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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-26301
United Therapeutics Corporation
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(Exact Name of Registrant as Specified in Its Charter)
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Delaware 52-1984749
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(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
1110 Spring Street, Silver Spring, MD 20910
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(Address of Principal (Zip Code)
Executive Offices)
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(301) 608-9292
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Registrant's Telephone Number, Including Area Code
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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The number of shares outstanding of the issuer's common stock, par value $.01
per share, as of August 11, 2000 was 20,176,130.
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INDEX
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PAGE
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PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
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Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 10
Market Risk
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 10
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED THERAPEUTICS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 2000
(UNAUDITED) DECEMBER 31, 1999
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Assets
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Current assets:
Cash and cash equivalents $ 95,038,647 $ 18,279,883
Investments 14,034,984 33,315,914
Accounts receivable 451,832 362,268
Inventories 783,447 259,861
Prepaid expense 502,644 79,981
Other current assets 786,048 358,456
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Total current assets 111,597,602 52,656,363
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Property, plant and equipment, net 3,917,278 3,791,517
Certificate of deposit 555,179 539,545
Deferred offering costs - 159,418
Goodwill and other intangible assets, net 2,241,400 2,690,533
Investment in affiliate 4,813,874 -
Other 247,232 105,759
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Total assets $ 123,372,565 $ 59,943,135
================= =================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 3,342,026 $ 2,348,090
Accrued expenses 3,397,821 2,107,805
Payroll taxes withheld - 64,537
Current portion of notes and leases payable 41,516 56,786
----------------- -----------------
Total current liabilities 6,781,363 4,577,218
Notes and leases payable, excluding current portion 1,766,605 1,783,705
Other liabilities 13,821 16,662
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Total liabilities 8,561,789 6,377,585
Stockholders' equity:
Preferred stock, par value $.01, 10,000,000 shares - -
authorized, no shares issued
Common stock, par value $.01, 100,000,000 188,653 160,032
shares authorized, 18,865,297 and 16,003,218
shares issued and outstanding at June 30, 2000 and
December 31, 1999, respectively
Additional paid-in capital 200,617,434 102,678,916
Accumulated deficit (85,995,311) (49,273,398)
----------------- -----------------
Total stockholders' equity 114,810,776 53,565,550
----------------- -----------------
Total liabilities and stockholders' equity $ 123,372,565 $ 59,943,135
================= =================
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
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UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
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2000 1999 2000 1999
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Revenues:
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Sales $ 496,303 $ - $ 755,700 $ -
Grant revenue 50,000 53,750 100,000 107,500
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Total revenues 546,303 53,750 855,700 107,500
--------------- --------------- --------------- ---------------
Operating expenses:
Research and development 28,935,915 5,194,949 34,712,664 16,806,407
General and administrative 1,696,384 1,123,712 5,497,534 1,971,661
Cost of sales 433,587 - 653,870 -
--------------- --------------- --------------- ---------------
Total operating expenses 31,065,886 6,318,661 40,864,068 18,778,068
--------------- --------------- --------------- ---------------
Loss from operations (30,519,583) (6,264,911) (40,008,368) (18,670,568)
Other income (expense):
Interest income 1,712,868 185,089 3,270,726 363,179
Interest expense (27,664) (7,295) (55,660) (14,267)
Other - net 24,063 - 71,389 -
--------------- --------------- --------------- ---------------
Total other income 1,709,267 177,794 3,286,455 348,912
--------------- --------------- --------------- ---------------
Net loss before income tax (28,810,316) (6,087,117) (36,721,913) (18,321,656)
Income tax - - - 3,454
--------------- --------------- --------------- ---------------
Net loss $ (28,810,316) $ (6,087,117) $ (36,721,913) $ (18,325,110)
=============== =============== =============== ==============
Net loss per common share -
basic and diluted $ (1.55) $ (0.53) $ (2.01) $ (1.69)
=============== =============== =============== ==============
Weighted average number of
common shares outstanding -
basic and diluted 18,585,976 11,419,275 18,305,618 10,845,023
=============== =============== =============== ==============
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
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UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
SIX MONTHS ENDED JUNE 30
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2000 1999
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Cash flows from operating activities:
Net loss $ (36,721,913) $ (18,325,110)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 457,148 48,655
Stock issued for exclusive license agreement 18,770,000 9,000,000
Stock grant to Columbia University 749,967 -
Stock and options issued to employees and consultants 682,893 44,290
Amortization of discount on investments (545,070) (194,489)
Changes in operating assets and liabilities:
Accounts receivable (89,564) (110,678)
Inventories (523,586) -
Prepaid expenses (422,663) (106,743)
Other current assets (427,592) -
Other assets (141,473) (23,599)
Accounts payable 993,936 (967,965)
Accrued expenses 1,290,016 143,331
Payroll taxes withheld (64,537) (16,186)
Other liabilities (2,841) -
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Net cash used in operating activities (15,995,279) (10,508,494)
Cash flows from investing activities:
Purchases of property, plant, and equipment (274,694) (256,807)
Acquisition of Synergy Pharmaceuticals, Inc. (3,084,205) -
Purchases of investments and certificate of deposit (13,890,634) (75,012,637)
Sales and maturities of investments 33,701,000 32,173,000
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Net cash provided by (used in) investing activities 16,451,467 (43,096,444)
Cash flows from financing activities:
Proceeds from issuance of common stock 74,756,143 50,879,086
Principal payments on notes payable (11,162) (314,018)
Proceeds from the exercise of stock options 1,419,385 720,000
Principal payments on capital lease obligations (21,208) (4,202)
Deferred offering costs 159,418 -
------------------ ------------------
Net cash provided by financing activities 76,302,576 51,280,866
Net increase (decrease) in cash and cash equivalents 76,758,764 (2,324,072)
Cash and cash equivalents, beginning of period 18,279,883 6,779,067
------------------ ------------------
Cash and cash equivalents, end of period $ 95,038,647 $ 4,454,995
================== ==================
Supplemental schedule of cash flow information -
Cash paid for interest $ 55,660 $ 14,267
================== ==================
Noncash investing and financing activities:
Stock issued for investment in affiliate $ 1,729,669 $ -
================== ==================
Stock issued for exclusive license agreement $ 18,770,000 $ -
================== ==================
Equipment acquired under a capital lease $ - $ 16,629
================== ==================
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. ORGANIZATION AND BUSINESS DESCRIPTION
United Therapeutics Corporation (United Therapeutics) was incorporated on
June 26, 1996 under the laws of the State of Delaware. United Therapeutics is a
pharmaceutical company based in Silver Spring, Maryland and Research Triangle
Park, North Carolina, that is focused on clinical development and
commercialization of in-licensed compounds for the treatment of life threatening
diseases characterized by high chronic care costs. The current focus of United
Therapeutics is the development of therapies to treat vascular, inflammatory and
infectious disease.
United Therapeutics has five wholly owned subsidiaries: Lung Rx, Inc.,
Unither Pharmaceuticals, Inc., Unither Telemedicine Services Corporation,
SynQuest Inc. and United Therapeutics Europe Ltd.
2. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared,
without audit, pursuant to Regulation S-X of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto contained in
United Therapeutics' Annual Report on Form 10-K for the year ended December 31,
1999 as filed with the Securities and Exchange Commission.
In the opinion of United Therapeutics' management, any adjustments
contained in the accompanying unaudited consolidated financial statements are of
a normal recurring nature, necessary to present fairly its financial position as
of June 30, 2000 and its results of operations for the three and six month
periods ended June 30, 2000 and 1999 and its cash flows for the six month
periods ended June 30, 2000 and 1999. Interim results are not necessarily
indicative of results for an entire year.
3. MARKETABLE INVESTMENTS
Investments at June 30, 2000 consist of a marketable debt security
maturing in July 2000.
4. INVESTMENT IN AFFILIATE AND EXCLUSIVE LICENSE AGREEMENTS
Synergy Pharmaceuticals, Inc.
In March 2000, Unither Pharmaceuticals, Inc. (Unither), a wholly owned
subsidiary of United Therapeutics, 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. Unither paid Synergy
a $100,000 license fee which was expensed as research and development. The
agreement conditionally requires that Unither pay Synergy milestone payments of
up to $22.2 million for each FDA-approved product plus royalties ranging from 6
percent to 12.25 percent, subject to reductions, based on net sales.
Additionally, Unither acquired 15 percent of the outstanding stock of Synergy
for a total of $5 million. The purchase price was paid with $3 million in cash
and 21,978 shares of common stock of United Therapeutics valued at approximately
$2 million. As part of these transactions, Unither received an exclusive option
to purchase the remaining stock of Synergy at its fair value to be determined in
the future in accordance with the terms of the contract.
At June 30, 2000, the investment in Synergy totaled approximately $4.8
million. This investment is being accounted for under the cost method.
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Toray Industries, Inc.
In June 2000, United Therapeutics entered into an agreement with Toray
Industries, Inc. obtaining the exclusive right to develop and market sustained
release formulations of the oral prostacyclin beraprost in the United States and
Canada for the treatment of all vascular indications (including cardiovascular
indications). In exchange, United Therapeutics paid Toray $1.0 million in cash
and 200,000 shares of common stock of United Therapeutics valued at
approximately $18.8 million. In addition, United Therapeutics agreed to grant
Toray an option to purchase 500,000 shares of common stock upon Toray's delivery
of clinical trial material (expected in 2001) with an exercise price based on
the average of closing market prices during the month preceding delivery of
clinical trial material. United Therapeutics also agreed to pay Toray milestone
payments of up to $750,000. License fees paid to Toray under this agreement and
expensed as research and development totaled $19,770,000 for the three and
six-month periods ended June 30, 2000.
Pursuant to the agreement, United Therapeutics has agreed to pay all
costs and expenses associated with undertaking clinical trials, obtaining
regulatory approvals and commercializing sustained release formulations of
beraprost in the United States and Canada for the treatment of vascular
indications (including cardiovascular indications). Toray has retained all
manufacturing rights for sustained release formulations of beraprost. United
Therapeutics has agreed to purchase sustained release formulations of beraprost
solely from Toray at specified prices based on volume. The agreement sets forth
a product development schedule. In the event that development by United
Therapeutics falls significantly behind the schedule specified in the agreement,
Toray may terminate the agreement. Furthermore, United Therapeutics is
responsible under the agreement for achieving minimum annual product net sales
as determined in advance by mutual agreement, and in the case of the first two
years of commercial sales, minimum net sales of $2.5 million and $5 million,
respectively. In the event that United Therapeutics is unable to meet any
minimum annual net sales requirement for two consecutive years, Toray may
convert the exclusive license to a non-exclusive license. United Therapeutics
would then be required to share any product marketing rights approved by the FDA
with a third-party licensee chosen by Toray. The agreement expires 10 years
following FDA approval of beraprost for the particular disease indication.
United Therapeutics may extend the agreement for unlimited 12-month periods with
Toray's consent.
5. INVENTORIES
United Therapeutics manufactures certain compounds and purchases medical
supplies for use in its ongoing clinical trials. These inventories are accounted
for under the first-in, first-out method. At June 30, 2000 and December 31,
1999, inventories consisted of the following:
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June 30, December 31,
2000 1999
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Uniprost (in process) $548,144 $259,861
Medical supplies 235,303 -
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$783,447 $259,861
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6. PRIVATE PLACEMENTS OF COMMON STOCK
In December 1999, United Therapeutics agreed to the sale of 2,500,000
shares of common stock at $32.00 per share in a private placement. The private
placement closed and settled in January 2000. Net proceeds, after deducting
commissions and offering expenses, were approximately $74.8 million. The common
stock was registered for resale with the SEC in a filing that was declared
effective on January 18, 2000.
7. ADVANCES TO EMPLOYEES
During the quarter ended June 30, 2000, United Therapeutics advanced
approximately $210,000 to
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three employees. These advances are being repaid with interest of 8% over a
period of up to nine months. At June 30, 2000, total advances receivable from
employees were approximately $434,000 and are included in other current assets
in the accompanying balance sheets.
8. RECENT DEVELOPMENTS
In July 2000, United Therapeutics agreed to and closed on the sale of
1,300,000 shares of common stock at $110.00 per share in a private placement.
Net proceeds, after deducting commissions and certain offering expenses, were
approximately $134.3 million. The common stock was subsequently registered for
resale with the SEC in a filing that was declared effective on August 4, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes appearing in the United Therapeutics' Annual Report
on Form 10-K for the year ended December 31, 1999. The following discussion
contains forward-looking statements concerning the expectation of continued
losses, cash needed for current research and product development contract
obligations through the end of 2000, the funding for such expenses, expectations
concerning milestone and royalty payments in 2000 and the adequacy of United
Therapeutics' resources to fund operations through 2004. These forward-looking
statements reflect the plans and beliefs of management as of the date of this
report. Actual results could differ materially from those anticipated in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below and in the section "Risk Factors" in
the prospectus which is a part of Pre-Effective Amendment No. 2 to Form S-3
filed on August 4, 2000.
OVERVIEW
United Therapeutics develops pharmaceuticals to treat vascular diseases,
including pulmonary hypertension and peripheral vascular disease, as well as
selected other chronic conditions. United Therapeutics commenced operations in
June 1996 and, since its inception, has devoted substantially all of its
resources to its research and development programs. United Therapeutics has
generated no pharmaceutical product revenues, but has generated grant revenues,
and revenues from its manufacturing subsidiary and from the resale of certain
medical supplies. United Therapeutics has funded its operations primarily from
the proceeds of the sale of its equity securities. United Therapeutics operates
with a minimal number of employees and has contracted with qualified third
parties for substantially all pharmaceutical development activities, including
certain key aspects of clinical trials.
United Therapeutics has incurred net losses each year since inception and
had an accumulated deficit of $86.0 million at June 30, 2000. United
Therapeutics expects to continue to incur net losses and cannot provide
assurances that, in the future, it will have pharmaceutical product sales or
become profitable.
United Therapeutics has contracted with various companies and research
organizations to coordinate and perform clinical trials and to provide other
activities related to the development of its lead products, Uniprost and
beraprost, and other products. It is anticipated that approximately $11.4
million in cash will be used for the remainder of 2000 under these agreements.
These expenses will be funded from existing working capital.
FINANCIAL POSITION
On January 18, 2000, United Therapeutics closed a private placement sale
of 2.5 million shares of common stock at $32.00 per share. United Therapeutics
received net proceeds, after deducting commissions and offering expenses, of
approximately $74.8 million.
Cash, cash equivalents and short-term investments at June 30, 2000 were
$109.1 million as compared to $51.6 million at December 31, 1999. The increase
of approximately $57.5 million is due to
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receipt of the net proceeds from the private placement sale which closed in
January 2000 less amounts used in operations during the six month period ended
June 30, 2000.
Common stock and additional paid-in capital at June 30, 2000 increased as
compared to amounts at December 31, 1999. This increase of approximately $98.0
million was due primarily to the net proceeds from the private placement sale
which closed in January 2000 and the issuance of 200,000 shares of common stock
valued at approximately $18.8 million in exchange for an exclusive license
agreement in June 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Revenue for the three months ended June 30, 2000 was approximately
$546,000, as compared to $54,000 for the three months ended June 30, 1999.
Approximately $50,000 of these revenues were earned under the "orphan drug"
grant awarded by the FDA related to United Therapeutics' development of Uniprost
for the treatment of primary pulmonary hypertension. The FDA may designate a
product as an "orphan drug" if the drug is one intended to treat a rare disease
or condition. Approximately $295,000 of these revenues were earned by SynQuest,
United Therapeutics' wholly owned subsidiary, for the synthesis and manufacture
of complex molecules for third parties. Finally, approximately $201,000 of these
revenues was earned from the resale of pumps and supplies to distributors in
connection with United Therapeutics' lead product, Uniprost.
Research and development expenses consist primarily of costs to acquire
pharmaceutical products and product rights for development and amounts paid to
contract research organizations, hospitals and laboratories for the provision of
services and materials for drug development and clinical trials. Research and
development expenses were $28.9 million for the three months ended June 30,
2000, as compared to $5.2 million for the three months ended June 30, 1999. The
increase of approximately $23.7 million was due primarily to the expenditure of
approximately $19.8 million in licensing fees (consisting of $1.0 million in
cash and common stock valued at $18.8 million) in June 2000 to obtain the
exclusive rights to develop sustained release formulations of beraprost in the
United States and Canada, increased expenses of approximately $2.9 million
related to patient enrollment in United Therapeutics' clinical trials of
Uniprost, beraprost and other products and increased expenses of approximately
$1.0 million related to other research.
General and administrative expenses consist primarily of salaries, office
expenses and professional fees. General and administrative expenses were $1.7
million for the three months ended June 30, 2000, as compared to $1.1 million
for the three months ended June 30, 1999. This increase was due primarily to
increased staffing and related travel to support expanded operations.
Interest income for the three months ended June 30, 2000 was $1.7
million, as compared to $185,000 for the three months ended June 30, 1999. This
increase was attributable primarily to an increase in the amount of cash
available for investing resulting from sales of common stock since June 30,
1999, less amounts used for operations.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Revenue for the six months ended June 30, 2000 was approximately
$856,000, as compared to approximately $108,000 for the six months ended June
30, 1999. Approximately $100,000 of these revenues was earned under the "orphan
drug" grant awarded by the FDA related to United Therapeutics' development of
Uniprost for the treatment of primary pulmonary hypertension. Approximately
$555,000 of these revenues were earned by SynQuest, United Therapeutics' wholly
owned subsidiary, for the synthesis and manufacture of complex molecules for
third parties. Finally, approximately $201,000 of these revenues was earned from
the resale of pumps and supplies to distributors in connection with United
Therapeutics' lead product, Uniprost.
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Research and development expenses consist primarily of costs to acquire
pharmaceutical products and product rights for development and amounts paid to
contract research organizations, hospitals and laboratories for the provision of
services and materials for drug development and clinical trials. Research and
development expenses were $34.7 million for the six months ended June 30, 2000,
as compared to $16.8 million for the six months ended June 30, 1999. The
increase of approximately $17.9 million was due primarily to the expenditure of
approximately $19.8 million in licensing fees (consisting of $1.0 million in
cash and common stock valued at $18.8 million) in June 2000 to obtain the
exclusive rights to develop sustained release formulations of beraprost in the
United States and Canada, increased expenses of approximately $5.6 million
related to patient enrollment in United Therapeutics' clinical trials of
Uniprost, beraprost and other products and increased expenses of approximately
$1.0 million related to other research. The increase was offset by the prior
year expenditure of $9.1 million in licensing fees (consisting of $100,000 in
cash and common stock valued at $9.0 million) in 1999 to obtain the exclusive
rights to develop the immediate release formulation of beraprost in the United
States and Canada.
General and administrative expenses consist primarily of salaries, office
expenses and professional fees. General and administrative expenses were $5.5
million for the six months ended June 30, 2000, as compared to $2.0 million for
the six months ended June 30, 1999. This increase was due primarily to
nonrecurring grants of approximately $2.0 million of stock and options, as well
as increased staffing and related travel to support expanded operations.
Interest income for the six months ended June 30, 2000 was $3.3 million,
as compared to approximately $363,000 for the six months ended June 30, 1999.
This increase was attributable primarily to an increase in the amount of cash
available for investing resulting from sales of common stock since June 30,
1999, less amounts used for operations.
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 an initial public offering of 4.5 million shares of
common stock at $12.00 per share. Net proceeds to United Therapeutics, after
deducting underwriting commissions and offering expenses, were approximately
$48.9 million. On July 16, 1999, United Therapeutics' closed on the sale of
675,000 over-allotment shares to its underwriters and received net proceeds,
after deducting underwriting commissions and offering expenses, of approximately
$7.5 million. On January 18, 2000, United Therapeutics' closed on the sale of
2.5 million shares of common stock at $32.00 per share in a private placement
and received net proceeds, after deducting underwriting commissions and offering
expenses, of approximately $74.8 million.
United Therapeutics' working capital at June 30, 2000 was $104.8 million,
as compared with $48.1 million at December 31, 1999. Current liabilities at June
30, 2000 were approximately $6.8 million, as compared with $4.6 million at
December 31, 1999. United Therapeutics' debt at each of June 30, 2000 and
December 31, 1999 was approximately $1.8 million and consisted of equipment
leases and 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 $16.0 million and
$10.5 million for the six months ended June 30, 2000 and 1999, respectively. The
increase resulted from the expansion of United Therapeutics' operations,
particularly with respect to increased costs for Uniprost, beraprost and other
product trials. For the six months ended June 30, 2000 and 1999, United
Therapeutics invested approximately $275,000 and $257,000 respectively, in cash
for property, plant and equipment. Net cash provided by financing activities was
approximately $76.3 million and $51.3 million for the six months ended June 30,
2000 and 1999, respectively. Cash flows from financing activities for the six
months ended June 30, 2000 were derived primarily from the private placement of
common stock in January 2000.
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Cash flows from financing activities for the six months ended June 30, 1999 were
derived primarily from the initial public offering in June 1999.
United Therapeutics has contracted with various companies and research
organizations to coordinate and perform clinical trials and to provide other
services related to the development of Uniprost and other products. It is
anticipated that approximately $11.4 million in cash will be used for the
remainder of 2000 under these agreements. These expenses will be funded from
existing working capital. United Therapeutics expects to make milestone payments
of up to approximately $25,000 during the remainder of 2000. United Therapeutics
does not expect to make any royalty payments during 2000.
United Therapeutics expects that existing capital resources will be
adequate to fund its operations through 2004. United Therapeutics' future
capital requirements and the adequacy of its available funds will depend on many
factors, including:
Regulatory approval of Uniprost and beraprost;
Size and scope 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;
Determinations as to the commercial potential of United Therapeutics'
products under development;
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;
Development of sales and marketing resources or the establishment,
continuation or termination of third-party sales and marketing arrangements;
and
Establishment of additional strategic or licensing arrangements with other
companies.
As of December 31, 1999, United Therapeutics had available approximately
$33.6 million in net operating loss carryforwards and $11.5 million in business
tax credit carryforwards for federal income tax purposes that expire at various
dates through 2018. As of June 30, 2000, United Therapeutics had available
approximately $67.2 million in net operating loss carryforwards and $13.9
million in business tax credit carryforwards. United Therapeutics' ability to
utilize its net operating loss and general business tax credit carryforwards may
be limited in the future if it is determined that United Therapeutics
experienced an ownership change, as defined in Section 382 of the Internal
Revenue Code, as a result of prior transactions/and or future transactions.
These net operating loss and general business tax credit carryforwards, if
subject to limitation arising from an earlier Section 382 ownership change,
would be fully available to offset income and taxes, as applicable, during their
carryforward lives.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." United Therapeutics is required to adopt
SFAS No. 133, as amended, for fiscal quarters beginning after June 15, 2000.
SFAS No. 133 established methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. Because United Therapeutics holds no derivative financial
instruments and does not engage in hedging activities, adoption of SFAS No. 133
is not expected to have a material impact on United Therapeutics' financial
condition or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101 is required to be
implemented in the quarter ending December 31, 2000. United Therapeutics does
not expect SAB No. 101 to have a material impact on its revenue recognition
policies.
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RECENT DEVELOPMENTS
In July 2000, United Therapeutics closed on the sale of 1,300,000 shares
of common stock at $110.00 per share in a private placement. Net proceeds, after
deducting commissions and certain offering expenses, were approximately $134.3
million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
United Therapeutics does not have significant exposure to market risks
associated with changes in interest rates related to its corporate and
government debt securities held as of June 30, 2000.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) During the three-month period ended June 30, 2000,
United Therapeutics sold the following securities in reliance upon Section 4(2)
and/or Regulation D of the Securities Act of 1933, as amended:
Exclusive License Agreement
In June 2000, United Therapeutics closed on the sale of 200,000 shares of
its common stock to Toray Industries, Inc. in partial payment for obtaining the
exclusive rights to develop sustained release formulations of beraprost in the
United States and Canada for the treatment of vascular diseases (including
cardiovascular diseases).
Exercise of Options
In June 2000, United Therapeutics issued 41,666 shares of common stock to
a former director pursuant to the terms of a stock option award granted in
December 1997. Net proceeds from this exercise were $374,994.
SynQuest Escrow Adjustment
In October 1999, United Therapeutics acquired SynQuest, Inc. A portion of
the consideration to the sellers was paid with United Therapeutics common stock
and placed in escrow. United Therapeutics and SynQuest subsequently agreed to
decrease the number of shares of United Therapeutic common stock held in escrow
by 5,091 shares. Accordingly, in April 2000, United Therapeutics canceled 5,091
shares of common stock.
(d) United Therapeutics registered 4,500,000 shares of its common
stock, par value $.01 per share, and an additional 675,000 shares of its common
stock for sale to the underwriters exclusively to cover over-allotments, on
Registration Statement on Form S-1, Commission File No. 333-76409. Deutsche Banc
Alex. Brown acted as lead manager of the underwriting. A.G. Edwards & Sons, Inc.
and Vector Securities International, Inc. acted as co-managers. The Securities
and Exchange Commission declared United Therapeutics' registration statement
effective on June 17, 1999.
United Therapeutics closed the sale of 4,500,000 shares on June 22, 1999.
On July 13, 1999, the underwriters exercised their option to purchase the
over-allotment shares and on July 16, 1999 United Therapeutics closed the sale
of the 675,000 over-allotment shares. The aggregate price of the offering amount
registered, including the over-allotment shares, was $86,250,000 and the
aggregate offering price of the amount sold, including the over-allotment
shares, was $62,100,000. The offering is now terminated.
From June 17, 1999 to June 30, 2000, the amount of expenses incurred by
United Therapeutics due to underwriting discounts and commissions, finders' fees
and expenses paid to or for underwriters for the sale of the 4,500,000 shares
was $3,780,000 and approximately $39,300 for other expenses incurred by United
Therapeutics in connection with the offering. Of the $39,300 in other expenses
incurred,
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approximately $1,800 was paid to Mahon Patusky Rothblatt & Fisher, Chartered, a
law firm for which the Chief Executive Officer of United Therapeutics serves as
uncompensated Of Counsel and the Assistant Secretary serves as a partner. The
net proceeds to United Therapeutics from the offering of the 4,500,000 shares,
after deducting the total expenses described above and expenses incurred prior
to the effectiveness of the registration statement, was approximately $48.9
million.
On July 13, 1999, the underwriters exercised their option to purchase the
675,000 over-allotment shares. The amount of expenses incurred by United
Therapeutics due to underwriting discounts and commissions, finders' fees and
expenses paid to or for underwriters for the over-allotment shares was $567,000
and approximately $18,500 for other expenses incurred by United Therapeutics in
connection with the over-allotment exercise. Of the $18,500 in other expenses
incurred, approximately $3,500 was paid to Mahon Patusky Rothblatt & Fisher,
Chartered, a law firm for which the Chief Executive Officer of United
Therapeutics serves as uncompensated Of Counsel and the Assistant Secretary
serves as a partner. The net proceeds to United Therapeutics from the sale of
the 675,000 over-allotment shares, after deducting the total expenses described
above, was approximately $7.5 million.
Since the completion of the initial public offering in June 1999 and the
exercise of the over-allotment shares in July 1999, the net offering proceeds
have been applied to the following uses in the following approximate amounts:
$26.2 million for research and development, $558,000 to purchase machinery,
equipment and leasehold improvements, $4.3 million for working capital and
general corporate purposes (including standard compensation to employees,
officers, and directors), $313,000 to purchase SynQuest, Inc., $3.1 million to
purchase a 15 percent interest in Synergy Pharmaceuticals, Inc., and $487,000 to
repay debt. United Therapeutics has temporarily invested the $21.4 million
balance of the offering proceeds in short-term investments. The short-term
investments consist primarily of high credit quality debt instruments of
corporations and financial institutions with maturities of three months or less
when purchased. Except as indicated, all of the payments described above were
direct or indirect payments to entities or persons other than directors,
officers, or greater than 10% owners of any equity securities of United
Therapeutics.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were voted upon at United Therapeutics' annual meeting of
stockholders held on May 23, 2000 and received the votes set forth below:
1. All of the following persons nominated were elected
to serve as directors for a the term indicated below and received the number of
votes set opposite their respective names:
For Withheld
Term Expiring in 2001:
Olivia Giscard D'Estaing 15,073,389 131,604
H. Beecher Hicks, III 15,198,377 6,616
Michael C. Miles 15,198,377 6,616
Term Expiring in 2002:
Shelmer D. Blackburn Jr. 15,198,219 6,774
Noah A. Samara 15,198,389 6,604
David Gooray, M.D 15,073,389 131,604
Term Expiring in 2003:
Martine A. Rothblatt 13,672,036 1,532,957
James W. Crow, Ph.D 13,687,847 1,517,146
Gilles Cloutier, Ph.D 15,189,500 15,493
2. A proposal to amend the United Therapeutics Amended
and Restated Equity Incentive Plan to permit grants to employees and consultants
of subsidiaries of United Therapeutics was approved, receiving 9,647,745 votes
"For" and 4,519,886 votes "Against", with 1,035,246 broker non-votes and 2,116
abstentions.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 of
Registration Statement on Form S-1, File No. 333-76409).
3.2 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3.2 of Registration Statement on Form S-1,
File No. 333-76409).
4.1 Registration Rights Agreement, dated as of October 30, 1998, by
and among the Registrant, Merrill Lynch KECALP L.P. 1997, and
Merrill Lynch KECALP International L.P. 1997, incorporated by
reference to Exhibit 4.2 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-76409).
4.2 Form of Common Stock Purchase Agreement, executed as of March
1998, by and between the Registrant and each of Community
Investment Partners III L.P., LLLP, Mary Ellen and Raul Evelio
Perez, Trustees of the Mary Ellen Perez revocable trust dated
October 28, 1993, Edward D. Jones & Co., Oakwood Investors I,
L.L.C. and James L. Nouss, Jr., incorporated by reference to
Exhibit 4.3 of the Registrant's Registration Statement on Form S-1
(Registration No. 333-76409).
4.3 Stock Option Grant to purchase shares of United Therapeutics'
common stock, issued on September 16, 1998, to Toray Industries,
Inc., incorporated by reference to Exhibit 4.5 of the Registrant's
Registration Statement on Form S-1 (Registration No. 333-76409).
4.4 Registration Rights Agreement, dated as of October 7, 1999, by and
among the Registrant and Robert M. Moriarty, Ph.D., Raju Penmasta,
Ph.D., Liang Guo, Ph.D., George W. Davis, Esq. and David Moriarty,
incorporated by reference to Exhibit 10.2 of the Registrant's Form
10-Q for the period ended September 30, 1999.
4.5 Form of Purchase Agreement dated as of December 22, 1999,
incorporated by reference to Exhibit 4.6 of the Registrant's
Registration Statement on Form S-1, as amended on Form S-3
(Registration No. 333-93853).
4.6 Registration Rights Agreement, dated as of June 27, 2000 by and
between the Registrant and Toray Industries, Inc., incorporated by
reference to Exhibit 4.7 of the Registrant's Registration
Statement on Form S-3 (Registration No. 333-40598).
4.7 Stock Option Grant to purchase shares of United Therapeutics'
common stock, issued on June 27, 2000, to Toray Industries, Inc.,
incorporated by reference to Exhibit 4.8 of the Registrant's
Registration Statement on Form S-3 (Registration No. 333-40598).
4.8 Form of Stock Purchase Agreement dated July 13, 2000 incorporated
by reference to Exhibit 99.2 of the Registrant's Current Report on
Form 8-K filed July 14, 2000.
10.1 Exclusive License Agreement dated as of June 23, 2000 between the
Registrant and Toray Industries, Inc, incorporated by reference to
Exhibit 10.1 of the Registrant's Registration Statement on Form
S-3 (Registration No. 333-40598).
27 Financial Data Schedule
(b) Reports on Form 8-K
On June 27, 2000, the Registrant filed a Form 8-K dated June
27, 2000 reporting an Item 5 event.
On June 29, 2000, the Registrant filed a Form 8-K dated June 29, 2000
reporting an Item 5 event.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED THERAPEUTICS CORPORATION
Date: August 14, 2000 /s/ Martine A. Rothblatt
------------------------
By: Martine A. Rothblatt
Title: Chief Executive Officer
/s/ Fred T. Hadeed
------------------
By: Fred T. Hadeed
Title: Chief Financial Officer
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EXHIBIT INDEX
The following exhibits are filed as a part of this report:
27 Financial Data Schedule
