevated pulmonary blood pressure causes increasing strain on the right side of the heart as it tries to pump blood to the lungs.

          Pulmonary arterial hypertension is associated with reduced production of the natural hormone prostacyclin in the pulmonary blood vessels. Prostacyclin appears to dilate blood vessels where necessary, prevent platelet aggregation, and prevent proliferation of smooth muscle cells surrounding the vessels. The first FDA-approved prostacyclin for pulmonary arterial hypertension was Flolan®, a synthetic form of prostacyclin delivered continuously by an external pump through a surgically implanted intravenous catheter. Flolan was approved for use in certain subsets of late-stage pulmonary arterial hypertension.

          United Therapeutics believes Remodulin provides patients with a convenient and non-intravenous alternative to Flolan. In contrast to Flolan, Remodulin is stable at room temperature and is significantly longer lived in the human body. These attributes allow for safer and more convenient delivery of Remodulin to patients. Specifically, Remodulin is delivered by subcutaneous infusion with a pager-sized microinfusion device made by Medtronic MiniMed. Subcutaneous delivery of Remodulin also eliminates the risk of sepsis infection and related hospitalization associated with the Flolan catheter. Remodulin’s extended life in the body also greatly reduces the risk of pulmonary hypertension rebound and death from an abrupt recurrence of hypertension known as rebound hypertension when treatment is interrupted. The stability of Remodulin also allows it to be prepackaged, thus eliminating the need to reconstitute the drug one or more times daily under completely sterile conditions, as is required with Flolan. Lastly, Remodulin does not require the use of cooling packs or refrigeration as is required with Flolan to keep it stable.

          In late 2001, the FDA approved Tracleer®, an oral treatment for patients with certain subsets of late-stage pulmonary arterial hypertension. Tracleer is the first drug in a class of drugs known as endothelin antagonists. Endothelin constricts blood vessels and is elevated in patients with pulmonary arterial hypertension. Many pulmonary arterial hypertension leading experts believe that Tracleer or other endothelin antagonists may in the future be used in combination with Remodulin or Flolan since these drugs provide symptomatic relief in different ways and might complement each other to treat these seriously ill patients.

          In March 2000, United Therapeutics completed an international, randomized, placebo-controlled, double-blind study of Remodulin involving a total of 470 patients with pulmonary arterial hypertension. Half of the patients received Remodulin subcutaneously for 12 weeks, while the other half received a placebo. The study data show that patients who received Remodulin had significant improvement in exercise capacity, pulmonary blood pressure and in the signs and symptoms of the disease. Based on the favorable results of this study, United Therapeutics filed a New Drug Application (NDA) with the U. S. Food and Drug Administration (FDA) in late 2000.

          On May 21, 2002, the 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. Remodulin may be prescribed for all disease subsets of symptomatic pulmonary arterial hypertension and is the only pulmonary arterial hypertension treatment approved for patients with NYHA class II (early-stage) symptoms.

          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 commenced in late 2002 and must be completed within 24 months from the May 2002 approval. As of March 2003, four patients had been enrolled in the 100 patient Phase IV study.

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United Therapeutics intends to meet with the FDA in April or May 2003 to report on the progress of the study. 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 do 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, pulmonary arterial hypertension associated with connective tissue disorders and pulmonary arterial hypertension associated with congenital systemic to pulmonary shunts. Remodulin marketing applications are under review in France, Australia and Switzerland, with additional European filings to follow approval in France.

     Peripheral Vascular Disease/Critical Limb Ischemia

          United Therapeutics is also developing Remodulin for late-stage peripheral vascular disease known as critical limb ischemia. Peripheral vascular disease is a vascular disease that affects the blood vessels in the legs. While the precise cause of peripheral vascular disease is unknown, diabetes, obesity, smoking and lack of exercise are associated with the disease. Peripheral vascular disease appears to be similar to pulmonary hypertension in that there is a reduction in natural prostacyclin in the affected blood vessels.

          In the United States, it is estimated that 750,000 people suffer from critical limb ischemia. The disease is characterized by extreme pain, non-healing ulcers in the legs, reduced exercise capacity and severely reduced blood flow in the limbs. There are currently no approved drugs to treat critical limb ischemia. Physicians, therefore, perform surgical interventions (such as balloon angioplasty, stents and by-passes) to restore or improve blood flow in the limbs. These procedures can provide relief to patients, but do not address the underlying causes of peripheral vascular disease. Due to the lack of adequate treatments, approximately 200,000 amputations of major limbs are performed each year on patients with critical limb ischemia.

          In September 1998, United Therapeutics completed a Phase II study which assessed the safety and blood flow effects of Remodulin administered intravenously to patients with critical limb ischemia. The study demonstrated that Remodulin can be administered safely to patients with critical limb ischemia and that Remodulin substantially increased blood flow in the affected areas of the legs. United Therapeutics has commenced pre-pivotal clinical studies of Remodulin for critical limb ischemia. These studies are expected to be completed by late 2003. The results of the pre-pivotal studies will be used to design a pivotal study that is anticipated to commence in 2004.

     Metastatic Cancer

          United Therapeutics has tested the anti-cancer capabilities of Remodulin in laboratory experiments. These in vitro studies showed that Remodulin has an anti-metastatic effect at the same dose given to pulmonary hypertension patients. In addition, there are many published reports of the anti-cancer effects of various analogs of the prostacyclin molecule. Much of the excitement regarding prostacyclin as an anti-cancer molecule has to do with prostacyclin’s ability to block an endothelial cell receptor (called the PPAR receptor) which is believed to be needed for tumor growth. Given the potency of Remodulin, and its relative ease of use, United Therapeutics believes there may be anti-cancer potential in this lead product and further development may be initiated in the future.

     UT-15 Sustained Release

          United Therapeutics is currently in the early stage of development of a longer-acting prostacyclin analog, known as UT-15 Sustained Release. UT-15 Sustained Release will be developed as an oral therapy for vascular diseases, including pulmonary arterial hypertension and peripheral vascular disease. A longer-acting prostacyclin analog could enable patients to take fewer doses per day. United Therapeutics is currently screening potential candidates for further evaluation.

     Sales and Marketing

          United Therapeutics’ marketing strategy for Remodulin relies upon United Therapeutics staff to educate the prescribing community. During 2002, United Therapeutics formed an internal marketing team to handle these educational efforts. The team consisted of five persons as of March 2003 and is expected to continue growing during 2003. Additionally, United Therapeutics relies on chronic care specialty pharmacy distributors to handle doctor and patient requests for Remodulin on a non-exclusive basis in the United States. To further this strategy, United Therapeutics has entered into two non-exclusive distributor agreements with Accredo Therapeutics, Inc. (formerly known as Gentiva Health Services, Inc.) and Priority Healthcare Corporation for the United States. See Priority Healthcare and Accredo Therapeutics, Inc. Strategic Alliances below. These specialty distributors are experienced in the sale, distribution and reimbursement of chronic therapies.

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In addition, United Therapeutics has an internal sales and marketing department focused on educational efforts directed at pulmonary hypertension clinicians. Outside of the United States, United Therapeutics has entered into six exclusive distributor agreements covering Canada, most of Europe, Australia, South America and Israel. United Therapeutics sells Remodulin to its distributors in the United States at a discount from an average wholesale price suggested by United Therapeutics and to its international distributors at a transfer price set by United Therapeutics. The distributors are responsible for assisting patients with obtaining reimbursement. During 2002, approximately $21.2 million of revenues were earned from the sales of Remodulin.

     Arginine and ADMA

          In December 2000, United Therapeutics expanded its cardiovascular focus when it acquired the assets and certain liabilities of Cooke Pharma, Inc., the exclusive manufacturer of the HeartBar® line of arginine products that is now operating as Unither Pharma, Inc. Unither Pharma owns the exclusive patent rights to use HeartBar’s key ingredient, arginine, for the promotion of vascular function. Although arginine is broadly sold as a nutritional supplement in pill form, there are no existing arginine products, other than HeartBar, that can deliver 6 grams of arginine in a single dose. Pills generally contain only 500 milligrams of arginine or one-twelfth the amount in one HeartBar. Arginine is required by the body to produce nitric oxide, which is critical for maintaining vascular function. HeartBar products are sold in several flavors and in bar or drink formulation.

          Recent studies show that people with high levels of another molecule called asymmetric dimethylarginine (ADMA) may be at especially high risk of heart disease. ADMA reduces the amount of arginine that can be converted to nitric oxide. In December 2001, United Therapeutics acquired the exclusive worldwide rights to develop a blood test to measure a person’s ADMA levels, much like a cholesterol test. As most people age, their blood pressure rises as endothelial dysfunction gradually sets in. While it is not a cure for the problems of advancing age, arginine supplementation is one way to help with dietary management of cardiovascular risk. This is particularly true for those persons with genetically determined high levels of ADMA.

          Presently, the HeartBar line of products is marketed directly to consumers via independent distributors and the Internet. During 2002, approximately $1.4 million of revenues were earned from the sales of HeartBar products.

     Telemedicine Services

          United Therapeutics provides telemedicine services for a fee to patients and physicians, through its subsidiary, Medicomp, Inc. Medicomp, Inc. provides cardiac Holter and event monitoring analysis services remotely via telephone lines and the Internet for hospitals, clinicians and other providers. These services are designed to address the needs of patients suspected of suffering from cardiac arrhythmias and other abnormalities such as ischemic events and are delivered via Medicomp’s proprietary PM350 Holter Monitor and CardioPAL® event recorder. The Epicardia Auto-Trigger, a next-generation event recorder, is currently in the pre-clinical stage of development. Medicomp also provides pacemaker monitoring services.

          Cardiac arrhythmias and ischemic heart disease afflict an estimated 20 million Americans, and possibly ten times that number worldwide. If left undetected and untreated, these conditions can result in heart attacks and death. Treatment of cardiac arrhythmias and ischemia with pharmaceuticals requires careful dosing based upon life-long, repeat cardiac monitoring.

          Holter and event monitoring services and systems are marketed to physicians, hospitals, and managed care providers directly by Medicomp’s internal sales force. During 2002, revenues of approximately $3.4 million from the sales of telemedicine services and $444,000 from the sales of telemedicine systems were earned.

     Immunotherapeutic Monoclonal Antibodies

          In April 2002, United Therapeutics entered into an agreement with AltaRex Corp. to exclusively license certain rights to a platform of five immunotherapeutic monoclonal antibodies. These products were being developed by AltaRex for use in ovarian, prostate, lung, breast, multiple myeloma and other forms of cancer. The lead product, OvaRex, had completed Phase II studies in metastatic ovarian cancer.

          In January 2003, United Therapeutics initiated two identical Phase III pivotal clinical trials of OvaRex in patients with stage III/IV advanced ovarian cancer. The study will be conducted at approximately 60 centers throughout the United States and is expected to be fully enrolled in approximately 15 months from the study’s initiation. Patients enrolled in these

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studies have successfully completed front-line therapy, consisting of surgery and chemotherapy. The primary endpoint for the trials is to assess the time to disease relapse. Patients will also be followed for survival. Approximately 200,000 women in the United States have ovarian cancer.

     Glycobiology Antiviral Agents

          In March 2000, Unither Pharmaceuticals, Inc., a wholly owned subsidiary of United Therapeutics, entered into a license agreement with Synergy Pharmaceuticals, Inc. to obtain from Synergy the exclusive worldwide rights to certain patents relating to anti-viral compounds. These glycobiology antiviral agents are small molecules which may be effective as an oral therapy for hepatitis C and B infections, as well as dengue and Japanese encephalitis virus. Currently, many of these agents are undergoing laboratory testing while new agents are being synthesized.

          The most advanced agent identified to date is UT-231B. An Investigational New Drug Application (IND) was submitted for UT-231B in 2002 and accepted by the FDA. UT-231B completed acute and chronic Phase I dosing studies in early 2003. A phase II proof-of-concept study in patients infected with hepatitis C that have failed conventional therapies is expected to begin during 2003.

     Beraprost

          In June 2000, United Therapeutics obtained from Toray Industries, Inc. the exclusive right to develop and market the oral prostacyclin, beraprost, in the sustained release formulation in the United States and Canada for the treatment of all vascular and cardiovascular indications.

          Beraprost is an oral form of prostacyclin that is chemically stable. Like natural prostacyclin and Remodulin, beraprost dilates blood vessels, prevents platelet aggregation and prevents proliferation of smooth muscle cells surrounding blood vessels. Intermittent oral doses of immediate release beraprost did not prove effective in phase III studies conducted by United Therapeutics during 2000 and 2001. However, United Therapeutics believes that sustained release oral doses of beraprost may be an important treatment for early-stage peripheral vascular disease and for early-stage pulmonary hypertension. Beraprost is presently in Phase I clinical testing being conducted by Toray Industries in Japan.

          Toray is required to complete testing of sustained release beraprost through Phase I. If Toray succeeds, United Therapeutics would be obligated to grant Toray an option to purchase 500,000 shares of United Therapeutics’ common stock at the current fair value of that stock. However, the development of sustained release beraprost has been significantly delayed by Toray and United Therapeutics may cancel this agreement prior to granting any options.

     Northern Therapeutics, Inc.

          In December 2000, Lung Rx, Inc. formed a new company in Canada, Northern Therapeutics, Inc. (Northern Therapeutics), with the inventor of a new form of autologous (non-viral vector) gene therapy for pulmonary arterial hypertension and other conditions. The purpose of Northern Therapeutics is to develop the gene therapy and also to distribute certain United Therapeutics’ products in Canada. United Therapeutics received approximately 59 percent of the initial outstanding common stock of Northern Therapeutics in exchange for $5.0 million in cash of which $1.5 million was paid as of December 31, 2002. The remainder is generally being paid in $1.0 million annual increments.

The Medtronic MiniMed Strategic Alliance

          Medtronic MiniMed has agreed to the use of its pager-sized microinfusion pump for delivery of Remodulin continuously and subcutaneously. United Therapeutics entered into an agreement with MiniMed, Inc. (now Medtronic MiniMed) in September 1997, which was implemented in a detailed set of guidelines to collaborate in the design, development and implementation of therapies to treat pulmonary hypertension utilizing MiniMed products and Remodulin. The guidelines require United Therapeutics to purchase its Remodulin infusion pumps exclusively from Medtronic MiniMed at a discount to Minimed list prices unless MiniMed’s infusion pumps fail to receive certain government approvals or cannot be appropriately used, as for intravenous Remodulin. The term of the agreement commenced on September 3, 1997 and continues for seven years after the May 2002 FDA approval of Remodulin. The agreement will be automatically extended for additional 12-month periods unless otherwise terminated. The agreement is subject to early termination in the event of a material breach or bankruptcy of either party. In the event that there are any discoveries or improvements arising out of work performed under the agreement, the parties will have joint ownership of those discoveries or improvements. United Therapeutics and MiniMed have established a Management Committee comprised of two representatives from each company to oversee implementation of the agreement. United Therapeutics

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acquires Medtronic MiniMed products and resells these products to its distributors at their acquisition cost. During 2002, approximately $3.7 million of revenues were earned from the resales of MiniMed pumps and supplies.

Priority Healthcare and Accredo Therapeutics Strategic Alliances

          To provide for marketing, promotion and distribution of Remodulin in the United States, United Therapeutics entered into non-exclusive distribution agreements with Priority Healthcare Corporation and Accredo Therapeutics, Inc. (formerly known as Gentiva Health Services, Inc.) on February 9, 2000 and March 21, 2000, respectively. Under the distribution agreements, United Therapeutics will sell Remodulin to Priority and Accredo at a discount from an average wholesale price recommended by United Therapeutics as well as Medtronic Minimed infusion pumps. Priority and Accredo will be responsible for assisting patients with obtaining reimbursement for the cost of the therapy and providing other support services. The terms of the agreements commenced on signing and continue for two years following the May 2002 FDA approval of Remodulin in the case of Priority and three years following the May 2002 launch of Remodulin in the case of Accredo. The agreements will be automatically renewed thereafter for additional two-year periods in the case of Priority and one-year periods in the case of Accredo unless either party provides notice of termination. The agreements are subject to early termination in the event of a material breach or bankruptcy of either party or upon 180-day advance notice of termination.

Patents And Proprietary Rights

          United Therapeutics’ success will depend in part on its ability to obtain and maintain patent protection for its products, preserve trade secrets, prevent third parties from infringing upon its proprietary rights and operate without infringing upon the proprietary rights of others, both in the United States and internationally. See Notes to Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources for information regarding royalties and milestone payments under these agreements.

     Glaxo Wellcome Assignment

          In January 1997, Glaxo Wellcome, Inc. (now GlaxoSmithKline PLC) assigned to United Therapeutics all rights to the use of the stable prostacyclin analog known as UT-15, now known as Remodulin. For pulmonary hypertension, the patent does not expire in the United States until October 2009 and until various dates from September 2009 to August 2013 in nine other countries. For congestive heart failure, the patent does not expire until May 2011 in the United States and from May 2011 to March 2012 in five other countries.

     Pharmacia License

          In December 1996, Pharmacia & Upjohn Company (now Pharmacia Corporation) exclusively licensed to United Therapeutics certain patents, a patent application and know-how for the composition and production of the stable prostacyclin analog known as UT-15 (now known as Remodulin). United Therapeutics filed its own U.S. patent application for a new synthesis and production method for Remodulin in October 1997, which was granted in August 2002. United Therapeutics believes that its method is a substantial improvement over the Pharmacia method. United Therapeutics is using its unique synthesis method rather than the licensed Pharmacia method for the production of Remodulin. United Therapeutics also has three pending patent applications with respect to additional Remodulin synthesis improvements.

     AltaRex Corp. Agreement

          In April 2002, Unither Pharmaceuticals, Inc. (UPI) entered into a license agreement with AltaRex Corp. for the exclusive worldwide rights (other than certain European and Middle Eastern countries) to certain patents relating to a platform of immunotherapeutic monoclonal antibody compounds. The compounds are currently in various stages of clinical and preclinical testing, the lead compound of which, OvaRex, is in Phase III clinical trials. The compounds and the method of using the compounds are the subject of a combination of issued patents and pending applications in the United States and around the world. The issued patents have expiration dates ranging from 2017 to 2018. Additional inventions relating to the compounds may be owned jointly by AltaRex and UPI or individually by AltaRex, depending on the source of the invention.

     Synergy Pharmaceuticals, Inc.

          In March 2000, UPI entered into a license agreement with Synergy Pharmaceuticals, Inc. (Synergy) to obtain from Synergy the exclusive worldwide rights to certain patents relating to anti-viral compounds known as iminosugars. The compounds are currently in late stages of preclinical testing or early clinical testing, and are the subject of a combination of issued patents and pending applications in the United States and around the world. The issued patents have expiration dates

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ranging from 2008 to 2017. Additional inventions relating to the compounds may be owned jointly by Synergy and UPI or individually, depending on the source of the invention.

          In November 2000, UPI and Synergy amended the exclusive license agreement to include the development of new analogs of the licensed compounds. As part of this amendment, UPI agreed to directly assume Synergy’s role in funding ongoing research being conducted by the University of Oxford into analogs of the anti-viral compounds being developed by UPI and Synergy. UPI will receive an exclusive license from the University of Oxford to all inventions arising from such research and entered into the first such license in November 2002 for the lead compound, UT-231B.

     Stanford University and New York Medical College Licenses

          In 2000, Unither Pharma, Inc. (formerly Cooke Pharma, Inc.), acquired the exclusive license to patents related to amino acid based dietary supplements to enhance the level of naturally occurring nitric oxide in the vascular system from Stanford University and New York Medical College. The licenses cover worldwide territories and are valid for the life of the patents (ranging from 2010 to 2018). Unither Pharma will own all rights to all new products that may be or are derived from these licenses, including Unither Pharma’s HeartBar product line.

     Patent Term Extensions

          United Therapeutics believes that some of the patents to which it has rights may be eligible for extensions of up to five years based upon patent term restoration procedures in Europe and in the United States under the Waxman-Hatch Act. For instance, under Waxman-Hatch, the U.S. patents relating to Remodulin could be extended by up to five years, giving the product patent protection until as late as October 2014. In addition, patent extensions are available under similar laws in Europe. United Therapeutics filed with the United States Patent and Trademark Office a patent term extension application for its patent covering the method of treating pulmonary arterial hypertension using Remodulin following its FDA approval. The application is pending.

Research & Development Expenditures

          United Therapeutics is engaged in research and development and has incurred substantial expenses for these activities. These activities generally include the cost of acquiring or inventing new technologies and products as well as their development. Research and development expenses during 2002, 2001 and 2000 totaled approximately $26.8 million, $32.6 million and $70.2 million, respectively. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Major Research and Development Projects for additional information.

Manufacturing and Supply

          United Therapeutics manufactures treprostinil, the bulk active ingredient in Remodulin. Baxter Healthcare Corporation (formerly Cook Imaging Corporation) continues to formulate Remodulin for United Therapeutics. The agreement with Baxter expires in October 2004 and is renewable for successive eighteen month terms. An analytical testing laboratory, Cardinal Health (formerly Magellan Laboratories Inc.), tests the purity of each batch of manufactured Remodulin. Medtronic MiniMed provides the delivery device used to administer Remodulin to patients.

          UT-231B and OvaRex are currently manufactured by contract manufacturers. A contract nutritional food manufacturer in California, Nellson Nutriceuticals, manufactures HeartBar. Holter and event monitors are manufactured by Medicomp at its facility in Florida.

          Although management believes that other manufacturers and suppliers could provide similar products, services and materials, there are a limited number of companies which could replace these manufacturers and suppliers. A change in supplier or manufacturer could cause a delay in the manufacture, distribution and research efforts associated with the respective product or result in increased costs.

Competition

          Many drug companies engage in research and development to commercialize products to treat cardiovascular, infectious and oncological diseases. United Therapeutics is aware of two existing treatments already approved in the United States for certain subsets of late-stage pulmonary arterial hypertension with which Remodulin competes. One is Flolan, an intravenously delivered prostacyclin marketed by GlaxoSmithKline, PLC. The other is Tracleer, an oral endothelin antagonist, marketed by Actelion, Ltd., and additional endothelin antagonists are being developed. United Therapeutics is also aware of other investigational products being developed for pulmonary hypertension, including: sitaxentan in the United States, an oral

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edothelin antagonist being developed by Texas Biotechnology Corporation; iloprost in Europe, an inhaled prostacylin analog being developed by Schering AG; sildenafil, an oral vasodialator being developed by Pfizer, Inc. internationally; and ambrisentan, an oral endothelin antagonist being developed by Myogen, Inc. In addition, competitors may develop and commercialize other products that compete with United Therapeutics’ products and may do so more rapidly than United Therapeutics. As of January 31, 2003, United Therapeutics estimated that there were approximately 2,800 patients on prostacyclin therapy (either Flolan or Remodulin) in the United States of which approximately 10% were using Remodulin.

     Many companies market or are developing products that will compete with the HeartBar product line in the nutritional supplement market. However, United Therapeutics is the only company that owns the patent rights to use HeartBar’s key ingredient, arginine, for cardiovascular conditions. In addition, one of the largest competitors agreed to cease competing in the cardiovascular benefits market and to pay a royalty to United Therapeutics on its erectile dysfunction arginine products.

     Holter and event monitoring analysis services and systems are provided by many local and regional competitors and a few national competitors.

     United Therapeutics competes with all of these competitors for customers, funding, access to licenses, personnel, third-party collaborators, product development and commercialization. Almost all of these companies have substantially greater financial, marketing, sales, distribution and technical resources, and more experience in research and development, product development and marketing, clinical trials and regulatory matters, than United Therapeutics.

Governmental Regulation

     The research, development, testing, manufacture, promotion, marketing and distribution of drug products are extensively regulated by government authorities in the United States and in other countries. Drugs are subject to rigorous regulation by the FDA in the United States and similar regulatory bodies in other countries. The steps ordinarily required before a new drug may be marketed in the United States, which are similar to steps required in most other countries, include:

	•		Preclinical laboratory tests, preclinical studies in animals and formulation studies and the submission to the FDA of an investigational new drug application for a new drug;
	•		Adequate and well-controlled clinical trials to establish the safety and efficacy of the drug for each indication;
	•		The submission of a new drug application to the FDA; and
	•		FDA review and approval of the new drug application prior to any commercial sale or shipment of the drug.

     Preclinical tests include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies. The results of preclinical testing are submitted to the FDA as part of an investigational new drug application. A 30-day waiting period after the filing of each investigational new drug application is required prior to the commencement of clinical testing in humans. At any time during this 30-day period or at any time thereafter, the FDA may halt proposed or ongoing clinical trials until the FDA authorizes trials under specified terms. The investigational new drug application process may be extremely costly and substantially delay development of United Therapeutics’ products. Moreover, positive results of preclinical tests will not necessarily indicate positive results in clinical trials.

     Clinical trials to support new drug applications are typically conducted in three sequential phases, but the phases may overlap. During Phase I, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess its effects on bodily functions and safety, including side effects associated with increasing doses. Phase II usually involves studies in a limited patient population to:

	•		Assess the efficacy of the drug in specific, targeted indications;
	•		Assess dosage tolerance and optimal dosage; and
	•		Identify possible adverse effects and safety risks.

     If a compound is found to be potentially effective and to have an acceptable safety profile in Phase II evaluations, Phase III trials also called pivotal studies, major studies or advanced clinical trials are undertaken to further demonstrate clinical efficacy and to further test for safety within an expanded patient population at geographically dispersed clinical study sites.

     After successful completion of the required clinical testing, generally a new drug application is submitted. The FDA may request additional information before accepting a new drug application for filing, in which case the application must be resubmitted with the additional information. Once the submission has been accepted for filing, the FDA has 180 days to review the application and respond to the applicant. The review process is often significantly extended by FDA requests for

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additional information or clarification. The FDA may refer the new drug application to an appropriate advisory committee for review, evaluation and recommendation as to whether the application should be approved, but the FDA is not bound by the recommendation of an advisory committee.

          If FDA evaluations of the new drug application and the manufacturing facilities are favorable, the FDA may issue either an approval letter or an approvable letter. An approvable letter will usually contain a number of conditions that must be met in order to secure final approval of the new drug application and authorization of commercial marketing of the drug for certain indications. The FDA may refuse to approve the new drug application or issue a not approvable letter, outlining the deficiencies in the submission and often requiring additional testing or information.

          The FDA may designate a product as an “orphan drug” if the drug is intended to treat a rare disease or condition. A disease or condition is considered rare if it affects fewer than 200,000 people in the United States. If an applicant obtains the first FDA marketing approval for a certain orphan drug, the applicant will have a seven-year exclusive right to market the drug for the orphan indication. The FDA has approved the orphan designation for Remodulin for the treatment of pulmonary arterial hypertension, a designation that includes both primary pulmonary hypertension and secondary pulmonary hypertension. OvaRex MAb (oregovomab) has received both orphan drug and fast track designations by the FDA for the treatment of patients with Stage III or IV epithelial adenocarcinoma of ovarian, tubal or peritoneal origin. Under the Food and Drug Administration Modernization Act (FDAMA), fast track designations are designed to help accelerate the regulatory approval process for key investigational drugs that meet an unmet medical need. The designations provide the potential for expedited FDA review and accelerated approval.

          Remodulin was approved by the FDA for the treatment of pulmonary arterial hypertension in patients with NYHA Class II-IV symptoms to diminish symptoms associated with exercise. If regulatory approval of United Therapeutics’ other products is granted, it will similarly be limited to certain disease states or conditions. The manufacturers of approved products and their manufacturing facilities will be subject to continual review and periodic inspections. In addition, identification of certain side effects or the occurrence of manufacturing problems after any of its drugs are on the market could cause subsequent withdrawal of approval, reformulation of the drug, additional preclinical testing or clinical trials, and changes in labeling of the product.

          The Waxman-Hatch Act provides that patent terms may be extended during the FDA regulatory review period for the related product. This period is generally one-half the time between the effective date of an investigational new drug application and the submission date of a new drug application, plus the time between the submission date of a new drug application and the approval of that application, subject to a maximum extension of five years. Similar patent term extensions are available under European laws. United Therapeutics filed with the United States Patent and Trademark Office a patent term extension application for its patent covering the method of treating pulmonary arterial hypertension using Remodulin following its FDA approval. The application is pending.

          Outside the United States, United Therapeutics’ ability to market its products will also be contingent upon receiving marketing authorizations from the appropriate regulatory authorities. The foreign regulatory approval process may include some or all of the risks associated with FDA approval set forth above. The requirements governing the conduct of clinical trials and marketing authorization vary widely from country to country. At present, foreign marketing authorizations are applied for at a national level, although within Europe, procedures are available to companies wishing to market a product in more than one European Union (EU) member state.

          Under a new regulatory system in the EU, marketing authorizations may be submitted to a centralized, a decentralized or a national level process. The centralized procedure is mandatory for the approval of biotechnology products and high technology products and available at the applicant’s option for other products. The centralized procedure provides for the grant of a single marketing authorization that is valid in all EU member states. The decentralized procedure is available for all medicinal products that are not subject to the centralized procedure. The decentralized procedure provides for mutual recognition of national approval decisions, changes existing procedures for national approvals and establishes procedures for coordinated EU actions on products, suspensions and withdrawals. Under this procedure, the holder of a national marketing authorization for which mutual recognition is sought may submit an application to one or more EU member states, certify that the dossier is identical to that on which the first approval was based or explain any differences and certify that identical dossiers are being submitted to all member states for which recognition is sought. Within 90 days of receiving the application and assessment report, each EU member state must decide whether to recognize approval. The procedure encourages member states to work with applicants and other regulatory authorities to resolve disputes concerning mutual recognition. Lack of objection of a given country within 90 days automatically results in approval of the EU country. Following receipt of marketing authorization in a member state, United Therapeutics would then be required to engage in pricing discussions and negotiations with a separate prescription pricing authority in that country.

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     United Therapeutics intends to secure European regulatory approval for the use of Remodulin for pulmonary arterial hypertension under the decentralized procedure and filed its first Marketing Authorization Application in France in February 2001. That review is currently pending. Regulatory applications for the use of Remodulin for pulmonary arterial hypertension in Canada and Israel were approved in October 2002. Regulatory applications in Switzerland and Australia were filed in 2001 and 2002, respectively, and are currently pending.

     HeartBar products are manufactured at a contract facility that is regulated by the FDA and required to follow the FDA’s current Good Manufacturing Practices. Telemedicine products are subject to FDA regulation as medical devices. The devices, manufactured and sold by Medicomp, have received marketing approval from the FDA under Section 510(k) of the Food, Drug and Cosmetic Act.

Employees

     United Therapeutics had approximately 150 employees as of March 12, 2003. The company also maintains active independent contractor relationships with various individuals most of whom are on month-to-month or annual consulting contracts. The company believes its employee relations are excellent.

Revenues and Industry Segments

     The information required by Regulation S-K Items 101(b) and 101(d) related to financial information about segments and financial information about sales is contained in Note 14 of the audited consolidated financial statements, which are included in this Annual Report on Form 10-K.

Corporate Website

     United Therapeutics’ Internet website address is www.unither.com. Beginning March 4, 2003, United Therapeutics’ filings on Form 10-K, Form 10-Q, Form 3, Form 4, Form 5, and Form 8-K, and amendments thereto, are available free of charge through this internet website as soon as reasonably practicable after they are filed or furnished to the SEC.

Risk Factors

     This Annual Report on Form 10-K contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 which are based on United Therapeutics’ beliefs and expectations as to future outcomes. These statements include, among others, statements relating to the following: the timing and outcome of clinical studies and regulatory filings; the achievement and maintenance of regulatory approvals; the ability to find alternate sources of supply and manufacturing for United Therapeutics’ products; the existence, capabilities and activities of competitors; the adequacy of owned or leased facilities for operations; the expectation not to pay dividends on common stock in the foreseeable future; the extent of United Therapeutics’ exposure to market risk; the ability to hold debt instrument investments to maturity; the statements identified as forward-looking statements in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K; and statements preceded by, followed by or that include the words “believes”, “expects”, “anticipates”, “intends”, “estimates”, “may” or similar expressions. These statements are subject to risks and uncertainties and United Therapeutics’ actual results may differ materially from anticipated results. Factors that may cause such a difference include, but are not limited to, those discussed below. United Therapeutics undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

Risks Related to Our Business

Actual Revenues And Net Losses May Differ From United Therapeutics’ Projections.

     United Therapeutics has made public its projections of its estimated Remodulin annual revenue run rates and estimated average monthly net losses in its quarterly SEC filings. Those projections were based on numerous factors and assumptions taken into consideration at the time the estimates were made. Those factors and assumptions are inherently subject to a degree of uncertainty. As a result, the actual revenues and net losses may be greater or less than projected. Even small differences can lead to significant changes in United Therapeutics’ stock price. United Therapeutics had net losses of approximately $37.3 million in 2001 and $23.7 million in 2002.

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          Factors that could affect the accuracy of United Therapeutics’ estimated Remodulin annual revenue run rates include the following:

	•		Retention of current patients;
	•		Addition of new patients to replace patients who discontinue Remodulin therapy;
	•		Remodulin side effects, including impact of infusion site pain and reaction;
	•		Changes in the current pricing and dosing of Remodulin;
	•		Willingness of private insurance companies, Medicare and Medicaid to reimburse Remodulin at current pricing levels;
	•		Continued regulatory approval of Remodulin;
	•		Outcome of the phase IV post-marketing study of Remodulin;
	•		Impact of other approved and investigational competitive products;
	•		Continued performance by current Remodulin distributors;
	•		Actual expenses incurred in future periods; and
	•		Establishment of additional strategic acquisitions or licensing arrangements.

          Factors that could affect the accuracy of United Therapeutics’ estimated net loss and capital requirements include the following:

	•		Continued regulatory approval of Remodulin;
	•		Retention and growth of patients treated with Remodulin;
	•		Collection of accounts receivable;
	•		Size, scope and outcome of the Remodulin post-marketing Phase IV clinical study;
	•		Size, scope and outcome of development efforts for existing and additional products;
	•		Future milestone and royalty payments;
	•		Cost, timing and outcomes of regulatory reviews;
	•		Rate of technological advances;
	•		Recovery of goodwill, intangible assets and investments in affiliates;
	•		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; and
	•		Establishment of additional strategic acquisitions or licensing arrangements.

United Therapeutics Has A History Of Losses And May Not Be Profitable.

          United Therapeutics has lost money since its inception in 1996, and its accumulated deficit was approximately $185.8 million at December 31, 2002. United Therapeutics expects to incur substantial additional losses, whether or not it continues to generate revenue, as it continues to develop its products. United Therapeutics expects its quarterly and annual operating results to fluctuate, depending primarily on the following factors:

	•		Extent and timing of sales of Remodulin to distributors;
	•		Level of patient demand for Remodulin and other products;
	•		Levels of research and development, general and administrative expenses and sales and marketing expenses; and
	•		Establishment of additional strategic acquisitions or licensing arrangements.
	•		Timing of payments to licensors and corporate partners.

          Most of United Therapeutics’ pharmaceutical products are in clinical studies. United Therapeutics might not maintain or obtain new regulatory approvals for its pharmaceutical products and may not be able to sell its pharmaceutical products commercially. Even if United Therapeutics sells its products, United Therapeutics may never be profitable and may not be able to sustain any profitability it achieves.

If United Therapeutics Cannot Maintain Regulatory Approvals For Its Products, It Cannot Sell Those Products And Its Revenues Will Suffer.

          The process of obtaining and maintaining regulatory approvals for new drugs is lengthy, expensive and uncertain. The manufacturing, distribution, advertising and marketing of these products are subject to extensive regulation. Any new product approvals United Therapeutics receives in the future could include significant restrictions on the use or marketing of the product. Product approvals, if granted, can be withdrawn for failure to comply with regulatory requirements or upon the occurrence of adverse events following commercial introduction of the products. The FDA has approved Remodulin for the treatment of pulmonary arterial hypertension in patients with NYHA Class II-IV symptoms to diminish symptoms associated

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with exercise. This approval is subject to United Therapeutics’ agreement to perform a post-marketing Phase IV clinical study to further assess the clinical benefits of Remodulin. Continued FDA approval of Remodulin is subject to the results of that trial. If approvals are withdrawn for a product, United Therapeutics cannot sell that product and its revenues will suffer. In addition, governmental authorities could seize United Therapeutics’ products or force United Therapeutics to recall its products. Finally, United Therapeutics and its officers and directors could be subject to civil and criminal penalties for failure to comply with these regulatory requirements.

If United Therapeutics’ Products Fail In Clinical Studies, United Therapeutics Will Not Be Able To Obtain FDA And Foreign Approvals And Will Not Be Able To Sell Those Products.

          In order to sell its pharmaceutical products, United Therapeutics must receive regulatory approvals. To obtain those approvals, United Therapeutics must conduct clinical studies demonstrating that the drug and the delivery mechanism for the drug are safe and effective. If United Therapeutics cannot obtain approval from the U.S. Food and Drug Administration for a product, that product cannot be sold, and United Therapeutics’ revenues will suffer.

          On May 21, 2002, the 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 to perform a post-marketing Phase IV clinical study to further assess the clinical benefits of Remodulin. The Phase IV study must be completed within 24 months from the May 2002 approval, and continued FDA approval is conditioned on the completion and outcome of the Phase IV study. As of March 2003, four patients had been enrolled in the 100 patient Phase IV study. Additionally, United Therapeutics has initiated pre-pivotal clinical studies of Remodulin in critical limb ischemia. The lead glycobiology anti-viral agent, UT-231B, has completed acute and chronic Phase I clinical dosing studies in normal volunteers. United Therapeutics is also currently conducting two Phase III pivotal studies of OvaRex for the treatment of metastatic ovarian cancer. United Therapeutics is still completing pre-clinical studies for its other products. United Therapeutics’ ongoing and planned clinical studies might be delayed or halted for various reasons, including:

	•		The drug is not effective, or physicians think that the drug is not effective;
	•		Other investigational or approved therapies are viewed as more effective by physicians;
	•		Patients experience severe side effects during treatment;
	•		Patients 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 do not enroll in the studies at the rate United Therapeutics expects;
	•		Drug supplies are not available or suitable for use in the studies; and
	•		The results of preclinical testing cause delays in clinical trials.

          In addition, the FDA and foreign regulatory authorities have substantial discretion in the approval process. The FDA and foreign regulatory authorities may not agree that United Therapeutics has demonstrated that its products are safe and effective.

United Therapeutics’ Products May Not Be Commercially Successful Because Physicians And Patients May Not Accept Them.

          Even if regulatory authorities approve United Therapeutics’ products, these products may not be commercially successful. United Therapeutics expects that most of its products, including Remodulin, which is already approved, will be very expensive. Patient acceptance of and demand for United Therapeutics’ products will depend largely on the following factors:

	•		Acceptance by physicians and patients of United Therapeutics’ products as safe and effective therapies;
	•		Reimbursement of drug and treatment costs by third-party payers such as Medicare, Medicaid and private insurance companies;
	•		Pricing of alternative products;
	•		Convenience and ease of administration of United Therapeutics’ products; and
	•		Prevalence and severity of side effects associated with United Therapeutics’ products, including the infusion site pain and reaction associated with use of Remodulin.

Discoveries Or Developments Of New Technologies By Others May Make United Therapeutics’ Products Obsolete.

          Other companies may conduct research, make discoveries or introduce new products that render all or some of United Therapeutics’ technologies and products obsolete or not commercially viable. Researchers are continually making new

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discoveries that may lead to new technologies to treat the diseases for which United Therapeutics’ products are intended. In addition, alternative approaches to treating chronic diseases, such as gene therapy, may make United Therapeutics’ products obsolete or noncompetitive. One therapy approved in the United States in 2001 is Tracleer, an oral endothelin antagonist developed by Actelion, Ltd. which competes with Remodulin. United Therapeutics is aware that other endothelin antagonists are being developed, such as sitaxentan by Texas Biotechnology Corporation and ambrisentan by Myogen, Inc. United Therapeutics is also aware that sildenafil, being developed by Pfizer, Inc. and iloprost, being developed by Schering AG, are being studied for use in pulmonary hypertension. Sildenafil and iloprost are currently approved for the treatment of other diseases.

If Third-Party Payers Will Not Reimburse Patients For United Therapeutics’ Drug Products, Sales Will Suffer.

          United Therapeutics’ commercial success will depend in part on third-party payers, such as Medicare, Medicaid and private insurance companies, agreeing to reimburse patients for the costs of United Therapeutics’ pharmaceutical products. Third-party payers frequently challenge the pricing of new drugs. Remodulin and the associated infusion pump and supplies are very expensive. United Therapeutics believes its investigational products, if approved, will also be very expensive. Presently, most third-party payers, including Medicare and Medicaid, reimburse patients for the cost of Remodulin therapy. Third-party payers may not approve United Therapeutics’ new products for reimbursement or continue to approve Remodulin for reimbursement. If third-party payers do not approve a United Therapeutics’ product for reimbursement, sales will suffer, as patients will opt for a competing product that is approved for reimbursement.

United Therapeutics Relies On Third Parties To Develop, Market, Distribute And Sell Most of Its Products And Those Third Parties May Not Perform.

          United Therapeutics is currently marketing products in three of its five therapeutic platforms: Remodulin in the prostacyclin analog platform, the HeartBar product line in the arginine formulations platform, and CardioPal cardiac event monitors and Holter monitors in the telemedicine platform. United Therapeutics does not have the ability to independently conduct clinical studies, obtain regulatory approvals, market, distribute or sell most of its products and intends to rely substantially on experienced third parties to perform all of those functions. United Therapeutics may not locate acceptable contractors or enter into favorable agreements with them. If third parties do not successfully carry out their contractual duties or meet expected deadlines, United Therapeutics will be unable to obtain marketing approvals and will be unable to sell its products. Medtronic MiniMed is United Therapeutics’ exclusive partner for the subcutaneous delivery of Remodulin using the MiniMed microinfusion device for pulmonary arterial hypertension. United Therapeutics is relying on Medtronic MiniMed’s experience, expertise and performance. Similarly, United Therapeutics is relying on Accredo Therapeutics, Inc. and Priority Healthcare Corporation to market, distribute, and sell Remodulin in the United States. If United Therapeutics’ partners in the United States and internationally are unsuccessful in their efforts, United Therapeutics’ revenues will suffer.

United Therapeutics May Not Successfully Compete With Established Drug Companies.

          United Therapeutics competes with established drug companies during product development for, among other things, funding, access to licenses, expertise, personnel and third-party collaborators. United Therapeutics will also compete with these companies following approval of its products. Almost all of these competitors have substantially greater financial, marketing, sales, distribution and technical resources, and more experience in research and development, clinical trials and regulatory matters, than United Therapeutics.

          United Therapeutics is aware of existing treatments that compete with its products. For the treatment of pulmonary arterial hypertension, approved products that compete with Remodulin include the intravenous prostacyclin, Flolan, marketed by GlaxoSmithKline PLC, and Tracleer, an oral endothelin antagonist marketed by Actelion, Ltd. With respect to the prostacyclin segment of the pulmonary arterial hypertension market, United Therapeutics estimates that approximately 10% of the patients being treated with prostacyclin in the United States are using Remodulin. Products that are being developed that may also compete with Remodulin include endothelin antagonists, such as sitaxsentan being developed by Texas Biotechnology Corporation and ambrisentan, being developed by Myogen, Inc. Sildenafil, being developed by Pfizer, Inc. and iloprost, being developed by Schering AG. are both currently approved for the treatment of diseases other than pulmonary arterial hypertension. Many companies market and are developing products containing arginine which will compete with the HeartBar product line. Cardiac Holter and event monitoring services and systems are provided by many local and regional competitors and a few national competitors. A number of drug companies are pursuing treatments for ovarian and other cancers and hepatitis, that will compete with products in United Therapeutics’ immunotherapeutic monoclonal antibody platform and glycobiology anti-viral agents platform.

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If The Licenses And Assignments United Therapeutics Depends On Are Breached Or Terminated, United Therapeutics Would Lose Its Right To Develop And Sell The Products Covered By The Licenses And Assignments.

          United Therapeutics’ business depends upon the acquisition, assignment and license of drugs and other products which have been discovered and initially developed by others, including Remodulin, all of its products in the immunotherapeutic monoclonal antibody platform, all of its products in the glycobiology anti-viral agents platform, and the HeartBar line of products. Under our license agreements, we retain ownership of the intellectual property subject to the terms of the license agreement, whereas our assignment agreement transfers all right, title and ownership of the intellectual property to us, subject to the terms of the assignment agreement. In addition, United Therapeutics has obtained and will be required to obtain licenses to other third-party technology to conduct its business, including licenses for its products and a license for the MiniMed microinfusion device for the administration of Remodulin. This dependence on licenses has the following risks:

	•		United Therapeutics may not be able to obtain future licenses and assignments at a reasonable cost or at all;
	•		If any of United Therapeutics’ licenses or assignments are terminated, United Therapeutics will lose its rights to develop and market some or all of its products;
	•		The licenses and assignments that United Therapeutics holds generally provide for termination by the licensor or assignor in the event United Therapeutics breaches the license or assignment agreement, including failing to pay royalties and other fees on a timely basis;
	•		In the event that GlaxoSmithKline (formerly Glaxo Wellcome) terminates its assignment agreement, United Therapeutics will have no further rights to utilize the assigned patents or trade secrets to develop and commercialize Remodulin. In the twelve-month period ended December 31, 2002, sales of Remodulin accounted for the majority of United Therapeutics’ revenues, or approximately $21.2 million. GlaxoSmithKline could seek to terminate the assignment in the event that United Therapeutics failed to pay royalties based on sales of Remodulin; and
	•		If licensors fail to maintain the intellectual property licensed or assigned to United Therapeutics as required by most of United Therapeutics’ license and assignment agreements, United Therapeutics may lose its rights to develop and market some or all of its products and may be forced to incur substantial additional costs to maintain the intellectual property itself or force the licensor or assignor to do so.

If United Therapeutics’ Patent And Other Intellectual Property Protection Is Inadequate, United Therapeutics’ Sales And Profits Could Suffer Or Competitors Could Force United Therapeutics’ Products Completely Out Of The Market.

          The U.S. patent for the method of treating pulmonary hypertension with Remodulin expires in 2009. OvaRex and its method of use are the subject of a combination of issued patents and pending applications in the United States and around the world. The issued patents have expiration dates ranging from 2017 to 2018. United Therapeutics may not be able to extend these or any other patents. Competitors may develop products based on the same active ingredients as United Therapeutics’ products, including Remodulin, and market those products after the patents expire, or may design around United Therapeutics’ existing patents. If this happens, United Therapeutics’ sales would suffer and United Therapeutics’ profits could be severely impacted.

          Patents may be issued to others which prevent the manufacture or sale of United Therapeutics’ products. United Therapeutics may have to license those patents and pay significant fees or royalties to the owners of the patents in order to keep marketing its products. This would cause profits on sales to suffer.

          United Therapeutics has been granted a patent in the United States for the synthesis of Remodulin, but pending patent applications which have been or may be filed by United Therapeutics may not issue. The scope of any patent that issues may not be sufficient to protect United Therapeutics’ technology. The laws of foreign jurisdictions in which United Therapeutics intends to sell its products may not protect United Therapeutics’ rights to the same extent as the laws of the United States.

          In addition to patent protection, United Therapeutics also relies on trade secrets, proprietary know-how and technology advances. United Therapeutics enters into confidentiality agreements with its employees and others, but these agreements may not be effective in protecting United Therapeutics’ proprietary information. Others may independently develop substantially equivalent proprietary information or obtain access to United Therapeutics’ know-how.

          Litigation, which is very expensive, may be necessary to enforce or defend United Therapeutics’ patents or proprietary rights and may not end favorably for United Therapeutics. Any of United Therapeutics’ licenses, patents or other intellectual property may be challenged, invalidated, canceled, infringed or circumvented and may not provide any

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competitive advantage to United Therapeutics. The only currently pending litigation to which United Therapeutics is a party relates to suits initiated by United Therapeutics against other parties believed to have violated United Therapeutics’ patents related to its arginine products line.

United Therapeutics Has Limited Experience With Manufacturing And Depends On Third Parties, Who May Not Perform, To Synthesize And Manufacture Many Of Its Products.

          United Therapeutics itself has limited experience with manufacturing. In October 1999, United Therapeutics acquired SynQuest, Inc., a company that manufactured treprostinil, the bulk active ingredient in Remodulin, for United Therapeutics. In December 2000, SynQuest was dissolved and merged into United Therapeutics as its synthesis and manufacturing division. Prior to the acquisition of SynQuest, United Therapeutics had no experience with manufacturing. Even though United Therapeutics retained the employees and managers of SynQuest in connection with the acquisition, United Therapeutics may be unsuccessful in maintaining drug manufacturing operations.

          United Therapeutics relies on third parties for the manufacture of all its products other than Remodulin and its telemedicine systems. United Therapeutics is relying on Baxter Healthcare Corporation (formerly Cook Imaging Corporation) for the formulation of Remodulin. United Therapeutics relies on Cardinal Health (formerly Magellan Laboratories Incorporated) to test the purity of each batch of Remodulin and other products that United Therapeutics is developing. United Therapeutics relies on Nellson Nutraceuticals to manufacture HeartBar products. United Therapeutics relies exclusively on Toray Industries, Inc. to manufacture beraprost. Although there are a limited number of companies that could replace each of these suppliers, management believes that other suppliers could provide similar services and materials. A change in suppliers, however, could cause a delay in distribution of Remodulin and other products, and in the conduct of clinical trials and commercial launch, which would adversely affect United Therapeutics’ research and development efforts, and future sales efforts. United Therapeutics’ manufacturing strategy presents the following risks:

	•		The manufacturing processes for some of United Therapeutics’ products have not been tested in quantities needed for commercial sales;
	•		Delays in scale-up to commercial quantities could delay clinical studies, regulatory submissions and commercialization of United Therapeutics’ products;
	•		A long lead time is needed to manufacture Remodulin, and the manufacturing process is complex;
	•		United Therapeutics and manufacturers of United Therapeutics’ products are subject to the FDA’s good manufacturing practices regulations and similar foreign standards, and although United Therapeutics controls compliance issues with respect to synthesis and manufacturing conducted internally, United Therapeutics does not have control over compliance with these regulations by its third-party manufacturers;
	•		If United Therapeutics has to change to another manufacturing contractor or abandon its captive manufacturing operations, FDA and comparable foreign regulators would require new testing and compliance inspections and the new manufacturer would have to be educated in the processes necessary for the production of the affected product;
	•		Without satisfactory long-term agreements with its manufacturers, United Therapeutics will not be able to develop or commercialize its products, other than Remodulin, as planned or at all and will have to rely solely on internal manufacturing capacity;
	•		Without substantial experience in operating a manufacturing facility, United Therapeutics may not be able to successfully continue to manufacture Remodulin; and
	•		United Therapeutics may not have intellectual property rights, or may have to share intellectual property rights, to many improvements in the manufacturing processes or new manufacturing processes for its products.

          Any of these factors could delay clinical studies or commercialization of United Therapeutics’ products, entail higher costs and result in United Therapeutics being unable to effectively sell its products.

United Therapeutics May Not Have Adequate Insurance And May Have Substantial Exposure To Payment Of Product Liability Claims.

          The testing, manufacture, marketing, and sale of human drugs involves product liability risks. Although United Therapeutics currently has product liability insurance covering claims up to $15 million per occurrence, United Therapeutics may not be able to maintain this product liability insurance at an acceptable cost, if at all, and this insurance may not provide adequate coverage against potential losses. If claims or losses exceed United Therapeutics’ liability insurance coverage, United Therapeutics may go out of business.

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If United Therapeutics’ Highly Qualified Management And Technical Personnel Leave United Therapeutics, Its Business May Suffer.

     United Therapeutics is dependent on its current management, particularly its founder and Chief Executive Officer, Martine Rothblatt, Ph.D., its President and Chief Operating Officer, Dr. Roger Jeffs, Ph.D., its Chief Financial Officer, Fred Hadeed, and its Senior Vice President, General Counsel and Corporate Secretary, Paul Mahon, all of whom are employed pursuant to multi-year employment agreements. United Therapeutics does not maintain key person life insurance on these officers. United Therapeutics’ success will depend in part on retaining the services of its existing management and key personnel and attracting and retaining new highly qualified personnel. Expertise in the field of cardiovascular medicine, infectious disease and oncology is not generally available in the market, and competition for qualified management and personnel is intense.

United Therapeutics May Not Have, Or May Have To Share Rights To, Future Inventions Arising From Its Outsourcing Agreements And May Lose Potential Profits Or Savings.

     Pursuant to United Therapeutics’ agreements with certain of its business partners, any new inventions or intellectual property that arise from United Therapeutics’ activities will be owned jointly by United Therapeutics and these partners. If United Therapeutics does not have rights to new developments or inventions that arise during the terms of these agreements, or United Therapeutics has to share the rights with others, United Therapeutics will lose the benefit of the new rights which may mean a loss of future profits or savings generated from improved technology.

If United Therapeutics Needs Additional Financing And Cannot Obtain It, Product Development And Sales May Be Limited.

     United Therapeutics may need to spend more money than currently expected because it may need to change its product development plans or product offerings to address difficulties with clinical studies, preparing for commercial sales or continued sales of Remodulin. United Therapeutics may not be able to obtain additional funds on commercially reasonable terms or at all. If additional funds are not available, United Therapeutics may be compelled to delay clinical studies, curtail operations or obtain funds through collaborative arrangements that may require it to relinquish rights to certain products or potential markets.

Risks Related to Owning United Therapeutics’ Common Stock

United Therapeutics’ Stock Price Could Be Volatile And Could Decline.

     The market prices for securities of drug and biotechnology companies are highly volatile, and there are significant price and volume fluctuations in the market that may be unrelated to particular companies’ operating performances. The table below sets forth the high and low closing bid prices for United Therapeutics’ common stock for the periods indicated:

     United Therapeutics’ stock price could decline suddenly due to the following factors:

	•		Quarterly and annual financial results;
	•		Failure to meet estimates or expectations of securities analysts;
	•		Rate of product acceptance;
	•		Public concern as to the safety of products developed by United Therapeutics or by others;
	•		Announcements by United Therapeutics or others of technological innovations or new products;
	•		Developments in patent or other proprietary rights;
	•		Establishment of additional strategic acquisitions or licensing arrangements;
	•		Future sales of substantial amounts of common stock by existing United Therapeutics stockholders;
	•		Results of clinical trials;

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	•		Maintaining approvals to sell Remodulin;
	•		Timing and outcome of additional regulatory approvals; and
	•		General market conditions.

Future Sales Of Shares May Depress The Stock Price.

     If the stockholders sell a substantial number of shares of United Therapeutics’ common stock in the public market, or investors become concerned that substantial sales might occur, the market price of the common stock could decrease. Such a decrease could make it difficult for United Therapeutics to raise capital by selling stock or to pay for acquisitions using stock. To the extent outstanding options are exercised or additional shares of capital stock are issued, existing stockholders may incur additional dilution.

Provisions Of United Therapeutics’ Certificate Of Incorporation, By-Laws And Rights Plan Could Prevent Or Delay A Change Of Control Or Change In Management That Could Be Beneficial To United Therapeutics And The Public Stockholders.

     Certain provisions of United Therapeutics’ amended and restated certificate of incorporation, amended and restated by-laws and shareholder rights plan may prevent, delay or discourage:

	•		A merger, tender offer or proxy contest;
	•		The assumption of control by a holder of a large block of United Therapeutics’ securities; and
	•		The replacement or removal of current management by United Therapeutics’ stockholders.

     For example, United Therapeutics’ amended and restated certificate of incorporation divides the board of directors into three classes, with members of each class to be elected for staggered three-year terms. This provision may make it more difficult for stockholders to change the majority of directors and may frustrate accumulations of large blocks of common stock by limiting the voting power of such blocks. This may further result in discouraging a change of control or change in current management.

     United Therapeutics has a shareholder rights plan designed to discourage takeovers that involve abusive tactics or do not provide fair value to shareholders. Generally, the shareholder rights plan requires a hostile purchaser to pay a price per share that is substantially higher than the current quoted price of United Therapeutics’ common stock.

     These provisions of United Therapeutics’ amended and restated certificate of incorporation and the shareholder rights plan could discourage or make more difficult a merger or other change of control transaction, whether or not the transaction is favored by current management or would be favorable to United Therapeutics’ stockholders. In addition, these provisions may make removal of current management by United Therapeutics’ stockholders more difficult, even if such removal would be beneficial to the stockholders generally.

Existing Directors And Executive Officers Of United Therapeutics Own A Substantial Block Of Stock And Might Be Able To Direct The Outcome Of Matters Requiring Stockholder Approval.

     United Therapeutics’ directors and named executive officers beneficially own approximately 12 percent of its outstanding common stock as of March 12, 2003. Accordingly, these stockholders as a group might be able to direct the outcome of matters requiring approval by United Therapeutics’ stockholders, including the election of its directors. Such stockholder control could delay or prevent a change of control of United Therapeutics.

If Stockholders Do Not Receive Dividends, Stockholders Must Rely On Stock Appreciation For Any Return On Their Investment In United Therapeutics.

     United Therapeutics has never declared or paid cash dividends on any of its capital stock. United Therapeutics currently intends to retain its earnings for future growth and therefore does not anticipate paying cash dividends in the future.

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EXECUTIVE OFFICERS OF THE REGISTRANT

     The following is a list, as of March 17, 2003, setting forth certain information regarding the executive officers of United Therapeutics. Each executive officer holds office until the first meeting of the Board of Directors after the annual meeting of shareholders, and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Each executive officer’s employment will end pursuant to the terms of his or her employment contract. Each of the employment contracts generally provide for a term of service of five years.

     Martine A. Rothblatt, Ph.D., J.D., M.B.A., started United Therapeutics in 1996 and has served as Chairman and Chief Executive Officer since its inception. Dr. Rothblatt is President of the William Harvey Medical Research Foundation and past-Chairman of the Law and Medicine Committee of the International Bar Association.

     Roger Jeffs, Ph.D., joined United Therapeutics in September of 1998 as Director of Research, Development and Medical. Dr. Jeffs was promoted to Vice President of Research, Development and Medical in July 2000 and to President and Chief Operating Officer in January 2001. Prior to 1998, Dr. Jeffs worked at Amgen, Inc. as Manager of Clinical Affairs and Associate Director of Clinical Research from 1995 to 1998, where he served as the worldwide clinical leader of the Infectious Disease Program.

     Ricardo Balda, M.S., was appointed as the Chief Executive Officer of Medicomp, Inc. upon its acquisition by Unither Telemedicine Services Corp., a subsidiary of United Therapeutics, in December 2000. For the five years prior to the Medicomp acquisition, Mr. Balda served as Chairman and President of Medicomp. In 1998, Mr. Balda founded Telemedical Procedures, LLC, which was acquired by Unither Pharmaceuticals in December 2000. Mr. Balda also serves on the Board of Advisors of the Florida Institute of Technology.

     Paul A. Mahon, J.D., has served as General Counsel and Assistant Corporate Secretary of United Therapeutics since its inception in 1996. In June 2001, Mr. Mahon joined United Therapeutics as a full-time employee as Senior Vice President, General Counsel, and Corporate Secretary. Prior to that, he served United Therapeutics in his capacity as principal and managing partner of the law firm, Mahon Patusky Rothblatt & Fisher, Chartered since its formation in 1993.

     Fred T. Hadeed, has served as Chief Financial Officer of United Therapeutics since January 2000. Prior to joining United Therapeutics, Mr. Hadeed practiced as a certified public accountant from 1989 to 2000 at KPMG LLP, where he served as a senior manager in KPMG’s life sciences practice.

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ITEM 2.     PROPERTIES

     United Therapeutics currently maintains several leased and owned facilities. The company owns its corporate office in Silver Spring, Maryland. The company leases its legal and governmental affairs office in Washington, D.C. The company leases its clinical development office in Research Triangle Park, North Carolina. The company leases laboratory and office space in Chicago, Illinois where the bulk active ingredient in Remodulin is synthesized. The Chicago facility contains approximately 19,000 square feet of total space. The company’s subsidiary, Unither Pharma, Inc., leases office space in Satellite Beach, Florida and office and warehouse space in Belmont, California. The company’s subsidiary, Unither Pharmaceutical, Inc., leases office space in Wellesley, Massachusetts. The company’s subsidiary, Medicomp, Inc., leases manufacturing and office space in Melbourne, Florida. The Melbourne facility contains approximately 15,400 square feet of total space. United Therapeutics’ subsidiary, Unither Nutriceuticals, Inc., leases office space in Burlington, Vermont. United Therapeutics’ subsidiary, United Therapeutics Europe Ltd., leases office space near London, England. United Therapeutics also owns three buildings adjacent to its corporate office in Silver Spring, Maryland. United Therapeutics believes these facilities are adequate for its current and planned operations.

     The manufacturing and office space in Melbourne, Florida are used in United Therapeutics’ telemedicine segment. All other properties and leased facilities are used in United Therapeutics’ pharmaceutical segment.

ITEM 3.     LEGAL PROCEEDINGS

     The Federal Trade Commission (FTC), through the staff of the FTC’s Division of Advertising Practices, is reviewing certain advertising and promotional claims made by Unither Pharma, Inc. about the HeartBar product line, including claims made prior to United Therapeutics’ acquisition of HeartBar and certain other assets and liabilities of Cooke PH, Inc. (formerly Cooke Pharma, Inc.) in December 2000. The FTC Staff has asked that United Therapeutics and Unither Pharma agree to enter into a consent order relating to those claims. A settlement with the FTC may limit Unither Pharma’s ability to make certain claims concerning the beneficial effects of the HeartBar product line, which may adversely affect those product sales. Additionally, the terms of a settlement or litigation outcome may result in fines, penalties and other restrictions that could adversely affect the assets and operations of Unither Pharma. At December 31, 2002, intangible assets relating to HeartBar patents, trade name and base technology totaled approximately $6.6 million. United Therapeutics does not believe that these intangible assets have been or will be impaired. Further, United Therapeutics does not believe that the outcome of the FTC’s investigation will have a material adverse effect on United Therapeutics. However, there can be no assurances that a settlement with the FTC or an FTC enforcement action, such as administrative litigation seeking the issuance of a cease and desist order, will not result in impairment of intangible assets or have a material adverse effect on Unither Pharma or United Therapeutics. If the intangible assets and/or operations of Unither Pharma became materially impaired, this would have a material adverse effect on Unither Pharma and United Therapeutics.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

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PART II

ITEM 5.     MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Common Equity

     United Therapeutics’ common stock (and associated preferred stock purchase rights) trades on the Nasdaq Stock Market’s Nasdaq National Market under the symbol “UTHR.” The table below sets forth the high and low closing bid prices for the common stock for the periods indicated:

     As of March 12, 2003, there were 99 holders of record of common stock. United Therapeutics estimates that included within the holders of record are approximately 2,700 beneficial owners of common stock. As of March 12, 2003, the closing bid price for the common stock was $15.85.

Dividend Policy

     United Therapeutics has never paid and does not intend to pay any dividends on the common stock in the foreseeable future but intends to retain any earnings for use in its business operations.

Recent Sales of Unregistered Securities

     In December 2000, United Therapeutics acquired certain assets and liabilities of Cooke PH, Inc. (formerly Cooke Pharma, Inc.). In accordance with the acquisition agreement, United Therapeutics was obligated to issue additional shares (subject to certain reductions) to Cooke PH, Inc. as a result of United Therapeutics’ stock price falling below a certain level. During 2002, United Therapeutics and Cooke PH, Inc. agreed on that number of additional shares to be issued. Accordingly, in May 2002, United Therapeutics issued an aggregate of 669,002 shares of its common stock to Cooke PH, Inc., pursuant to Section 4(2) of the Securities Act of 1933.

     At various times throughout 2002, United Therapeutics issued options to consultants in exchange for services. The aggregate number of options issued to consultants was 44,334. Upon exercise, each option may be converted into one share of United Therapeutics common stock in exchange for cash equal to the exercise price. All exercise prices were set at the closing price of United Therapeutics’ common stock on the day preceding the grant of each of these options.

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ITEM 6.     SELECTED FINANCIAL DATA

     The following selected consolidated financial data should be read in conjunction with United Therapeutics’ consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K. The historical results are not necessarily indicative of results to be expected for future periods.

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ITEM 7.     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 elsewhere in this annual report. The following discussion contains forward-looking statements concerning, among other things, the expectation of continued losses, cash needed for clinical trials and product research and development contract obligations during 2003, the funding for such expenses, expectations concerning milestone and royalty payments in 2003, 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 2006 which are based on United Therapeutics’ beliefs and expectations as to future outcomes. These forward-looking statements reflect the plans and estimated 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 elsewhere in this Annual Report, particularly in “Risk Factors.” United Therapeutics undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

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 United States 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 commenced 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. United Therapeutics has generated pharmaceutical revenues from sales of Remodulin to United States 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.

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     As of January 31, 2003, approximately 550 patients receive Remodulin therapy worldwide, of which approximately 410 are reimbursable patients. Virtually all of the currently non-reimbursable patients reside in countries where Remodulin is not yet approved. Non-reimbursable patients are those patients who do not yet pay for Remodulin. Remodulin is sold and marketed to reimbursable patients in the United States by Priority Healthcare Corporation and Accredo Therapeutics, Inc. (formerly Gentiva Health Services, Inc.) and by six international distributors outside of the United States. United Therapeutics is the manufacturer of Remodulin and sells Remodulin in bulk shipments to its 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.

     United Therapeutics has incurred net losses each year since inception and had an accumulated deficit of $185.8 million at December 31, 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, immunotherapeutic monoclonal antibodies (antibodies that activate a patient’s immune response) for a variety of cancers and glycobiology antiviral agents (a class of small molecules that may be effective as oral therapies) for infectious diseases.

     Remodulin was approved 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 Canada and Israel in October 2002 for similar uses. 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 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 pre-pivotal clinical studies are currently underway. United Therapeutics incurred expenses of approximately $8.8 million, $22.5 million, and $41.5 million during the years ended December 31, 2002, 2001 and 2000, respectively, on Remodulin development. Approximately $111.1 million from inception to date has been incurred for Remodulin.

     United Therapeutics’ monoclonal antibody immunotherapies were in-licensed in April 2002 from AltaRex Corp. OvaRex is the lead product and is currently being studied in two identical phase III clinical trials in advanced ovarian cancer patients. These studies commenced in January 2003 and are expected to require two years to become fully enrolled. United Therapeutics incurred expenses of approximately $6.4 million from inception to date, all of which was incurred for these programs since April 2002.

     United Therapeutics’ infectious disease program includes drug candidates in the preclinical and clinical stages of testing. The drugs in this program are being developed for hepatitis C, hepatitis B and other infectious diseases. The first candidate for hepatitis C, UT-231B, completed acute and chronic phase I clinical dosing studies to assess safety in healthy volunteers in early 2003. United Therapeutics incurred expenses of approximately $6.9 million, $5.7 million, and $8.7 million during the years ended December 31, 2002, 2001 and 2000, respectively, for its infectious disease programs. Approximately $21.3 million from inception to date has been incurred for these programs.

     Due to the inherent uncertainties involved in the drug development, regulatory review and approval processes, the anticipated completion dates, the cost of completing the research and development and the period in which material net cash inflows from these projects are expected to commence are not known or estimable. There are many risks and uncertainties associated with completing the development of Remodulin, OvaRex and UT-231B. These include:

	•		Products may fail in clinical studies;
	•		Hospitals, 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;

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	•		The FDA and foreign regulatory authorities may delay or withhold approvals to commence clinical trials;
	•		The FDA and foreign regulatory authorities may request that additional studies be performed;
	•		Higher than anticipated costs may be incurred due to the high cost of contractors for its research and clinical trials;
	•		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 timely, 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 December 31, 2002 were approximately $132.7 million as compared to approximately $172.3 million at December 31, 2001. The decrease of approximately $39.6 million is due primarily to cash used in operating activities totaling approximately $22.3 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 properties next to the Silver Spring, Maryland headquarters for approximately $1.7 million.

     Accounts receivable at December 31, 2002 were approximately $9.6 million, as compared to approximately $1.5 million at December 31, 2001. The increase of approximately $8.1 million was due primarily to sales of Remodulin and related infusion pumps and supplies.

     Investments in affiliates at December 31, 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.

     At December 31, 2002, total liabilities were approximately $12.9 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 December 31, 2002, total stockholders’ equity was approximately $171.7 million, as compared to $196.4 million at December 31, 2001. The decrease in stockholders’ equity of approximately $24.7 million was due primarily to the net loss incurred during the year ended December 31, 2002.

Results Of Operations

     Years ended December 31, 2002 and 2001

     Revenues for the year ended December 31, 2002 were approximately $30.1 million, as compared to approximately $5.7 million for the year ended December 31, 2001. The increase was due primarily to United Therapeutics’ 2002 sales of approximately $21.2 million of Remodulin and approximately $3.7 million of pumps and supplies to distributors in connection with Remodulin, compared to 2001 sales of approximately $493,000 of Remodulin and approximately $1.1 million of pumps and supplies. In addition, 2002 sales of other products and services increased in the aggregate by approximately $1.1 million to approximately $5.2 million.

     Research and development expenses consist primarily of costs to acquire pharmaceutical products and product rights for development, amounts paid to contract research organizations, hospitals and laboratories for the provision of services and materials for drug development and clinical trials, salaries and related costs and research office expenses. Research and development expenses were approximately $26.8 million for the year ended December 31, 2002, as compared to approximately $32.6 million for the year ended December 31, 2001. The decrease of approximately $5.8 million was due primarily to a decrease from 2001 to 2002 in expenses related to patient enrollment in clinical trials of approximately $12.9 million offset by an increase in 2002 of approximately $7.8 million related to expenses for United Therapeutics’ infectious disease program and the OvaRex program, which was licensed to United Therapeutics in April 2002. See Major Research and Development Projects above for additional information.

     General and administrative expenses consist primarily of salaries and related costs, office expenses, insurance, professional fees, provisions for doubtful accounts receivable and obsolete inventory, depreciation and amortization. General and administrative expenses were approximately $11.4 million for the year ended December 31, 2002, as compared to approximately $13.6 million for the year ended December 31, 2001. This decrease of approximately $2.2 million was due

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primarily to decreased expenses of approximately $1.1 million 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 of approximately $1.1 million for the year ended December 31, 2001 with no corresponding amount in 2002 (due to the adoption of SFAS No. 142 on January 1, 2002 which eliminated goodwill amortization), decreased option expenses to consultants of approximately $911,000, decreased travel expenses of approximately $416,000 and decreased expenses of approximately $553,000 related to the transfer of certain administrative employees and related expenses to sales and marketing functions. These decreases were offset by increases in expenses related primarily to increased salaries and benefits of approximately $1.1 million, increased rent and office operating costs of approximately $583,000 and increased insurance of approximately $493,000.

     Sales and marketing consists of the salaries, travel and other expenses necessary to market United Therapeutics’ products. Sales and marketing expenses for year ended December 31, 2002 were approximately $4.4 million, as compared to approximately $3.4 million for the year ended December 31, 2001. The increase was due primarily to increased selling and marketing efforts related to United Therapeutics’ products.

     Cost of sales consists of the cost to manufacture or acquire products that are sold to customers. Cost of product sales was approximately 14% of product sales for the year ended December 31, 2002 as compared to approximately 57% 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 largely of Remodulin pumps and supplies which were sold to Remodulin distributors at their acquisition cost. Cost of service sales was approximately 49% of service sales for year ended December 31, 2002 as compared to approximately 55% in 2001. The decrease in the cost of service sales as a percentage of service sales was due primarily to the growth in telemedicine service sales, which generated higher margins than other service sales.

     Interest income for the year ended December 31, 2002 was approximately $5.0 million, as compared to approximately $10.0 million for the year ended December 31, 2001. This decrease of approximately $5.0 million was attributable primarily to lower yields in 2002 and a decrease in the amount of cash available for investing as compared to 2001.

     The write-down of investment in 2002 represents a loss due to an other-than-temporary decline in value of the investment in AltaRex. For the six-month period ended September 30, 2002, 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 in September 2002. The write-down totaled approximately $2.9 million. The fair value of this investment as determined by quoted market prices on December 31, 2002 was equivalent to the amount reported in the consolidated balance sheet.

     The loss on marketable investments for the year ended December 31, 2002 was approximately $7.4 million, as compared to none for the year ended December 31, 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 debt 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.

     Years ended December 31, 2001 and 2000

     Revenues for the year ended December 31, 2001 were approximately $5.7 million, as compared to approximately $2.0 million for the year ended December 31, 2000. The increase was due primarily to sales of Remodulin and telemedicine services. Approximately $493,000 was earned from the sale of Remodulin to foreign distributors for the use in government-reimbursed patients in certain European countries. Approximately $1.1 million of these revenues was earned from the resale of pumps and supplies to distributors. Sales of cardiac monitoring devices and services totaled approximately $2.8 million of these revenues, following United Therapeutics’ acquisition of the assets of Medicomp, Inc. and Telemedical Procedures, LLC in December 2000. Sales of HeartBar products totaled approximately $542,000, following United Therapeutics’ acquisition of the assets and liabilities of Cooke PH, Inc. in December 2000. Approximately $801,000 of United Therapeutics’ 2001 revenues were earned by its synthesis and manufacturing division for the synthesis and manufacture of complex molecules for third parties.

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     Research and development expenses were $32.6 million for the year ended December 31, 2001, as compared to approximately $70.2 million for the year ended December 31, 2000. The decrease of approximately $37.6 million was due primarily to the expenditure in 2000 of approximately $19.8 million in licensing fees (consisting of $1.0 million in cash and common stock valued at $18.8 million) to obtain the exclusive rights to develop sustained release formulations of beraprost in the United States and Canada and expenses of approximately $16.9 million related to the acquisition of in-process research and development (see In-Process Research & Development). Also, see Major Research and Development Projects above for additional information.

     General and administrative expenses were $13.6 million for the year ended December 31, 2001, as compared to $11.7 million for the year ended December 31, 2000. This increase was primarily due to increased expenses in 2001 of approximately $564,000 related to provisions for doubtful accounts receivable and obsolete inventory, and approximately $1.9 million of increased depreciation and amortization of goodwill and other intangible assets resulting from the acquisitions of Medicomp, Inc., Telemedical Procedures, LLC and Cooke Pharma, Inc. in December 2000. These increases were offset by a nonrecurring grant in 2000 of stock totaling $1.5 million.

     Sales and marketing expenses were approximately $3.4 million for the year ended December 31, 2001, as compared to approximately $16,000 for the year ended December 31, 2000. This increase was due primarily to expanded activities related to subsidiaries acquired in late 2000.

     Cost of product sales was approximately 57% of product sales for the year ended December 31, 2001 as compared to approximately 99% in 2000. The decrease was due to sales of Remodulin to government-reimbursed patients in Europe during 2001. In 2000, product sales consisted of Remodulin pumps and supplies sold to Remodulin distributors at their acquisition cost. Cost of services were approximately 55% of service sales for the year ended December 31, 2001 as compared to 77% in 2000. The decrease was due to the addition of telemedicine service sales in 2001. Prior to 2001, services sales consisted of synthesis and manufacturing services.

     There was no write-down of investment for the year ended December 31, 2001 as compared to $4.8 million for the year ended December 31, 2000. The write-down in 2000 related to United Therapeutics’ investment in Synergy Pharmaceuticals, Inc.

     Interest income for the year ended December 31, 2001 was $10.0 million, as compared to approximately $10.7 million for the year ended December 31, 2000. This decrease was attributable primarily to a decrease in the amount of cash available for investing due to cash used for operations.

     In-Process Research & Development

     During 2000, United Therapeutics acquired the assets and assumed certain liabilities of 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 in 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 from the initial public offering and sale of the over-allotment shares, after deducting underwriting commissions

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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 December 31, 2002 was approximately $132.6 million, as compared with approximately $58.2 million at December 31, 2001. The increase of approximately $74.4 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 December 31, 2002 were approximately $9.3 million, as compared with approximately $10.8 million at December 31, 2001. United Therapeutics’ debt at December 31, 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 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 $22.3 million and $38.9 million for the years ended December 31, 2002 and 2001, respectively. For the years ended December 31, 2002 and 2001, United Therapeutics invested approximately $3.6 million and $687,000, 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 year ended December 31, 2002, United Therapeutics generated approximately $129.3 million of cash from sales and maturities of marketable investments, net of reinvestments. For the year ended December 31, 2001, United Therapeutics used approximately $134.1 million of cash to purchase marketable investments, net of sales and maturities. Net cash provided by financing activities for the year ended December 31, 2002 was approximately $185,000. Net cash used by financing activities was approximately $2.9 million for the year ended December 31, 2001. Cash flows used in financing activities for the year ended December 31, 2001 were primarily used to repurchase United Therapeutics’ common stock pursuant to a stock repurchase program that expired in December 2001.

     United Therapeutics currently expects to spend approximately $15 million over the next three years to construct a laboratory production facility for use in the OvaRex program. United Therapeutics expects to make milestone payments totaling $620,000 pursuant to existing license agreements during 2003. 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 2003. 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 required 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. United Therapeutics also pays royalties on sales of substantially all of its other products. Royalties on sales of all products in 2003 will range up to 10.0% of sales of those products.

     United Therapeutics believes that sales of Remodulin to distributors for use by the current base of approximately 410 reimbursable patients in the US and Europe could provide an average annual revenue to United Therapeutics of approximately $36 million based on current pricing and dosing levels. Based on this current estimate, United Therapeutics’ believes it will continue to incur net losses. Factors that could affect the accuracy of these expectations include the following:

	•		Retention of current Remodulin patients;
	•		Addition of new Remodulin patients to replace lost patients;
	•		Impact of infusion site pain and reaction and other Remodulin side effects;
	•		Changes in the current pricing and Remodulin dosing;
	•		Continued regulatory approval of Remodulin;
	•		Additional regulatory approvals in other countries for Remodulin;
	•		Outcome of the FDA required phase IV post-marketing study of Remodulin;
	•		Impact of other approved and investigational competitive products;
	•		Reimbursement of Remodulin by public and private payers;
	•		Impact of medical and scientific opinion on all United Therapeutics’ products;
	•		Continued performance by current Remodulin distributors;
	•		Actual expenses incurred in future periods;
	•		Establishment of additional strategic acquisitions or licensing arrangements; and
	•		Ability of United Therapeutics to maintain and grow its telemedicine service and arginine product sales.

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     United Therapeutics expects that net cash generated from Remodulin sales (at the level discussed above) together with existing capital resources (comprised primarily of cash and cash equivalents) will be adequate to fund its operations through 2006. 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 reimbursable 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 acquisitions or licensing arrangements; and
	•		Risks associated with acquisitions, including the ability to integrate acquired businesses.

     As of December 31, 2002, United Therapeutics had available approximately $104.2 million in net operating loss carryforwards and approximately $27.8 million in business tax credit carryforwards for federal income tax purposes that expire at various dates through 2022. 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

     Remodulin Revenue Recognition

     Product sales of Remodulin are recognized when delivered to distributors, which are United Therapeutics’ customers for Remodulin. Product sales of Remodulin delivery pumps and related supplies are recognized when delivered to distributors on a gross basis in accordance with EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. Title to these products passes upon delivery. Prompt payment discounts are estimated and recognized as reductions of revenue in the same period that revenues are recognized. Return policies provide that product that has expired or become damaged in shipment may be exchanged, but not returned. To date, United Therapeutics has not experienced any returns from customers and does not expect future returns. Therefore, no accruals for expired or damaged product have been recorded.

     Intangible Assets

     United Therapeutics adopted the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets (“SFAS No. 142) during 2002, which eliminated the amortization of goodwill. Rather, goodwill is subject to at least an annual assessment for impairment by applying a fair-value based test. United Therapeutics continually evaluates whether events and circumstances have occurred that indicate that the remaining value of goodwill may not be recoverable. At December 31, 2002, management believes that goodwill was not impaired. This conclusion is based on management’s judgment, taking into consideration expectations regarding future profitability and the status of the reporting units which have reported goodwill. However, changes in strategy or adverse changes in market conditions could impact this judgment and require an impairment loss to be recognized for the amount that the carrying value of goodwill exceeds its fair value.

     Marketable Investments

     Currently, United Therapeutics invests portions of its cash in money market funds, commercial paper and securities issued by federally sponsored agencies. 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,

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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 June 2002 and an additional loss of approximately $3.3 million upon the sale of these investments in July 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.

     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 fair value principles of SFAS No. 123 for its employee options, its net loss for the years ended December 31, 2002, 2001 and 2000 would have been approximately $41.7 million, $50.3 million and $118.1 million, respectively, as compared to approximately $23.7 million, $37.3 million and $75.6 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 significant influence 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.

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. The main impact of the adoption was to reduce amortization of goodwill expense by approximately $1.1 million in 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 extends 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.

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     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 effective January 1, 2003, and is not expected to have a significant impact on United Therapeutics’ financial statements.

     In December 2002, the Financial Accounting Standards Board issued SFAS 148, Accounting for Stock-Based Compensation–Transition and Disclosure-an amendment of FASB Statement No. 123 (SFAS 148). SFAS 148 provides financial accounting guidance for changes in the accounting method for stock options issued to employees and disclosure requirement for stock-based employee compensation for financial statements issued after December 15, 2002. United Therapeutics adopted SFAS 148 as of December 15, 2002, which resulted in additional disclosures in the Notes to Consolidated Financial Statements.

ITEM 7A:     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     At December 31, 2002, a substantial portion of United Therapeutics’ assets were comprised of investment grade corporate commercial paper and debt securities issued by federally sponsored agencies. 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 December 31, 2002, United Therapeutics had approximately $5.0 million in commercial paper with a weighted average stated interest rate of approximately 1.33% maturing in January 2003. Additionally, United Therapeutics had one Federal Home Loan Mortgage Corporation (“Freddie Mac”) note in the amount of $10.0 million at December 31, 2002. The Freddie Mac note is callable annually by Freddie Mac, matures in 2009 and bears a stated interest rate of 3% which automatically increases by 50 basis points each year.

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ITEM 8:     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

UNITED THERAPEUTICS CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

Independent Auditors’ Report

The Board of Directors
United Therapeutics Corporation:

     We have audited the accompanying consolidated balance sheets of United Therapeutics Corporation and subsidiaries (the Company) as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Therapeutics Corporation and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

     As discussed in note 15 to the consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets".

KPMG LLP

McLean, Virginia
February 28, 2003

F-2

UNITED THERAPEUTICS CORPORATION

Consolidated Balance Sheets
(In thousands, except share and per share data)

See accompanying notes to consolidated financial statements.

F-3

UNITED THERAPEUTICS CORPORATION

Consolidated Statements of Operations
(In thousands, except share and per share data)

See accompanying notes to consolidated financial statements.

F-4

UNITED THERAPEUTICS CORPORATION

Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)