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Securities and Exchange Commission
Washington, DC 20549
Form 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
OR
[ ] 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
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(Exact name of Registrant as specified in its charter)
Delaware 52-1984749
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(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
1110 Spring Street
Silver Spring, MD 20910
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(Address of principal executive offices) (zip code)
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
(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. [ ]
The number of shares outstanding of the registrant's Common Stock,
par value $0.01 per share, as of March 17, 2000 was 18,503,218 shares. The
aggregate market value of the Common Stock, held by non-affiliates of the
registrant, based on the average bid and asked prices on March 17, 2000 as
reported by the Nasdaq National Market was approximately $1,262,845,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the
registrant's 2000 annual shareholders meeting are incorporated by reference in
Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
United Therapeutics develops pharmaceuticals to treat vascular
diseases, including pulmonary hypertension and peripheral vascular disease, as
well as selected other chronic conditions.
The company 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' PRODUCTS
The following table summarizes United Therapeutics' potential product
portfolio.
<TABLE>
<CAPTION>
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PRODUCT MODE OF DELIVERY INDICATION CLINICAL TRIAL STATUS UT TERRITORY
- ------- ---------------- ---------- --------------------- ------------
<S> <C> <C> <C> <C>
Uniprost Subcutaneous Advanced pulmonary hypertension Phase III Worldwide
(UT-15)
Uniprost Subcutaneous Late-stage peripheral vascular Phase II Worldwide
(UT-15) disease
Beraprost Oral Early-stage peripheral vascular Phase III U.S./Canada
disease
Beraprost Oral Early-stage pulmonary hypertension Phase III U.S./Canada
UT-77 Inhalation Chronic obstructive pulmonary Phase II Worldwide
disease
Ketotop Transdermal Osteoarthritis Phase II North America/
Europe
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</TABLE>
UNIPROST
In December 1996 and January 1997, United Therapeutics obtained
worldwide rights to Uniprost for all indications from Glaxo Wellcome and
Pharmacia & Upjohn. In October 1999, United Therapeutics acquired all the
outstanding stock of SynQuest, Inc., manufacturer of Uniprost.
Pulmonary Hypertension
United Therapeutics has focused primarily on developing Uniprost as its
lead product for treating advanced pulmonary hypertension. Pulmonary
hypertension is a vascular disease which affects the blood vessels between the
heart and lungs known as the pulmonary blood vessels. Like many vascular
diseases, pulmonary 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 through
the circulatory system. 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.
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Pulmonary hypertension is primarily caused by reduced production of the
natural compound 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
only currently FDA-approved treatment for pulmonary hypertension is Flolan, an
artificial form of prostacyclin delivered continuously by an external pump
through a surgically implanted intravenous catheter. Uniprost is a significantly
longer lived and more stable synthetic form of prostacyclin which United
Therapeutics believes will provide patients with a convenient and
non-intravenous life-long prostacyclin therapy.
In contrast to Flolan, Uniprost is stable at room temperature for up to
five years and is significantly longer lived in the human body than Flolan.
These attributes allow for a safer and more convenient delivery of Uniprost to
patients. Specifically, Uniprost is delivered by subcutaneous infusion with a
pager-sized MiniMed microinfusion device. Subcutaneous delivery of Uniprost also
eliminates the risk of sepsis infection and related hospitalization associated
with the Flolan catheter. Uniprost's extended life in the body also greatly
reduces the risk of death in cases of treatment interruption, from an abrupt
recurrence of hypertension known as rebound hypertension. The stability of
Uniprost 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 the case with Flolan.
Uniprost is currently in pivotal Phase III clinical trials for advanced
pulmonary hypertension. In earlier clinical trials, United Therapeutics
demonstrated that Uniprost, delivered in a brief intravenous infusion, has
similar effects on primary pulmonary hypertension patients as does a comparable
infusion of Flolan. United Therapeutics then demonstrated that Uniprost,
delivered in a brief subcutaneous infusion to primary pulmonary hypertension
patients, had similar effects as when delivered intravenously. United
Therapeutics studied 26 primary pulmonary hypertension patients in a randomized,
double-blind, placebo-controlled, eight-week trial that concluded:
- Uniprost can be safely administered to severely ill patients
on an outpatient basis;
- Continuous dosing of Uniprost leads to improvement in
pulmonary blood pressure and exercise ability; and
- These improvements are similar to improvements observed with
Flolan administered for 12 weeks.
Each patient who finished this study in October 1998 elected to receive
Uniprost therapy indefinitely.
United Therapeutics has completed enrollment of 224 and 235 advanced
pulmonary hypertension patients, without distinction between primary and
secondary pulmonary hypertension, in two pivotal Phase III trials of Uniprost at
approximately 40 select medical centers. The main objective of the trials is to
determine the impact of continuous subcutaneous Uniprost therapy on exercise
ability after 12 weeks of therapy. The primary endpoints for these trials are
identical to those in the studies to approve Flolan. Secondary objectives
include assessing the impact of Uniprost on the symptoms of advanced pulmonary
hypertension.
Peripheral Vascular Disease
United Therapeutics is also developing Uniprost for late-stage
peripheral vascular disease. 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 September 1998, United
Therapeutics completed a Phase II study which assessed the safety and blood flow
effects of Uniprost administered intravenously to patients with late-stage
peripheral vascular disease. The study demonstrated that Uniprost can be
administered safely to patients with late-stage peripheral vascular disease and
substantially increased blood flow in the affected areas of the legs. United
Therapeutics will next undertake a pre-pivotal study to optimize dosing levels
of Uniprost for pivotal Phase III trials.
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BERAPROST
In September 1998, United Therapeutics obtained an exclusive license
from Toray Industries, Inc. for beraprost for the treatment of pulmonary
hypertension in the United States and Canada. In March 1999, United Therapeutics
obtained an additional exclusive license from Toray for beraprost for the
treatment of peripheral vascular disease in the United States and Canada.
Beraprost is an oral form of prostacyclin that is chemically stable.
Like natural prostacyclin and Uniprost, beraprost dilates blood vessels,
prevents platelet aggregation and prevents proliferation of smooth muscle cells
surrounding blood vessels. United Therapeutics believes beraprost may be an
important treatment for early-stage peripheral vascular disease and for
early-stage pulmonary hypertension. Intermittent oral doses of beraprost do not,
however, provide consistent levels of the drug in the blood necessary to treat
advanced stages of pulmonary hypertension or peripheral vascular disease.
Beraprost has proven to be safe and effective for the treatment of
peripheral vascular disease in clinical studies conducted outside the United
States and has been approved for treatment of peripheral vascular disease in
Japan since 1994. Hoechst has licensed rights to beraprost in Europe and has
conducted extensive clinical research with beraprost, including a controlled
study showing beraprost is effective in treating patients with early-stage
peripheral vascular disease. A recent Japanese study presented at the 1998
American Heart Association meeting suggests that beraprost may improve survival
in patients with pulmonary hypertension as well. United Therapeutics is
conducting a Phase III clinical trial program for beraprost to treat early-stage
peripheral vascular disease and Phase III clinical trial program for beraprost
to treat early-stage pulmonary hypertension.
UT-77
In November 1998, United Therapeutics acquired from Cortech, Inc.
exclusive worldwide rights to develop and market UT-77 for all indications,
except the treatment of skin conditions. United Therapeutics believes UT-77 may
prevent elastase from destroying the lung tissue of patients with chronic
obstructive pulmonary disease. United Therapeutics intends to develop UT-77 for
delivery by both injection and inhalation, and the company is conducting a
multi-center Phase II study to assess the effectiveness of UT-77 in improving
breathing of patients suffering from periodic life-threatening episodes
associated with chronic obstructive pulmonary disease. Cortech conducted
pre-clinical and clinical studies of UT-77 that showed continuous intravenous
infusion of UT-77 inhibits lung tissue destruction associated with chronic
obstructive pulmonary disease and enhances lung function in patients. Prior to
United Therapeutics' license from Cortech, clinical investigators in U.S.
medical centers conducted Phase I and Phase II studies involving 40 patients
that showed UT-77 to be safely tolerated as a continuous intravenous infusion
therapy. These studies also showed that the drug affected the levels of certain
proteins in the body that are involved in several respiratory diseases. United
Therapeutics believes that these results provide a reasonable basis for further
development of UT-77 as a treatment for chronic obstructive pulmonary disease.
KETOTOP
In July 1998, United Therapeutics began collaborating with Global
Medical Enterprises Ltd. and Global Medical Enterprises Ltd., LLC to develop
Ketotop. In February 1999, United Therapeutics obtained the exclusive rights
from Global Medical to develop Ketotop for marketing in North America and
Central America. In December 1999, United Therapeutics and Global Medical formed
a limited liability company to commercialize Ketotop in Europe. Ketotop is a
unique, transdermal drug delivery system which contains ketoprofen, an
FDA-approved oral pain reliever that has strong anti-inflammatory properties.
United Therapeutics plans to market Ketotop to relieve osteoarthritis and other
musculo-skeletal pain. United Therapeutics is preparing to conduct Phase III
studies to demonstrate that Ketotop is safe and effective for the treatment of
osteoarthritis.
TELEMEDICINE SERVICES
Pulmonary hypertension patients require periodic monitoring of certain
bodily measurements such as heart and lung function. Much of this monitoring can
be achieved with less expense and inconvenience by using
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telemedicine devices that enable physicians to monitor patients remotely. United
Therapeutics intends to provide telemedicine services for a fee to patients and
physicians using and prescribing United Therapeutics' products. United
Therapeutics also intends to utilize its experience with pulmonary hypertension
telemedicine to explore the development of similar internet-based services for
other chronic diseases.
STRATEGY
United Therapeutics' objective is to become a leader in the development
and commercialization of drugs to treat pulmonary and vascular diseases, as well
as other selected chronic conditions. To achieve this objective, United
Therapeutics is pursuing the following strategies:
Capitalize on United Therapeutics' Experience and Expertise in
Pulmonary Vascular Medicine. United Therapeutics believes that it has assembled
the preeminent group of scientists and clinicians in the field of pulmonary
vascular medicine. Members of United Therapeutics' scientific advisory board
have won the Nobel Prize for the discovery and characterization of prostacyclin,
discovered Flolan and invented UT-15. Members of United Therapeutics' senior
management led the team at Burroughs Wellcome Co. that designed the clinical
trials for, obtained FDA approval of and commercialized Flolan. These executives
have similarly designed Uniprost's clinical trials, which have primary end
points identical to those used for the studies to approve Flolan. United
Therapeutics believes this expertise will be instrumental in the development and
commercialization of Uniprost, beraprost and its other products.
Establish United Therapeutics' Prostacyclin Products as the Standard of
Care for Pulmonary Hypertension and Peripheral Vascular Disease. United
Therapeutics is seeking to establish Uniprost and beraprost, its stable analogs
of prostacyclin, as the worldwide standards of care for the treatment of
pulmonary hypertension and peripheral vascular disease. Currently, United
Therapeutics is conducting two multi-center pivotal Phase III clinical trials of
Uniprost for advanced pulmonary hypertension and a Phase II trial of Uniprost
for late-stage peripheral vascular disease. United Therapeutics is also
conducting a Phase III clinical trial program for beraprost to treat
early-stage peripheral vascular disease and a Phase III clinical trial program
for beraprost to treat early-stage pulmonary hypertension. United Therapeutics
believes that its scientific advisory board, network of clinical investigators
and management team can demonstrate and communicate to physicians the benefits
of treating pulmonary hypertension and peripheral vascular disease patients
with United Therapeutics' stable synthetic forms of prostacyclin following
their approval.
Minimize Fixed Costs and Corporate Overhead Through Outsourcing and
Partnering Where Cost Effective. United Therapeutics maintains a streamlined
corporate infrastructure focused on strategic business management. United
Therapeutics contracts with FDA-approved manufacturers for the synthesis and
manufacture of many of its products and with established drug sales
organizations for marketing and distribution of its products. United
Therapeutics has partnered with MiniMed Inc., the worldwide leader in
subcutaneous continuous-flow microinfusion device systems, to design, develop
and implement the delivery of Uniprost therapies for pulmonary hypertension
using MiniMed products. Prior to October 1999, United Therapeutics outsourced
manufacturing of Uniprost to SynQuest, Inc. United Therapeutics acquired
SynQuest, Inc. in October 1999. By outsourcing many non-core aspects of its
business, United Therapeutics believes that it will substantially reduce fixed
overhead and capital investment, accelerate commercialization of its products
and reduce its business risk.
Obtain Licenses for, Develop and Commercialize Selected Other Product
Candidates. United Therapeutics intends to continue to license and develop
product candidates that:
- have positive human safety and efficacy data;
- address a chronic condition with currently inadequate or
high-cost treatment options; and
- address a condition with little existing or potential
treatment competition.
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THE MINIMED STRATEGIC ALLIANCE
MiniMed has agreed to provide its pager-sized microinfusion pump for
delivery of Uniprost continuously and subcutaneously. United Therapeutics
entered into an agreement with MiniMed, Inc. in September 1997, which was
implemented in a detailed set of guidelines adopted in November 1999, to
collaborate in the design, development and implementation of therapies to treat
pulmonary hypertension utilizing MiniMed products and Uniprost. The term of the
agreement commenced on September 3, 1997 and continues for seven years after the
FDA grants a new drug approval for Uniprost. 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. United Therapeutics and MiniMed have established a
Management Committee comprised of two representatives from each company to
implement the agreement.
The guidelines implementing the agreement provide that United
Therapeutics will purchase the pumps and supplies from MiniMed at a discount to
MiniMed's list prices from time to time. 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. The
guidelines require United Therapeutics to purchase its Uniprost infusion pumps
exclusively from MiniMed unless MiniMed's infusion pumps fail to receive certain
government approvals.
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.
GLAXO WELLCOME ASSIGNMENT
In January 1997, Glaxo Wellcome Inc. assigned to United Therapeutics
patents and patent applications for the use of the stable prostacyclin analog
known as UT-15 for the treatment of pulmonary hypertension and congestive heart
failure. United Therapeutics now refers to its UT-15 product as Uniprost. Glaxo
Wellcome has a right to negotiate a license from United Therapeutics if United
Therapeutics decides to license any part of the marketing rights to a third
party. Glaxo Wellcome waived this right with respect to the agreement with
MiniMed. Under the agreement, Glaxo Wellcome is entitled to certain royalties
from United Therapeutics for a period of 10 years from the date of the first
commercial sale of any product containing UT-15. If United Therapeutics grants
to a third party any license to UT-15, Glaxo Wellcome is also entitled to a
percentage of all consideration payable to United Therapeutics by such licensee.
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. United Therapeutics is responsible for all patent
prosecution and maintenance for the UT-15 patent portfolio.
PHARMACIA & UPJOHN LICENSE
In December 1996, Pharmacia & Upjohn Company exclusively licensed to
United Therapeutics patents and a patent application for the composition and
production of the stable prostacyclin analog known as UT-15. United Therapeutics
filed a U.S. patent application for a new synthesis and production method for
UT-15 in October 1997. United Therapeutics believes that its method is a
substantial improvement over the Pharmacia & Upjohn method. United Therapeutics
intends to use its improved and unique synthesis method rather than the licensed
Pharmacia & Upjohn method for the actual production of the UT-15 product,
Uniprost.
Under the Pharmacia & Upjohn agreement, United Therapeutics paid an
initial license fee and must make additional milestone payments for orphan and
non-orphan indications of the compound of up to $3,875,000. United Therapeutics
will make royalty payments between 2.5% and 5% of net sales, subject to
reduction based on required
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royalty payments to Glaxo Wellcome, to Pharmacia & Upjohn 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. The agreement may be terminated earlier by either party in
certain circumstances, including upon a material breach by or bankruptcy of the
other party, and by United Therapeutics at any time upon 60 days' notice to
Pharmacia & Upjohn. Pursuant to the agreement, United Therapeutics is obliged to
use its best efforts to conduct a research and development program in the United
States relating to the use of the product containing the compound for at least
one indication, and to obtain regulatory approvals and market a product in the
United States and such other countries as United Therapeutics deems appropriate.
The term of the patent licensed from Pharmacia & Upjohn expires in
March 2000 in the United States and on various dates from January 2001 to
February 2010 in 14 other countries. Pharmacia & Upjohn is responsible for
prosecution and maintenance of the U.S. and foreign patent portfolio relating to
the UT-15 compound and synthesis method, but may discontinue prosecution of
and/or abandon the patent portfolio and give United Therapeutics an opportunity
to prosecute or maintain the portfolio.
TORAY INDUSTRIES LICENSES
In September 1998, United Therapeutics entered into an agreement with
Toray Industries, Inc. obtaining the exclusive right to develop and market
beraprost in the existing immediate-release oral form in the United States and
Canada for the treatment of pulmonary hypertension and other pulmonary vascular
diseases, plus certain additional rights of first refusal for other products,
therapies or territories. In exchange, United Therapeutics paid Toray cash and
166,666 shares of common stock, and granted Toray an option to purchase an
additional 166,666 shares of common stock at an exercise price of $9.00 per
share. United Therapeutics also agreed to pay Toray milestone payments of up to
$750,000. In March 1999, United Therapeutics entered into an agreement with
Toray obtaining the exclusive right to develop and market beraprost in the
United States and Canada for the treatment of peripheral vascular disease.
United Therapeutics paid Toray cash and 500,000 shares of common stock and
agreed to pay Toray milestone payments of up to $750,000.
Pursuant to the agreements, United Therapeutics has agreed to pay all
costs and expenses associated with undertaking clinical trials, obtaining
regulatory approvals and commercializing beraprost in the United States and
Canada for the treatment of pulmonary hypertension and peripheral vascular
disease. Toray has retained all manufacturing rights for beraprost. United
Therapeutics has agreed to purchase beraprost solely from Toray at specified
prices based on volume. The agreements each set forth a product development
schedule. In the event that development by United Therapeutics falls
significantly behind the schedule specified in either agreement, Toray may
terminate that agreement. Furthermore, United Therapeutics is responsible under
the agreements 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. 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. Each agreement expires 10 years following FDA approval of beraprost
for the particular disease indication. United Therapeutics may extend each
agreement for unlimited one-year periods with Toray's consent.
The United States patents licensed by United Therapeutics cover the
compound beraprost and its method of synthesis and will expire in January 2003
and April 2010. The licensed Canadian patent expires in January 2003. There are
no issued patents covering methods of treating any disease, including pulmonary
hypertension and peripheral vascular disease, using beraprost. Toray is
responsible for prosecuting and maintaining beraprost patents with United
Therapeutics' reasonable assistance.
CORTECH LICENSE
In November 1998, United Therapeutics signed an agreement with Cortech,
Inc. obtaining the exclusive right to develop and market a compound, now known
as UT-77, for all indications worldwide, except for certain dermatological uses.
In exchange, United Therapeutics made a cash payment and granted Cortech a
warrant to
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purchase 116,666 shares of common stock. The warrant vests only if United
Therapeutics continues developing UT-77 after November 2000 and terminates in
November 2004. United Therapeutics also agreed to make milestone payments in the
event it elects to develop the drug after November 2000 of up to $6,450,000 for
non-orphan drug indications and pay royalty fees between 6% and 10% of UT-77 net
sales.
Pursuant to the agreement, United Therapeutics is required to use
reasonable efforts to develop and conduct research and pre-clinical and human
clinical trials to obtain all regulatory approvals to manufacture, market and
commercialize the products that United Therapeutics determines are commercially
feasible. In addition, United Therapeutics is responsible for a majority of the
costs for prosecuting and maintaining the patents covering UT-77. United
Therapeutics may choose to discontinue the development of the products without
penalty upon written notice to Cortech if the products do not satisfy United
Therapeutics' clinical needs for targeted indications. If United Therapeutics
terminates the agreement, however, Cortech will receive an exclusive
royalty-free license to use any improvements, know-how, data, information or
regulatory filings or any other intellectual property arising from United
Therapeutics' performance under the agreement. Under the agreement, inventions
or improvements to the technology for the manufacture or use of UT-77 are
retained by the party whose employees conceive them. Cortech may terminate the
agreement if United Therapeutics does not commence Phase II clinical trials of
UT-77 before May 2001, subject to certain exceptions.
UT-77 is patented in the United States and in 22 foreign countries.
Patent applications are pending in six countries. The U.S. patent expires in
June 2010 and foreign counterparts expire between August 2008 and December 2012.
Cortech is responsible for patent prosecution and maintenance under the
agreement.
GLOBAL MEDICAL ENTERPRISES AGREEMENT
In February 1999, United Therapeutics entered into an agreement with
Global Medical Enterprises Ltd. and Global Medical Enterprises Ltd., LLC. This
agreement gives to United Therapeutics the exclusive right to commercialize and
sell Ketotop in the United States, Canada, Mexico, Central America and the
Caribbean for treatment of all indications. Global Medical holds its rights
under an exclusive sales and distribution agreement with Pacific
Pharmaceuticals, Inc., the Korean manufacturer of Ketotop. Both the agreement
between United Therapeutics and Global Medical and the agreement between Global
Medical and Pacific Pharmaceuticals expire in July 2008. The agreement between
United Therapeutics and Global Medical will be extended if Pacific
Pharmaceuticals extends its agreement with Global Medical. The agreement is
subject to early termination in the event of a material breach or bankruptcy of
either party or if the underlying agreement between Global Medical and Pacific
Pharmaceuticals is terminated. United Therapeutics has agreed to purchase
Ketotop solely from Global Medical and will pay Global Medical a product
purchase price equal to Global Medical's cost of obtaining Ketotop from Pacific
Pharmaceuticals plus a profit percentage of between 15% and 23%. United
Therapeutics and Global Medical will jointly determine Global Medical's
compensation for sales in additional territories.
Ketotop is patented in the United States, but is not patented in any
other territory where United Therapeutics has marketing rights. The Ketotop
patent expires in April 2013. There are no issued U.S. patents covering methods
of treating osteoarthritis with Ketotop. Global Medical and Pacific
Pharmaceuticals are responsible for prosecuting and maintaining the Ketotop
patent portfolio. In addition, United Therapeutics is obligated under its
agreement with Global Medical to obtain trademark protection on behalf of
Pacific Pharmaceuticals for the Ketotop mark in every jurisdiction where United
Therapeutics has marketing rights. United Therapeutics has not yet filed
trademark applications for Ketotop. If United Therapeutics fails to file them in
the future, Global Medical may terminate the agreement.
On December 1, 1999, United Therapeutics and Global Medical formed
Ketotop, LLC, a Delaware limited liability company, to commercialize Ketotop in
Europe. United Therapeutics and Global Medical each own a one-half interest in
Ketotop, LLC and will jointly manage its operations. Global Medical assigned to
Ketotop, LLC at no cost the exclusive right to commercialize and sell Ketotop in
the European Union. Global Medical had received this exclusive right from
Pacific Pharmaceuticals, Inc. This right expires in July 2008 unless extended by
Pacific Pharmaceuticals. United Therapeutics and Global Medical intend that
Ketotop, LLC will sublicense exclusive Ketotop commercialization rights to
sublicensees in Europe which will be responsible for the costs of
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commercializing Ketotop within their subterritories. United Therapeutics agreed
to provide its clinical data to Ketotop, LLC in return for reciprocal clinical
data access from Ketotop, LLC's European sublicensees.
SHEARWATER POLYMERS, INC. AGREEMENT
In September 1999, United Therapeutics entered into an agreement with
Shearwater Polymers, Inc. This agreement grants to United Therapeutics the
exclusive right to Shearwater's know-how for the design, development, production
and use of a technology known as pegylation to develop and produce sustained
release prostacyclin molecules for the possible treatment of pulmonary
hypertension, peripheral vascular disease, stroke, heart disease, cancer, and
related diseases worldwide. In exchange, United Therapeutics paid Shearwater
$100,000 in cash and agreed to pay Shearwater milestone payments of up to
$2,900,000. Milestone payments will come due upon the achievement of certain
product development goals set forth in the agreement and are expected to be paid
over a period of approximately six years. United Therapeutics also agreed to pay
royalties ranging from two to four percent of net sales from developed products.
Minimum annual royalties of $1,000,000 are required commencing with the
thirteenth month following government approval of a developed product.
Under United Therapeutics' agreement with Shearwater, any inventions
that relate to the combination of prostacyclin and the pegylation technology,
including production methods and therapeutic methods for the treatment of any
indication, will be owned solely by United Therapeutics, and any inventions
relating to non-prostacyclin pegylation methods such as drug formulation or
delivery will be owned solely by Shearwater. Both United Therapeutics and
Shearwater have filed for U.S. patent applications relating to their respective
inventions and each is responsible for prosecuting and maintaining its patent
portfolio.
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 Toray U.S. patent relating to the
compound beraprost could be extended by up to five years, giving the product
patent protection until as late as January 2008 if approval in the United States
is received before expiration of the original patent term in 2003. In addition,
patent extensions are available under similar laws in Europe. United
Therapeutics is considering which patents it will seek to extend under
Waxman-Hatch and similar laws of other jurisdictions. See "-- Government
Regulation."
ORPHAN DRUG STATUS AND GRANTS
In June 1997, United Therapeutics was notified by the FDA that Uniprost
for primary pulmonary hypertension qualified for orphan drug status. In November
1999, United Therapeutics was notified that the FDA had approved an amendment to
the orphan designation for Uniprost from the treatment of primary pulmonary
hypertension to the treatment of "pulmonary arterial hypertension" (a
designation which includes both primary pulmonary hypertension and advanced
secondary pulmonary hypertension). The company believes that if Uniprost is
approved by the FDA, no other non-oral treatment for primary pulmonary
hypertension using prostacyclin will be approved by the FDA for seven years,
unless such other treatment is significantly safer or more effective than
Uniprost. In November 1998, United Therapeutics received a $415,000 grant from
the FDA's orphan drug grant program for the development of Uniprost for the
treatment of primary pulmonary hypertension, $265,000 of which has been
recognized as revenue through December 31, 1999.
In April 1999, United Therapeutics was notified by the FDA that
beraprost for advanced pulmonary hypertension qualified for orphan drug status.
United Therapeutics believes that if beraprost is approved by the FDA, no other
oral treatment for advanced pulmonary hypertension using prostacyclin will be
approved by the FDA for seven years, unless such other treatment is
significantly safer or more effective than beraprost.
CLINICAL INVESTIGATOR NETWORK
United Therapeutics has established a multi-center clinical
investigation network with approximately 40
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leading medical centers. This network consists of pulmonologists and
cardiologists from centers in North America, Europe, Australia and Israel who
collectively treat a majority of patients with primary pulmonary hypertension
and a substantial number of patients with secondary pulmonary hypertension.
These physicians understand and have extensive experience in clinical research
of severe pulmonary diseases. United Therapeutics is continually expanding its
clinical investigator network by adding professionals who have demonstrated
success in conducting clinical research required for regulatory approval.
MANUFACTURING
United Therapeutics has generally contracted with qualified third-party
manufacturers to produce its drugs. This manufacturing strategy has enabled
United Therapeutics to direct financial resources to product licensing, clinical
development and anticipated commercialization efforts rather than diverting
resources to building manufacturing plants and establishing compliance with the
FDA's good manufacturing practices regulations.
SynQuest, Inc., formerly known as Steroids, Ltd., has been the
manufacturer of Uniprost for United Therapeutics. United Therapeutics has
contracted with Schweizerhall, Inc. as a second source of manufacturing. On
October 7, 1999, United Therapeutics acquired all the outstanding stock of
SynQuest, which became a wholly owned subsidiary of the company. The acquisition
of this established corporation engaged in the synthesis and manufacture of
complex molecules has allowed United Therapeutics to acquire the manufacturing
capacity for its lead product without having to invest its resources over time
in building facilities and initiating manufacturing regulatory compliance.
Cook Imaging Corporation continues to formulate the bulk active
ingredient in Uniprost for United Therapeutics. An analytical testing
laboratory, Magellan Laboratories Inc., tests the purity and stability of each
batch of manufactured Uniprost for compliance with FDA standards.
MARKETING AND SALES
In accordance with the implementation of United Therapeutics' strategic
alliance with MiniMed, United Therapeutics and MiniMed will jointly handle
aspects of distribution of the Uniprost therapy. United Therapeutics will have
primary sales and marketing responsibility. United Therapeutics' marketing
strategy will rely upon existing chronic care specialty pharmacy distributors to
handle doctor and patient requests for Uniprost on a non-exclusive basis in the
United States. To further this strategy, United Therapeutics has entered into
two non-exclusive distributor agreements for the United States. In addition,
United Therapeutics has entered into an exclusive distributor agreement for
Canada with Paladin Labs Inc. United Therapeutics will sell Uniprost and MiniMed
products to these distributors at a discount from an average wholesale price set
by United Therapeutics. These distributors will be responsible for assisting
patients with obtaining reimbursement.
COMPETITION
Many drug companies engage in research and development to commercialize
products to treat blood vessel and lung diseases. United Therapeutics competes
with these companies for funding, access to licenses, personnel, third-party
collaborators and product development. Almost all of these companies 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 will compete with its products, including the
following:
- Uniprost will compete with Flolan, the only FDA-approved
treatment for primary pulmonary hypertension;
- Uniprost and beraprost will compete with two FDA-approved
drugs, pentoxifylline and cilostazol, for the treatment of
peripheral vascular disease;
- UT-77 will compete with one FDA-approved drug, Prolastin, for
the treatment of chronic obstructive
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pulmonary disease; and
- Ketotop will compete with existing oral drugs containing the
FDA-approved pain reliever ketoprofen, as well as with a
variety of other oral and transdermal pain relievers.
Competitors may develop and commercialize additional products that
compete with United Therapeutics' products and may do so more rapidly than
United Therapeutics. For example, United Therapeutics understands that:
- Schering AG may develop Iloprost, a stable form of
prostacyclin, as a drug delivered through sustained inhalation
to treat pulmonary hypertension;
- Texas Biotechnology Corp. was conducting an uncontrolled study
of a potentially competitive drug for early-stage pulmonary
hypertension;
- There are reports on the use of continuously inhaled nitric
oxide as a therapy for pulmonary hypertension of the newborn;
and
- Several companies are developing other drugs and surgical
methods for treating different aspects of peripheral vascular
disease.
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 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 or
antibiotic;
- 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 to the drug into healthy human subjects or patients,
the drug is tested to assess metabolism, pharmacokinetics and pharmacological
actions 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;
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- 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 trails, 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 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 a
drug 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, or
if it affects more than 200,000 people but will be sold for less money than it
will cost to develop. If a sponsor obtains the first FDA marketing approval for
a certain orphan drug, the sponsor will have a seven-year exclusive right to
market the drug for the orphan indication.
If regulatory approval of Uniprost or any of United Therapeutics' other
products is granted, it will 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.
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
includes 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 EU member state.
Under a new regulatory system in the EU, marketing authorizations may
be submitted at either a centralized, a decentralized or a national level. The
centralized procedure is mandatory for the approval of
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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.
United Therapeutics will choose the appropriate route of European
regulatory filing to accomplish the most rapid regulatory approvals. However,
the chosen regulatory strategy may not secure regulatory approvals or approvals
of the chosen product indications. United Therapeutics intends to secure
European regulatory approval for the use of Uniprost for pulmonary hypertension
and peripheral vascular disease in parallel with its United States and Canadian
regulatory filings. The company has contracted with Quintiles (UK) Ltd., a
contract research organization, to assist with its European clinical development
and regulatory actions.
PRODUCT LIABILITY INSURANCE
United Therapeutics owns a Products/Clinical Trials Liability Insurance
Policy which it believes to be adequate for its needs. In addition, United
Therapeutics owns policies covering clinical trials in Austria, France, Spain
and Italy. United Therapeutics believes this insurance also is adequate for its
needs.
EMPLOYEES
United Therapeutics had 63 employees as of March 15, 2000. The company
also maintains active independent contractor relationships with various
individuals with whom it has month-to-month consulting contracts. The company
believes its employee relations are excellent. None of United Therapeutics'
employees is subject to a collective bargaining agreement.
RECENT DEVELOPMENTS
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. Unither will pay Synergy, at
closing, a $100,000 license fee. In addition, the agreement conditionally
requires Unither to 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. As part of the transaction,
Unither has agreed to acquire 15 percent of the outstanding stock of Synergy for
a total of $5 million, payable as $2 million in cash and $3 million in shares of
common stock of United Therapeutics, all payable at closing. Unither will
acquire an exclusive option to purchase the remaining outstanding
stock of Synergy. The closing is expected to occur by March 31, 2000, after
obtaining the consents of current Synergy shareholders.
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. These statements involve risks and uncertainties and United
Therapeutics' actual results may differ materially from the results discussed in
these forward-looking statements. Factors that may cause such a difference
include, but are not limited to, those discussed below.
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IF UNITED THERAPEUTICS' PRODUCTS FAIL IN CLINICAL STUDIES, UNITED THERAPEUTICS
WILL BE UNABLE TO OBTAIN FDA APPROVAL AND WILL NOT BE ABLE TO SELL THOSE
PRODUCTS.
In order to sell its products, United Therapeutics must receive
regulatory approval for its products. 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 FDA approval for a product, that product cannot be sold and United
Therapeutics' revenues will suffer. United Therapeutics has started Phase III
clinical studies for Uniprost for advanced pulmonary hypertension and Phase II
clinical studies for Uniprost for late-stage peripheral vascular disease. United
Therapeutics has completed patient enrollment in two Phase III clinical trial
programs to treat advanced pulmonary hypertension with Uniprost, is beginning a
Phase III clinical trial program to treat early-stage peripheral vascular
disease with beraprost and is beginning a Phase III clinical trial program to
treat early-stage pulmonary hypertension with beraprost. United Therapeutics is
still developing studies for its other products and has only completed
pre-clinical studies for a recently acquired drug delivery mechanism. Although
United Therapeutics' products, such as Uniprost and beraprost, appear promising
based on clinical studies to date, they may not be successful in later clinical
studies. United Therapeutics' ongoing 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;
- 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; and
- Drug supplies are not sufficient to treat the patients in the
studies.
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.
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 United Therapeutics'
products. 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. 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.
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 $49.3 million at December 31, 1999. United
Therapeutics expects to incur substantial additional losses over the next
several years, whether or not it generates revenue, as it expands clinical
studies and continues to develop its products. United Therapeutics expects its
quarterly and annual operating results to fluctuate, depending primarily on the
following factors:
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- Timing of regulatory approvals and commercial sales of its
products;
- Level of patient demand for its products;
- Timing of payments to licensors and corporate partners; and
- Timing of investments in new technologies.
All of United Therapeutics' products are in clinical studies, and
United Therapeutics is not yet selling any products. United Therapeutics might
not obtain regulatory approvals for its products, including its lead products,
Uniprost and beraprost, and may not be able to sell its products commercially.
Even if United Therapeutics sells its products, United Therapeutics may not ever
be profitable and may not be able to sustain any profitability it achieves. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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
learning more about pulmonary and vascular diseases that may lead to new
technologies to treat the diseases. In addition, alternative approaches to
treating chronic diseases, such as gene therapy, may make United Therapeutics'
products obsolete or noncompetitive.
UNITED THERAPEUTICS' PRODUCTS MAY NOT BE COMMERCIALLY SUCCESSFUL BECAUSE
PHYSICIANS AND PATIENTS MAY NOT ACCEPT THEM.
Even if regulatory authorities approve United Therapeutics' products,
those products may not be commercially successful. United Therapeutics expects
that most of its products, including Uniprost, 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
payors;
- 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.
IF THIRD-PARTY PAYORS WILL NOT REIMBURSE PATIENTS FOR UNITED THERAPEUTICS' DRUG
PRODUCTS, SALES WILL SUFFER.
United Therapeutics' commercial success will depend in part on
third-party payors agreeing to reimburse patients for the costs of United
Therapeutics' products. Third-party payors frequently challenge the pricing of
new drugs. United Therapeutics expects that its products will be very expensive.
Third-party payors may not approve United Therapeutics' products for
reimbursement.
If third-party payors 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 ITS PRODUCTS AND THOSE THIRD PARTIES MAY NOT PERFORM.
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United Therapeutics does not have the ability to independently conduct
clinical studies, obtain regulatory approvals, market, distribute or sell its
products and intends to rely 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 get marketing approvals and will be unable to
sell its products. MiniMed Inc. is United Therapeutics' exclusive partner for
the subcutaneous delivery of Uniprost using the MiniMed Inc. microinfusion
device in the field of pulmonary hypertension. In cooperation with United
Therapeutics, MiniMed will be responsible for marketing, sales and customer
service. United Therapeutics is dependent on MiniMed's experience, expertise and
performance to successfully market and sell Uniprost for pulmonary hypertension.
If MiniMed is unsuccessful in its efforts, United Therapeutics' revenues will
suffer. See "The MiniMed Strategic Alliance."
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 Uniprost for United Therapeutics. Prior to this acquisition United
Therapeutics had no experience with manufacturing. Although in connection with
the acquisition of SynQuest, United Therapeutics retained the employees and
managers of SynQuest, United Therapeutics may be unsuccessful in developing and
maintaining drug manufacturing operations. United Therapeutics is highly
dependent on SynQuest's current management and key scientific and technical
personnel, including Dr. Robert M. Moriarty, President and Chief Scientific
Officer.
United Therapeutics relies on third parties for the manufacture of all
its other products. United Therapeutics is relying on Cook Imaging Corporation
for the formulation of Uniprost. United Therapeutics relies on Magellan
Laboratories Incorporated to test the purity and stability of each batch of
Uniprost. United Therapeutics relies exclusively on Toray Industries, Inc. to
manufacture beraprost and on Global Medical Enterprises Ltd. to supply Ketotop.
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 Uniprost, 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 the
work formerly conducted by SynQuest, the company 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;
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- Without satisfactory long-term agreements with its
manufacturers, United Therapeutics will not be able to develop
or commercialize its products, other than Uniprost, as planned
or at all and will have to rely solely on the manufacturing
capacity the company acquired through SynQuest;
- Without substantial experience in operating a manufacturing
facility, United Therapeutics may not be able to successfully
manufacture Uniprost; 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. See "Government
Regulation."
IF THE LICENSES UNITED THERAPEUTICS DEPENDS ON ARE BREACHED OR TERMINATED,
UNITED THERAPEUTICS WOULD LOSE ITS RIGHT TO DEVELOP AND SELL THE PRODUCTS
COVERED BY THE LICENSES.
United Therapeutics acquires or licenses drugs which have been
discovered and initially developed by others. In addition, United Therapeutics
has obtained and will be required to obtain licenses to third-party technology
to conduct its business, including licenses for its products and a license for
the MiniMed microinfusion device. This dependence on licenses has the following
risks:
- United Therapeutics may not be able to obtain future licenses
at a reasonable cost or at all;
- If any of United Therapeutics' licenses are terminated, United
Therapeutics will lose its rights to develop and market some
or all of its products;
- The licenses that United Therapeutics holds generally provide
for termination by the licensor in the event United
Therapeutics breaches the license agreement, including by
failing to pay royalties and other fees on a timely basis;
- In the event that Glaxo Wellcome or Pharmacia & Upjohn
terminate their agreements, United Therapeutics will have no
further rights to utilize their patents or trade secrets to
develop and commercialize Uniprost; and
- If licensors fail to maintain the intellectual property
licensed to United Therapeutics as required by most of United
Therapeutics' license 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 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 UT-15 composition of matter expires in 2000,
and the U.S. patent for the method of treating pulmonary hypertension with UT-15
expires in 2009. The U.S. patents for the beraprost composition of matter and
synthesis expire in 2003 and 2010. United Therapeutics may not be able to extend
these or any other patents. Ketotop is patented in the United States, but not in
any other jurisdiction where United Therapeutics has marketing rights.
Competitors may develop products based on the same active ingredients as United
Therapeutics' products, including UT-15, 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.
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The issued beraprost patents do not cover methods of treating any
disease, including pulmonary hypertension or peripheral vascular disease, using
beraprost. The issued Ketotop patent in the United States does not cover methods
of treating osteoarthritis with Ketotop. 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 filed a patent application in the United States
for the use of UT-15 to treat peripheral vascular disease, but this and other
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 the company's
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 the company's 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 competitive advantage to
United Therapeutics.
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 the MiniMed agreement, any new inventions or intellectual
property that arise from United Therapeutics' activities with MiniMed will be
owned jointly by United Therapeutics and MiniMed. Under United Therapeutics'
agreement with Cortech, any inventions or intellectual property that relate to
UT-77 will be owned by the company that employs the person who made the
discovery. Under United Therapeutics' agreement with Shearwater Polymers, Inc.,
any inventions that relate to a non-prostacyclin pegylation method will be owned
by Shearwater Polymers, Inc. 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' HIGHLY QUALIFIED MANAGEMENT AND TECHNICAL PERSONNEL
LEAVE THE COMPANY, ITS BUSINESS MAY SUFFER.
United Therapeutics is highly dependent on its current management and
key scientific and technical personnel, including Ms. Martine A. Rothblatt,
Chairman of the Board and Chief Executive Officer, Dr. James W. Crow, President
and Chief Operating Officer, Dr. Gilles Cloutier, Executive Vice President,
Business Development and Treasurer, Shelmer D. Blackburn, Jr., Director of
Operations, Dr. Roger Jeffs, Director of Research, Development and Medical, and
Dr. Robert M. Moriarty, President and Chief Scientific Officer of SynQuest,
Inc., United Therapeutics' manufacturing subsidiary. United Therapeutics does
not maintain key person life insurance. 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 pulmonary and vascular disease is not generally available in the
market, and competition for qualified management and personnel is intense.
UNITED THERAPEUTICS MAY NOT SUCCESSFULLY COMPETE WITH ESTABLISHED DRUG
COMPANIES.
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United Therapeutics competes with established drug companies for
funding, access to licenses, personnel and third-party collaborators and during
product development. Almost all of these companies 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 will compete with its products. If United Therapeutics cannot successfully
compete with new or existing products, United Therapeutics' marketing and sales
will suffer and it may not ever be profitable. See "Competition."
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 or preparing for
commercial sales. 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 of its products or potential markets.
UNITED THERAPEUTICS MAY NOT HAVE ADEQUATE INSURANCE AND MAY HAVE SUBSTANTIAL
EXPOSURE TO PAYMENT OF PRODUCT LIABILITY CLAIMS.
The testing, manufacture and marketing of human drugs involves product
liability risks. Although United Therapeutics has product liability insurance,
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.
UNITED THERAPEUTICS' STOCK PRICE COULD BE VOLATILE AND COULD DECLINE.
The market prices for securities of drug companies are highly volatile,
and there are significant price and volume fluctuations in the market that may
be unrelated to particular companies' operating performances. United
Therapeutics' stock price could decline suddenly due to the following factors:
- Results of clinical trials;
- Timing of regulatory approvals;
- Fluctuations in operating results;
- Announcements by United Therapeutics or others of
technological innovations or new products;
- Failure to meet estimates or expectations of securities
analysts;
- Rate of product acceptance;
- Developments in patent or other proprietary rights;
- Public concern as to the safety of products developed by
United Therapeutics or by others;
- Future sales of substantial amounts of common stock by
existing United Therapeutics stockholders; and
- General market conditions.
FUTURE SALES OF SHARES MAY DEPRESS THE STOCK PRICE.
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<PAGE> 20
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 or warrants are exercised or additional shares of
capital stock are issued, existing stockholders may incur additional dilution.
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 executive officers beneficially own
approximately 30 percent of its outstanding common stock. 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.
BECAUSE OF "ANTI-TAKEOVER" PROVISIONS IN UNITED THERAPEUTICS' CERTIFICATE OF
INCORPORATION AND BYLAWS, A THIRD PARTY MAY BE DISCOURAGED FROM MAKING A
TAKEOVER OFFER WHICH COULD BE BENEFICIAL TO UNITED THERAPEUTICS AND THE PUBLIC
STOCKHOLDERS.
Certain provisions of United Therapeutics' Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws, and the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
could delay or prevent a third party from acquiring United Therapeutics or
replacing members of the United Therapeutics board of directors, even if the
acquisition or the replacements would be beneficial to United Therapeutics'
stockholders. These factors could also reduce the price that certain investors
might be willing to pay for shares of the common stock and result in the market
price being lower than it would be without these provisions.
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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list, as of March 17, 2000, setting forth certain
information regarding the executive officers of United Therapeutics. Each
executive officer's term will end pursuant to the terms of his or her employment
contract or upon his or her earlier resignation or the appointment of a
successor.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Martine A. Rothblatt 45 Chairman, Chief Executive Officer and Director
James W. Crow, Ph.D. 55 President, Chief Operating Officer and Director
Gilles Cloutier, Ph.D. 54 Executive Vice President, Business Development, Treasurer
and Director
Shelmer D. Blackburn, Jr. 39 Vice President of Operations, Secretary and Director
Fred T. Hadeed 35 Chief Financial Officer
Paul A. Mahon 36 Assistant Secretary and General Counsel
</TABLE>
Martine A. Rothblatt, J.D., M.B.A., is a co-founder of United
Therapeutics. She has served as Chairman of its Board of Directors and Chief
Executive Officer since its inception in 1996. In 1995, Ms. Rothblatt endowed
the
19
<PAGE> 21
PPH Cure Foundation to help find cures for pulmonary hypertension, which
afflicts one of her daughters, and continues to manage the foundation. Since
1990, she has helped develop, as an independent consultant, satellite
communications businesses, including CD Radio Inc. (now Sirius Satellite Radio
Inc.), which she founded and served as Chairman and Chief Executive Officer
until December 1992, and WorldSpace Corp., which she co-founded and served as
Chief Operating Officer from January 1993 through January 1995. Since February
1995 Ms. Rothblatt has also served as President of Beacon Projects, Inc., a
company she incorporated for her satellite communications consulting and real
estate management activities, and as Of Counsel to the law firm of Mahon Patusky
Rothblatt & Fisher, Chartered. Ms. Rothblatt also serves as Vice Chairman of the
Law and Medicine Committee of the International Bar Association and President of
the William Harvey Medical Research Foundation. Ms. Rothblatt devotes
substantially all of her time to the affairs of United Therapeutics.
James W. Crow, Ph.D., is a co-founder of United Therapeutics and has
served as President and Chief Operating Officer and as a member of its Board of
Directors since its inception in 1996. Prior to 1996, Dr. Crow worked for more
than 18 years at Glaxo Wellcome Inc., formerly Burroughs Wellcome Co., in
positions such as International Project Leader, Associate Medical Director and
Senior Clinical Research Scientist. While he was associate director of the
Pulmonary II Section, Dr. Crow led the team that developed and obtained FDA
approval for Flolan for the treatment of primary pulmonary hypertension patients
in September 1995.
Gilles Cloutier, Ph.D., is a co-founder of United Therapeutics and has
served as Executive Vice President, Business Development and Treasurer and as a
member of its Board of Directors since its inception in 1996. He also served as
Chief Financial Officer from December 1997 to January 2000. Prior to 1996, Dr.
Cloutier served as President of CatoPharma Canada, Inc. from April 1992 to
February 1997. From April 1990 to April 1992, Dr. Cloutier was the Vice
President of Clinical Operations at Quintiles Transnational Corp. Dr. Cloutier
has more than 24 years of experience in all phases of the drug development
process in the United States, Canada and other international locations.
Shelmer D. Blackburn, Jr., B.A., is a co-founder of United Therapeutics
and has served as Director of Operations, Secretary and a member of its Board of
Directors since its inception in 1996. In 1999, Mr. Blackburn was promoted to
Vice President of Operations. Prior to 1996, Mr. Blackburn worked for eight
years at Glaxo Wellcome Inc., formerly Burroughs Wellcome Co., where he was
responsible for the design and management of clinical trials for Flolan, as well
as for an artificial surfactant for the treatment of neonatal patients with
respiratory distress syndrome.
Fred T. Hadeed, B.S., C.P.A., was appointed Chief Financial Officer of
United Therapeutics in January 2000. Prior to joining United Therapeutics, Mr.
Hadeed worked for ten years at KPMG LLP, where he most recently served in their
life sciences practice.
Paul A. Mahon has served as General Counsel and Assistant Secretary of
United Therapeutics since its inception in 1996. He has been a principal and
managing partner of Mahon Patusky Rothblatt & Fisher, Chartered since its
formation in 1993.
20
<PAGE> 22
ITEM 2. PROPERTIES
United Therapeutics currently maintains four facilities. The company's
clinical development office is in Research Triangle Park, North Carolina in
5,000 square feet of leased office space. United Therapeutics' corporate office
is in Silver Spring, Maryland in an 8,000 square foot building that it owns. The
company's subsidiary, Unither Telemedicine Services Corporation, leases
approximately 3,000 square feet of office space in the District of Columbia. The
company's subsidiary, SynQuest, Inc. leases approximately 10,000 square feet of
laboratory and office space in Chicago, Illinois. The Research Triangle Park
lease expires in June 2001, the District of Columbia lease expires in February
2001 with an extension at United Therapeutics' option, and the Chicago lease
expires in July 2001 with two one year lessee options to extend the lease.
United Therapeutics believes these facilities are adequate for its current and
planned operations.
In September 1999, United Therapeutics purchased a building adjacent to
its facilities in Silver Spring, Maryland. The building was fully leased to
tenants at the time of the purchase. The leases are expected to continue until
their expiration, which will be at various dates through 2002.
ITEM 3. LEGAL PROCEEDINGS
United Therapeutics is not a party to any legal proceedings.
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.
21
<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET FOR COMMON EQUITY
United Therapeutics' common stock began trading on the Nasdaq Stock
Market's Nasdaq National Market on June 17, 1999 under the symbol "UTHR." Prior
to that time, there had been no public market for the common stock. The table
below sets forth the high and low closing bid prices for the common stock for
the periods indicated:
<TABLE>
<CAPTION>
1999 High Low
- ---- ------------------ ---------------
<S> <C> <C>
June 17 - June 30............................................................... $12.25 $11.63
July 1 - September 30........................................................... 29.88 12.00
October 1 - December 31......................................................... 46.00 28.25
</TABLE>
As of March 17, 2000, there were 149 holders of record of common
stock. The company estimates that included within the holders of record are
approximately 2,300 beneficial owners of common stock. As of March 17, 2000 the
closing bid price for the common stock was $68.25.
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 the company's business operations.
RECENT SALES OF UNREGISTERED SECURITIES
In October 1999, the company issued an aggregate of 101,251 shares of
its common stock to the stockholders of SynQuest, Inc. in connection with the
acquisition of SynQuest, pursuant to Section 4(2) of the Securities Act of 1933.
In January 2000, United Therapeutics closed on the sale of 2,500,000
shares of its common stock, in a private placement sale to accredited investors
pursuant to Regulation D of the Securities Act of 1933. The aggregate offering
price for the common stock was $80,000,000. The investors were Baystar Capital,
L.P., BayStar International Ltd., SMALLCAP World Fund, Inc., Franklin Aggressive
Growth Fund, Inc., Franklin Biotechnology Discovery Fund, Inc., Galleon
Healthcare Partners, L.P., Galleon Healthcare Overseas, Ltd., Putnam Health
Sciences Trust, Putnam Capital Appreciation Fund, Putnam Variable Trust - VT
Health Sciences Fund, Putnam Investment Funds - Putnam Capital Opportunities
Fund, T. Rowe Price New Horizons Fund, Inc., Toronto Dominion Green Line Health
Sciences Fund, T. Rowe Price Health Sciences Fund, Inc. and Four Partners.
In March 2000, United Therapeutics agreed to issue an aggregate of
21,978 shares of its common stock to Synergy Pharmaceuticals, Inc. in partial
payment of the purchase price for 15 percent of Synergy's common stock and an
option to acquire the remaining outstanding shares of Synergy. The closing is
expected by the end of March 2000. United Therapeutics is relying upon Section
4(2) of the Securities Act of 1933 for this issuance.
INITIAL PUBLIC OFFERING USE OF PROCEEDS
United Therapeutics registered 4,500,000 shares of its common stock 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.
22
<PAGE> 24
From October 1, 1999 to December 31, 1999, United Therapeutics
temporarily invested all the net proceeds from the offering of the 4,500,000
shares in marketable debt securities. United Therapeutics temporarily invested
all of the net proceeds from the sale of the 675,000 over-allotment shares in
marketable debt securities and money market funds. The net proceeds from the
offering and the over-allotment sale were added to cash equivalents and
investments of United Therapeutics on hand at the time of the offering of
approximately $9 million. The net proceeds remain temporarily invested and have
not yet been applied.
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 included elsewhere in this prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Form 10-K. The historical results are not necessarily
indicative of results to be expected for future periods.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 26, 1996
YEAR ENDED DECEMBER 31, (INCEPTION)
---------------------------------------------------------- TO DECEMBER 31,
1999 1998 1997 1996
---- ---- ---- ----
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues $436 $54 $116 $154
Operating expenses:
Research and development 30,715 11,015 2,027 100
General and administrative 4,978 2,366 1,006 85
Cost of sales 164 ----- ----- -----
--------------- -------------- ------------------ --------------
Total operating expenses 35,857 13,381 3,033 185
Loss from operations (35,421) (13,327) (2,917) (31)
Other income (expense):
Interest income 1,925 510 135 1
Interest expense (58) (15) (8) -----
Other, net 50 ----- ----- -----
Write-down of investment ----- ----- (111) -----
--------------- -------------- ------------------ --------------
Total other income, net 1,917 495 16 1
Net loss before income tax (33,504) (12,832) (2,901) (30)
Income tax (3) (3) ----- -----
--------------- -------------- ------------------ --------------
Net loss ($33,507) ($12,835) ($2,901) ($30)
=============== ============== ================== ==============
Net loss per common share --
basic and diluted (1) ($2.51) ($1.54) ($0.87) ($0.02)
=============== ============== ================== ==============
Weighted average number of
common shares outstanding -
basic and diluted 13,374 8,332 3,339 1,667
=============== ============== ================== ==============
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------
1999 1998 1997 1996
---- ---- ---- ----
CONSOLIDATED BALANCE SHEET DATA: (in thousands)
<S> <C> <C> <C> <C>
Cash, cash equivalents and
short-term investments $51,596 $16,802 $5,018 $94
Total Assets 59,943 18,747 5,074 102
Notes and leases payable (2) 1,841 314 ----- -----
Accumulated deficit (49,273) (15,767) (2,931) (30)
Total stockholders' equity 53,566 16,676 4,617 70
</TABLE>
(1) See Note 2 of Notes to Consolidated Financial Statements for a description
of the computation of basic and diluted net loss per share.
(2) Includes current portion of notes and leases payable.
24
<PAGE> 26
ITEM 7. 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 elsewhere in this Annual
Report. The following discussion contains forward-looking statements concerning
the cash needed for current research and development contract obligations
through the end of 2000 and the adequacy of United Therapeutics' resources to
fund operations through 2002. 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."
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 product revenues and 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 most 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 $49.3 million at December 31, 1999. United
Therapeutics expects to continue to incur net losses and cannot provide
assurances that, in the future, it will have 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 product, Uniprost, and other
products. It is anticipated that approximately $19.0 million in cash will be
used during 2000 under these agreements. These expenses will be funded from
existing working capital.
FINANCIAL POSITION
On June 17, 1999, United Therapeutics completed an initial public
offering of 4.5 million shares of common stock at $12.00 per share. The offering
closed on June 22, 1999, and United Therapeutics received net proceeds, after
deducting underwriting commissions and offering expenses, of 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 22, 2000, United Therapeutics closed on the sale of 2.5
million shares of common stock at $32 per share and received net proceeds, after
deducting underwriting commissions and offering expenses, of approximately $75.0
million.
Cash and cash equivalents at December 31, 1999 were $18.3 million as
compared to $6.8 million at December 31, 1998. Investments in marketable debt
securities at December 31, 1999 were $33.3 million as compared to $10.0 million
at December 31, 1998. The combined increases in cash, cash equivalents and
investments in marketable debt securities of approximately $34.8 million is due
to receipt of the net proceeds from the initial public offering and the sale of
the over-allotment shares, less amounts used for operations during 2000.
25
<PAGE> 27
On October 7, 1999, the company acquired all the outstanding stock of
SynQuest, Inc. (SynQuest), an Illinois corporation engaged in the synthesis and
manufacture of complex molecules. SynQuest manufactures Uniprost, the company's
lead compound. The total cost of this acquisition was approximately $3.2
million, including transaction costs. Cash of $200,000 and 101,251 shares of the
company's common stock valued at $2.9 million was paid to the sellers as
consideration. At December 31, 1999, goodwill and other intangible assets
resulting from the acquisition were approximately $2.7 million net of
accumulated amortization of approximately $154,000, as compared to none at
December 31, 1998.
Accounts payable at December 31, 1999 were $2.3 million as compared to
$1.7 million at December 31, 1998. This increase in accounts payable is due to
clinical trial activities. The notes payable as of December 31, 1999 totaled
$1.8 million as compared to $314,000 as of December 31, 1998. A new mortgage
note payable was issued in June 1999 for $720,000, the proceeds from which were
partially used to pay off the original mortgage note payable. The new mortgage
note is secured by the building and property owned by United Therapeutics
located at 1110 Spring Street in Silver Spring, Maryland. Another mortgage note
payable was issued in September 1999 for $1,078,000, the proceeds from which
were used to purchase 1106 Spring Street in Silver Spring, Maryland. That
mortgage note is secured by a certificate of deposit in the amount of $512,000
and building and property owned by United Therapeutics located at that address.
Common stock and additional paid-in capital at December 31, 1999
increased as compared to amounts at December 31, 1998. This increase of
approximately $70.4 million was due primarily to the net proceeds of the initial
public offering of $48.9 million, sales of common stock through private
placements prior to commencement of the initial public offering totaling $2.0
million, stock issued in exchange for an exclusive license agreement totaling
$9.0 million, stock issued to purchase SynQuest, Inc. totaling $2.8 million, and
approximately $7.5 million in net proceeds from the sale of over-allotment
shares to the underwriters.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Total revenues for the year ended December 31, 1999 were approximately
$436,000, as compared to $54,000 for the year ended December 31, 1998.
Approximately $211,000 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 $225,000 of these revenues were earned by SynQuest,
United Therapeutics' wholly owned subsidiary, for the synthesis and manufacture
of complex molecules.
Research and development expenses consist primarily of costs to acquire
pharmaceutical products 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 $30.7 million for the year ended December 31, 1999, as compared to
$11.0 million for the year ended December 31, 1998. Approximately $7.1 million
of the increase in research and development expenses is related to increased
levels of patient enrollment in United Therapeutics' clinical trials of
Uniprost. Approximately, $9.1 million of the increase is related to the payment
in March 1999 of an up-front licensing fee consisting of common stock valued at
$9.0 million and $100,000 in cash to obtain the exclusive rights to develop
beraprost, an oral form of prostacyclin, to treat peripheral vascular disease in
the United States and Canada. Additionally, $1.7 million of the increase is
related to the development of beraprost and other products.
General and administrative expenses consist primarily of personnel
salaries, office expenses and professional fees. General and administrative
expenses were $5.0 million for the year ended year ended December 31, 1999, as
compared to $2.4 million for the year ended year ended December 31, 1998. This
increase was due primarily to increased staffing and related travel to support
expanded operations.
Interest income for the year ended year ended December 31, 1999 was
$1.9 million, as compared to $510,000 for the year ended year ended December 31,
1998. This increase was attributable to an increase in the
26
<PAGE> 28
amount of cash available for investing resulting from sales of common stock
during 1999, less amounts used for operations.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenue for the year ended December 31, 1998 was approximately $54,000,
as compared to approximately $116,000 for the year ended December 31, 1997. The
1998 revenue was earned under an orphan drug grant awarded by the FDA. The 1997
revenue was earned under a contract relating to primary pulmonary hypertension
research.
Research and development expenses were $11.0 million for the year ended
December 31, 1998, as compared to $2.0 million for the year ended December 31,
1997. This increase resulted primarily from higher expenditures of approximately
$7.6 million in 1998 associated with the commencement of Phase III clinical
trials for United Therapeutics' lead product, Uniprost. In addition, the company
paid up-front licensing fees approximating $2.0 million and consisting of common
stock, options, warrants and cash to obtain exclusive rights to develop
beraprost to treat pulmonary hypertension in the United States and Canada, and
UT-77 for all indications worldwide.
General and administrative expenses were $2.4 million for the year
ended December 31, 1998, as compared to $1.0 million for the year ended December
31, 1997. This increase was due primarily to the recruitment and hiring of
additional administrative personnel and increased legal and other professional
fees associated with license and patent activities and the expansion of United
Therapeutics' operations.
Interest income for the year ended December 31, 1998 was approximately
$510,000, as compared to approximately $135,000 for the year ended December 31,
1997. This increase was attributable to an increase in the amount of cash
available for investing resulting from $22.9 million in net proceeds from United
Therapeutics' private placements of common stock during 1998.
YEAR ENDED DECEMBER 31, 1997
United Therapeutics' first full year of operations was 1997. For the
year ended December 31, 1997, revenue from operations was approximately $116,000
which was earned under a contract relating to primary pulmonary hypertension
research.
Operating expenses for the year ended December 31, 1997 totaled $3.0
million, of which $2.0 million was for research and development expenses and
$1.0 million was for general and administrative expenses.
Interest income for the year ended December 31, 1997 was approximately
$135,000.
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 22, 2000, United Therapeutics closed on
the private sale of 2.5 million shares of common stock at $32 per share and
received net proceeds, after deducting fees and offering expenses, of
approximately $75 million.
United Therapeutics' working capital at December 31, 1999 was $48.2
million, as compared with $15.1 million at December 31, 1998. Current
liabilities at December 31, 1999 were approximately $4.6 million, as compared
with $1.8 million at December 31, 1998. United Therapeutics' debt at December
31, 1999 was approximately $1.8 million, as compared with $314,000 at December
31, 1998, and consisted of two mortgage notes, one secured by a certificate of
deposit, and both secured by the buildings and property owned by United
27
<PAGE> 29
Therapeutics located at 1106 - 1110 Spring Street in Silver Spring, Maryland and
are due in monthly installments over 30 years.
Net cash used in operating activities was approximately $23.7 million
and $9.6 million for the years ended December 31, 1999 and 1998, respectively.
The increase resulted from the expansion of United Therapeutics' operations,
particularly with respect to increased costs for the Uniprost trials. For the
years ended December 31, 1999 and 1998, United Therapeutics invested
approximately $2.0 million and $1.0 million, respectively, in cash for property,
plant, and equipment. Net cash provided by financing activities was
approximately $59.3 million and $22.9 million for the years ended December 31,
1999 and 1998, respectively. Cash flows from financing activities for the year
ended December 31, 1999 were derived primarily from private equity financings in
the first quarter, the initial public offering in June, and the sale of the
over-allotment shares to the underwriters in July. Cash flows from financing
activities for the year ended December 31, 1998 were derived primarily from
private equity financings during that year.
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 Uniprost and other products. It is
anticipated that approximately $19.0 million in cash will be used during 2000
under these agreements. These expenses will be funded from existing working
capital. United Therapeutics expects to make approximately $500,000 in milestone
payments during 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 2002. 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 additional
products
- 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;
- Establishment, continuation or termination of third-party
manufacturing arrangements;
- 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 2019. 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.
However, these net operating loss and general business
28
<PAGE> 30
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.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
29
<PAGE> 31
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
UNITED THERAPEUTICS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of KPMG LLP, Independent Auditors.................................................................. F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998.............................................. F-3
Consolidated Statements of Operations for the three years ended December 31, 1999......................... F-4
Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1999............... F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1999......................... F-6
Notes to Consolidated Financial Statements................................................................ F-7
</TABLE>
F-1
<PAGE> 32
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, 1999
and 1998, 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, 1999. 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 generally accepted auditing
standards. 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, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
KPMG LLP
McLean, Virginia
February 25, 2000
F-2
<PAGE> 33
UNITED THERAPEUTICS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $18,279,883 $6,779,067
Investments (note 9) 33,315,914 10,023,190
Accounts receivable 362,268 53,750
Prepaid expenses 79,981 --
Other current assets 618,317 --
----------- ----------
Total current assets 52,656,363 16,856,007
----------- ----------
Property, plant, and equipment (notes 3 and 8):
Land 421,431 134,370
Buildings and improvements 2,420,644 866,322
Furniture and equipment 1,152,230 416,881
----------- ----------
3,994,305 1,417,573
Less -- accumulated depreciation (202,788) (50,065)
----------- ----------
Property, plant, and equipment, net 3,791,517 1,367,508
----------- ----------
Certificate of deposit 539,545 509,506
Goodwill and other intangible assets, net (note 11) 2,690,533 --
Deferred offering costs 159,418 --
Other 105,759 13,817
----------- ----------
Total assets $59,943,135 $18,746,838
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,348,090 $1,707,103
Accrued expenses (note 13) 2,107,805 14,161
Payroll taxes withheld 64,537 33,629
Current portion of notes and leases payable (note 8) 56,786 4,098
----------- ----------
Total current liabilities 4,577,218 1,758,991
Notes and leases payable, excluding current portion
(note 8) 1,783,705 310,262
Other liabilities 16,662 1,759
----------- ----------
Total liabilities 6,377,585 2,071,012
----------- ----------
Commitments and contingencies (notes 5 and 10)
Stockholders' equity (note 6):
Preferred stock, par value $.01, 10,000,000 shares authorized
at December 31, 1999 and 1998, no shares issued -- --
Common stock, par value $.01, 100,000,000 and 50,000,000
shares authorized at December 31, 1999 and 1998,
respectively, 16,003,218 and 10,115,597 shares issued
and outstanding at December 31, 1999 and 1998,
respectively (note 14) 160,032 101,156
Additional paid-in capital 102,678,916 32,341,370
Accumulated deficit (49,273,398) (15,766,700)
----------- ----------
Total stockholders' equity 53,565,550 16,675,826
----------- ----------
Total liabilities and stockholders' equity $59,943,135 $18,746,838
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 34
UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Sales $225,245 $ -- $ --
Grant revenue (note 3) 211,250 53,750 115,909
------------- ------------- ------------
Total revenues 436,495 53,750 115,909
------------- ------------- ------------
Operating expenses:
Research and development 30,715,255 11,015,053 2,026,718
General and administrative 4,977,983 2,366,494 1,006,354
Cost of sales 164,147 -- --
------------- ------------- ------------
Total operating expenses 35,857,385 13,381,547 3,033,072
------------- ------------- ------------
Loss from operations (35,420,890) (13,327,797) (2,917,163)
Other income (expense):
Interest income 1,925,326 510,068 134,726
Interest expense (57,744) (14,570) (8,334)
Other - net 50,064 -- --
Write-down of investment (note 9) -- -- (110,453)
------------- ------------- ------------
Total other income 1,917,646 495,498 15,939
------------- ------------- ------------
Net loss before income tax (33,503,244) (12,832,299) (2,901,224)
Income tax (note 7) (3,454) (3,100) --
------------- ------------- ------------
Net loss ($33,506,698) ($12,835,399) ($2,901,224)
============= ============= ============
Net loss per common share --
basic and diluted ($2.51) ($1.54) ($0.87)
============= ============= ============
Weighted average number of
common shares outstanding
-- basic and diluted 13,374,294 8,321,749 3,339,437
============= ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 35
UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
------------ ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,666,663 $16,667 $83,333 ($30,077) $69,923
Issuance of common stock 3,900,078 39,001 6,881,149 -- 6,920,150
Conversion of loan principal and accrued interest
into common stock 309,428 3,094 505,240 -- 508,334
Stock issued in exchange for services 6,664 67 19,933 -- 20,000
Net loss -- -- -- (2,901,224) (2,901,224)
---------- --------- ------------- ------------- ------------
Balance, December 31, 1997 5,882,833 58,829 7,489,655 (2,931,301) 4,617,183
Issuance of common stock 4,028,404 40,284 22,864,247 -- 22,904,531
Stock issued in exchange for services 37,694 376 131,709 -- 132,085
Stock issued for exclusive license agreement 166,666 1,667 1,498,333 -- 1,500,000
Options and warrants issued for exclusive license
agreements -- -- 353,000 -- 353,000
Options issued in exchange for services -- -- 4,426 -- 4,426
Net loss -- -- -- (12,835,399) (12,835,399)
---------- --------- ------------- ------------- ------------
Balance, December 31, 1998 10,115,597 101,156 32,341,370 (15,766,700) 16,675,826
Issuance of common stock through private sales 111,370 1,114 1,989,251 -- 1,990,365
Issuance of common stock through initial public
offering 4,500,000 45,000 48,826,737 -- 48,871,737
Issuance of common stock to underwriters for
over-allotment shares 675,000 6,750 7,507,759 -- 7,514,509
Stock issued for exclusive license agreement 500,000 5,000 8,995,000 -- 9,000,000
Stock issued for acquisition of SynQuest, Inc. 101,251 1,012 2,802,051 -- 2,803,063
Options issued in exchange for services -- -- 216,748 -- 216,748
Net loss -- -- -- (33,506,698) (33,506,698)
---------- --------- ------------- ------------- ------------
Balance, December 31, 1999 16,003,218 $160,032 $102,678,916 ($49,273,398) $53,565,550
========== ========= ============= ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 36
UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($33,506,698) ($12,835,399) ($2,901,224)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 311,150 35,497 13,400
Loss on disposals of equipment 9,168 -- --
Stock issued for exclusive license agreement 9,000,000 1,500,000 --
Stock and options issued in exchange for services 216,748 136,511 20,000
Options and warrants issued for exclusive license
agreements -- 353,000 --
Interest accrued on convertible loan -- -- 8,334
Write-down of investment -- -- 110,453
Amortization of discount on investments (1,561,899) (23,229) --
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (79,554) (53,750) --
Prepaid expenses (69,679) -- --
Other current assets (221,405) -- --
Other noncurrent assets (91,942) (10,214) 118
Accounts payable 221,710 1,323,601 363,515
Accrued expenses 2,068,606 (27,770) 41,931
Payroll taxes withheld (4,263) 5,716 18,560
Other liabilities 14,903 -- --
-------------- ------------- ------------
Net cash used in operating activities (23,693,155) (9,596,037) (2,324,913)
-------------- ------------- ------------
Cash flows used in investing activities:
Purchases of property, plant, and equipment (1,994,620) (1,033,953) (60,651)
Proceeds from disposals of property, plant and equipment 2,350 -- --
Acquisition of SynQuest, Inc., net of cash acquired (312,626) -- --
Purchases of investments and certificates of
deposit (114,325,864) (10,509,467) (110,453)
Sales and maturities of investments 92,565,000 -- --
-------------- ------------- ------------
Net cash used in investing activities (24,065,760) (11,543,420) (171,104)
-------------- ------------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 58,376,611 22,904,531 6,920,150
Deferred offering costs (159,418) -- --
Proceeds from convertible loan and notes payable 1,798,000 -- 500,000
Payments of principal on notes payable (742,907) (2,771) --
Principal payments under capital lease obligations (12,555) (1,381) --
-------------- ------------- ------------
Net cash provided by financing activities 59,259,731 22,900,379 7,420,150
-------------- ------------- ------------
Net increase in cash and cash equivalents 11,500,816 1,760,922 4,924,133
Cash and cash equivalents, beginning of year 6,779,067 5,018,145 94,012
-------------- ------------- ------------
Cash and cash equivalents, end of year $ 18,279,883 $ 6,779,067 $ 5,018,145
============== ============= ============
Supplemental schedule of noncash investing and
financing activities:
Stock issued for acquisition of SynQuest, Inc. $ 2,803,063 $ -- $ --
============== ============= ============
Equipment acquired under a capital lease $ 16,629 $ -- $ --
============== ============= ============
Note payable issued for building $ -- $ 317,130 $ --
============== ============= ============
Loan principal and accrued interest converted
into common stock $ -- $ -- $ 508,334
============== ============= ============
Supplemental cash flow information -- cash paid
for interest $ 57,744 $ 14,570 $ --
============== ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 37
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS DESCRIPTION
United Therapeutics Corporation (the Company) was incorporated on June 26,
1996 under the laws of the State of Delaware. The Company 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 initial focus of the Company is
the development of therapies to treat patients with pulmonary hypertension, a
generally fatal disorder of the pulmonary arteries with no adequate long-term
therapies. All of the Company's products are currently in clinical trial
programs.
The Company has four wholly owned subsidiaries: SynQuest, Inc., Lung Rx,
Inc., Unither Pharmaceuticals, Inc. (UPI) and Unither Telemedicine Services
Corporation (UTSC).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
United Therapeutics Corporation and its four wholly owned subsidiaries. All
significant intercompany balances and transactions were eliminated in
consolidation.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less. Cash equivalents consist of money market
funds and certificates of deposit and amount to $18,244,189 and $6,769,034 at
December 31, 1999 and 1998, respectively.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Building and improvements............... 39 years
Furniture and equipment................. 3-10 years
Leasehold improvements.................. Life of
the lease
</TABLE>
RESEARCH AND DEVELOPMENT
Research and product development costs are expensed as incurred.
LICENSED TECHNOLOGY
Costs incurred in obtaining the license rights to technology in the research
and development stage and that have no alternative future uses are expensed as
incurred and in accordance with the specific contractual terms of the applicable
license agreements.
F-7
<PAGE> 38
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Income taxes are accounted for in accordance with Financial Accounting
Standards Board Statement No. 109 (SFAS No. 109). Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are determined based
on the differences between the financial reporting and the tax bases of assets
and liabilities and are measured using the tax rates and laws that are expected
to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
INVESTMENTS
The Company's investments are considered held-to-maturity securities.
Held-to-maturity securities are those securities which the Company has the
ability and intent to hold until maturity and are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or discounts. Premiums
and discounts are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the effective interest
method.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of purchase price and related costs over the
value assigned to the net tangible and intangible assets of businesses acquired.
Goodwill, resulting from the purchase of SynQuest, Inc. (note 11), is being
amortized using the straight-line method over five years. Other intangible
assets resulting from this purchase relate to covenants not to compete and
employment agreements and were determined on the basis of an independent
valuation. The covenants not to compete and employment agreements are being
amortized over three and four years, respectively, consistent with the terms of
the underlying agreements.
Periodically, the Company reviews the recoverability of goodwill and other
intangible assets. The measurement of possible impairment is based primarily on
the ability to recover the balance of the goodwill and other intangible assets
from expected future operating cash flows on an undiscounted basis. In
management's opinion, no material impairment exists at December 31, 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, investments, accounts
receivables, accounts payable, accrued expenses, and payroll taxes withheld
approximate fair value due to their short maturities. The carrying amount of the
Company's notes payable approximate fair value, since they are adjustable rate
notes.
LOSS PER COMMON SHARE
Basic loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the year. Common
stock equivalents, consisting of options and warrants, are not included in the
calculation as their effect would be anti-dilutive. Accordingly, diluted loss
per common share is the same as basic loss per common share.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the
F-8
<PAGE> 39
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
STOCK OPTION PLAN
The Company applies the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, to account for its stock options. SFAS No. 123 allows
companies to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for employee
stock options granted as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosures of SFAS No. 123. The Company
accounts for non-employee stock option awards in accordance with SFAS No. 123.
SALES
Sales in 1999 resulted from the synthesis and manufacture of complex
compounds by SynQuest, Inc., a wholly owned subsidiary. These sales were
generally made under fixed price agreements. The Company recognizes revenue
based on the percentage-of-completion method. Billings in excess of amounts
recognized as revenues are reported as deferred revenues. Losses on these
contracts, if any, are recognized as soon as they are anticipated.
GRANT REVENUE
Grant revenues in 1997 resulted primarily from a grant from the PPH Cure
Foundation (see note 3). Grant revenues in 1998 and 1999 resulted from an orphan
drug grant from the United States Food and Drug Administration (the FDA orphan
drug grant) to fund ongoing research related to UT-15. The FDA orphan drug grant
is a cost reimbursement award covering a two-year period beginning September 30,
1998. The FDA has committed funding totaling $415,000. This grant has no
milestones or significant deliverables other than the submission of periodic
technical reports. The Company recognizes revenues under the FDA orphan drug
grant when they are realizable and earned and only to the extent allowable
expenses are incurred. Recognized revenues are not contingent upon future
performance obligations and are not refundable to the FDA since they represent
reimbursements for past services and are not dependent on the outcome of the
research. Accounts receivable of $50,000 and $53,750 at December 31, 1999 and
1998, respectively, were for unbilled costs incurred. Amounts billed are subject
to audit by the FDA and could result in potential disallowances. Such
disallowances, if any, are not expected to be material.
DEFERRED OFFERING COSTS
Costs incurred in connection with the Company's planned sale of common stock
in a private placement are deferred and reported as assets in the accompanying
balance sheets (see note 14). Upon successful completion of the sale, these
deferred offering costs will be netted against the additional paid-in capital
resulting from the sale.
CONCENTRATIONS OF SUPPLIERS
The Company currently relies on a single supplier to test the purity and
stability of each batch of Uniprost and a single supplier for the delivery
device to administer Uniprost to patients. 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 Uniprost, and in the
conduct of clinical trials, which would adversely affect the Company's research
and development efforts.
Similarly, the Company relies solely on Toray for the manufacture of
beraprost and solely on Global Medical Enterprises for the manufacture of
Ketotop under exclusive licensing agreements (see note 4). If these agreements
were to terminate, the Company would have no other source for these compounds.
F-9
<PAGE> 40
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. RELATED PARTY TRANSACTIONS
REVENUE
During 1997, the Company earned substantially all of its revenue from a
grant from the PPH Cure Foundation (the Foundation). A director of the
Foundation is also the Chairman and CEO of the Company. This grant terminated at
the end of March 1997. Total revenue earned from the Foundation's grant was
$115,909 for the year ended December 31, 1997.
BUILDING
In 1998, the Company purchased an office building for its corporate
headquarters from Beacon Projects, Inc., an entity owned by the Company's
Chairman and CEO. The purchase price, including related expenses, was
approximately $581,000.
OFFICE LEASES
During 1998, the Company leased office space from Beacon Projects, Inc., a
company owned by the Chairman and CEO of the Company. In August 1998, this lease
was terminated when the Company purchased the office building from the Chairman
and CEO of the Company. Payments made by the Company under this lease totaled
$12,000 for the year ended December 31, 1998.
In March 1999, Unither Telemedicine Services Corporation leased office space
from Beacon Projects, Inc. (see note 10).
LEGAL SERVICES
During 1999, 1998 and 1997, the Company obtained professional services from
a law firm affiliated with the Chairman and CEO and two executive officers. The
Company incurred expenses of approximately $338,000, $157,000, and $81,000
during the years ended December 31, 1999, 1998, and 1997, respectively, for
services rendered by the law firm.
RESEARCH AGREEMENT
During 1998, the Company entered into a cooperative drug discovery agreement
with William Harvey Research Limited (WHR) (see note 5). The Chairman and CEO of
the Company is president of William Harvey Medical Research Foundation, an
affiliate of WHR. Payments made to WHR were approximately $258,000 and $162,000
for the years ended December 31, 1999 and 1998, respectively.
RECEIVABLE FROM EMPLOYEE
At December 31, 1999, the Company had a non-interest bearing advance
totaling approximately $199,000 due from an employee of a subsidiary. The
advance is classified as other current assets in the accompanying balance sheets
and will be repaid to the Company in 2000.
F-10
<PAGE> 41
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LICENSE AGREEMENTS
GLAXO WELLCOME ASSIGNMENT
In January 1997, Glaxo Wellcome Inc. assigned to the Company patents and
patent applications for the use of the stable prostacyclin analog, UT-15 for the
treatment of pulmonary hypertension and congestive heart failure. Glaxo Wellcome
has a right to negotiate a license from the Company if the Company decides to
license any part of the marketing rights to a third party. Glaxo Wellcome waived
this right with respect to the agreement with MiniMed described below. Under the
agreement, Glaxo Wellcome is entitled to certain royalties from the Company for
a period of ten years from the date of the first commercial sale of any product
containing UT-15 (see note 5). If the Company grants to a third party any
license to UT-15, Glaxo Wellcome is also entitled to a percentage of all
consideration payable to the Company by such licensee. The Company is
responsible for all patent prosecution and maintenance for UT-15.
PHARMACIA & UPJOHN LICENSE
In December 1996, Pharmacia & Upjohn Company exclusively licensed to the
Company patents and a patent application for the composition and production of
the stable prostacyclin analog UT-15. Under the Pharmacia & Upjohn
agreement, the Company paid an initial license fee and must make additional
milestone payments of up to $3,875,000 for orphan and non-orphan indications of
the compound. The Company will make royalty payments between 2.5 and 5.0 percent
of net sales, subject to reduction based on required royalty payments to Glaxo
Wellcome, to Pharmacia & Upjohn until the later of the expiration of the
applicable patent or ten years after the date of the first commercial sale of a
product in a country defined as a milestone country under the agreement. The
agreement may be terminated earlier by either party in certain circumstances,
including upon a material breach by or bankruptcy of the other party, and by the
Company at any time upon 60 days' notice to Pharmacia & Upjohn. Pursuant to the
agreement, the Company is obliged to use its best efforts to conduct a research
and development program in the United States relating to the use of the product
containing the compound for at least one indication, and to obtain regulatory
approvals and market a product in the United States and such other countries as
the Company deems appropriate.
MINIMED INC.
The Company entered into an agreement with MiniMed in September 1997 to
collaborate in the design, development, and implementation of therapies to treat
pulmonary hypertension and peripheral vascular disease utilizing MiniMed
products and Uniprost(UT-15). The term of the agreement is for seven years after
the FDA grants a new drug approval for Uniprost and 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. The Company and MiniMed have established a
Management Committee comprised of two representatives from each company to
implement the agreement. MiniMed has agreed to establish a dedicated sales force
for Uniprost for advanced pulmonary hypertension, take responsibility for
marketing and sales of Uniprost to physicians who treat pulmonary hypertension,
train patients and care providers in the use of the MiniMed device with
Uniprost, provide the MiniMed device, related supplies and customer services to
the Company, and assist patients with third party reimbursement.
The guidelines implementing the agreement provide that the Company will
purchase pumps and supplies from MiniMed at a discount off of MiniMed's list
prices from time to time. 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. The guidelines
require the Company to purchase its UT-15 infusion pumps exclusively from
MiniMed unless MiniMed's infusion pumps fail to receive certain government
approvals.
F-11
<PAGE> 42
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TORAY INDUSTRIES LICENSES
In September 1998, United Therapeutics entered into an agreement with Toray
Industries, Inc. obtaining the exclusive right to develop and market beraprost
in the United States and Canada for the treatment of pulmonary vascular disease,
including pulmonary hypertension, plus certain additional rights of first
refusal for other products, therapies or territories. In exchange, United
Therapeutics paid Toray cash and 166,666 shares of common stock, and granted
Toray an option to purchase an additional 166,666 shares of common stock at an
exercise price of $9.00 per share (see note 6). United Therapeutics also agreed
to pay Toray milestone payments of up to $750,000. In March 1999, United
Therapeutics entered into an agreement with Toray obtaining the exclusive right
to develop and market beraprost in the United States and Canada for the
treatment of peripheral vascular disease. United Therapeutics paid Toray cash
and 500,000 shares of common stock and agreed to pay Toray milestone payments of
up to $750,000. License fees expensed as research and development totaled
$9,100,000 and $1,785,000 for the years ended December 31, 1999 and 1998,
respectively.
Pursuant to the agreements, United Therapeutics has agreed to pay all costs
and expenses associated with undertaking clinical trials, obtaining regulatory
approvals and commercializing beraprost in the United States and Canada for the
treatment of pulmonary hypertension and peripheral vascular disease. Toray has
retained all manufacturing rights for beraprost. United Therapeutics has agreed
to purchase beraprost solely from Toray at specified prices based on volume. The
agreements each set forth a product development schedule. In the event that
development by United Therapeutics falls significantly behind the schedule
specified in either agreement, Toray may terminate that agreement. Furthermore,
United Therapeutics is responsible under the agreements 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. 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. Each agreement expires 10 years
following FDA approval of beraprost for the particular disease indication.
United Therapeutics may extend each agreement for unlimited 12-month periods
with Toray's consent.
CORTECH LICENSE
In November 1998, United Therapeutics entered into an agreement with
Cortech, Inc. to obtain the exclusive right to develop and market a serine
elastase inhibitor compound, now known as UT-77, for all indications worldwide,
except for certain dermatological uses. In exchange, United Therapeutics made a
cash payment and granted Cortech a warrant to purchase 116,666 shares of common
stock, which vests only if United Therapeutics continues developing UT-77 after
November 2, 2000, and terminates in November 2004 (see note 6), and agreed to
make milestone payments in the event it elects to develop UT-77 after November
2, 2000 of up to $6,450,000 for non-orphan drug indications and pay royalty fees
between 6 and 10 percent of UT-77 net sales. License fees expensed as research
and development totaled $418,000 for the year ended December 31, 1998. Pursuant
to the agreement, United Therapeutics is required to use reasonable efforts to
develop and conduct research and pre-clinical and human clinical trials to
obtain all regulatory approvals to manufacture, market and commercialize the
products that United Therapeutics determines are commercially feasible. In
addition, United Therapeutics is responsible for a majority of the costs for
prosecuting and maintaining the patent covering UT-77. United Therapeutics may
choose to discontinue the development of the products without penalty upon
written notice to Cortech if the products do not satisfy United Therapeutics'
clinical needs for targeted indications. If United Therapeutics terminates the
agreement, however, Cortech will receive an exclusive royalty-free license to
use any
F-12
<PAGE> 43
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
improvements, know-how, data, information or regulatory filings or any other
intellectual property arising from United Therapeutics' performance under the
agreement. Cortech may terminate the agreement if United Therapeutics does not
commence Phase II clinical trials of UT-77 before May 2001, subject to certain
exceptions.
GLOBAL MEDICAL ENTERPRISES AGREEMENT
In February 1999, United Therapeutics entered into an agreement with Global
Medical Enterprises Ltd. and Global Medical Enterprises Ltd., LLC. This
agreement gives to United Therapeutics the exclusive right to commercialize and
sell Ketotop in the United States, Canada, Mexico, Central America and the
Caribbean for treatment of all indications. Global Medical holds these rights
under an exclusive sales and distribution agreement with Pacific
Pharmaceuticals, Inc., the Korean manufacturer of Ketotop. Both the agreement
between United Therapeutics and Global Medical and the agreement between Global
Medical and Pacific Pharmaceuticals expire in July 2008. The agreement between
United Therapeutics and Global Medical will be extended if Pacific
Pharmaceuticals extends its agreement with Global Medical. The agreement is
subject to early termination in the event of a material breach or bankruptcy of
either party or if the underlying agreement between Global Medical and Pacific
Pharmaceuticals is terminated. United Therapeutics has agreed to purchase
Ketotop solely from Global Medical. United Therapeutics will pay Global Medical
a product purchase price equal to Global Medical's cost of obtaining Ketotop
from Pacific Pharmaceuticals plus a profit percentage of between 15 and 23
percent. United Therapeutics and Global Medical will jointly determine Global
Medical's compensation for sales in additional territories. United Therapeutics
is obligated under its agreement with Global Medical to obtain trademark
protection on behalf of Pacific Pharmaceuticals for Ketotop in every
jurisdiction where United Therapeutics has marketing rights. The Company expects
these costs to be immaterial.
On December 1, 1999, the Company and Global Medical Enterprises Ltd. formed
Ketotop, LLC, a Delaware limited liability company, to commercialize Ketotop in
Europe. The Company and Global Medical Enterprises Ltd. each own a one-half
interest in Ketotop, LLC and will jointly manage its operations. Global Medical
Enterprises Ltd. assigned to Ketotop, LLC, at no cost, the exclusive right to
commercialize and sell Ketotop in the European Union. Global Medical Enterprises
had received this exclusive right from Pacific Pharmaceuticals Inc. The Company
and Global Medical Enterprises Ltd. intend that Ketotop, LLC will sublicense
exclusive Ketotop commercialization rights to sublicensees in Europe which will
be responsible for the costs of commercializing Ketotop within their
subterritories. The Company agreed to provide its clinical data to Ketotop, LLC
in return for reciprocal clinical data access from Ketotop, LLC's European
sublicensees.
The Company contributed initial capital of $2,500 to Ketotop, LLC in 1999.
The agreement does not require the Company to contribute additional capital.
SHEARWATER POLYMERS AGREEMENT
In September 1999, the Company entered into an agreement with Shearwater
Polymers, Inc. The agreement grants to the Company the exclusive right to
Shearwater's know-how for the design, development, production, and use of a
technology known as pegylation to develop and produce sustained release
prostacyclin molecules for the possible treatment of pulmonary hypertension,
peripheral vascular disease, stroke, heart disease, cancer, and related diseases
worldwide. In exchange, the Company paid Shearwater $100,000 in cash and agreed
to pay Shearwater milestone payments of up to $2,900,000. Milestone payments
will come due upon the achievement of certain product development goals set
forth in the agreement and are expected to be paid over a period of
approximately six years. The Company also agreed to pay royalties ranging from 2
to 4 percent of net sales from developed products. Minimum annual royalties of
$1,000,000 are required commencing with the thirteenth month following
government approval of a developed product. License fees expensed as research
and development for the year ended December 31, 1999 were $100,000.
F-13
<PAGE> 44
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under United Therapeutics' agreement with Shearwater, any inventions that
relate to the combination of prostacyclin and the pegylation technology,
including production methods and therapeutic methods for the treatment of any
indication, will be owned solely by United Therapeutics, and any inventions
relating to non-protacyclin pegylation methods such as drug formulation or
delivery will be owned solely by Shearwater. Both United Therapeutics and
Shearwater have filed for U.S. patent applications relating to their respective
inventions and each is responsible for prosecuting and maintaining its patent
portfolio.
5. COMMITMENTS
CLINICAL TRIALS AND OTHER RESEARCH
The Company has contracted with universities and research organizations to
perform clinical trials and other research related to Uniprost and other
products. The Company generally pays all expenses incurred in carrying out the
clinical trials and research activities. Total expenses under these agreements
were approximately $16,600,000, $7,600,000, and $1,700,000 in 1999, 1998, and
1997, respectively. Total payments under these agreements in 2000 are not
expected to exceed $19,000,000.
UNIVERSITY COLLEGE LONDON
In 1997, the Company entered into a cooperative drug discovery agreement
with University College London (UCL) to identify and develop compounds with
therapeutic effectiveness against pulmonary hypertension and other diseases
treatable by potassium channel compounds. Under the agreement, the Company is
required to pay UCL a royalty equal to a percentage of net sales and license
fees that the Company earns from discoveries and products developed by UCL. This
royalty obligation extends for 15 years or, if later, until any issued patents
expire. In 1999, the Company decided not to fund further drug development and
terminated the agreement. No discoveries were found as a result of this
agreement.
WILLIAM HARVEY RESEARCH LIMITED
In 1998, the Company entered into a cooperative drug discovery agreement
with William Harvey Research Limited (WHR) to identify and develop an antisense
therapy as a potential treatment for pulmonary hypertension. The agreement may
be terminated by the Company after 30 months. Under the agreement, the Company
is required to pay WHR a royalty equal to a percentage of net sales and license
fees that the Company earns from discoveries developed by WHR. This royalty
obligation extends for 15 years or, if later, until any issued patents expire.
F-14
<PAGE> 45
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MILESTONE AND ROYALTY PAYMENTS
The Company has in-licensed certain products under agreements described in
note 4. These agreements generally include milestone payments to be paid in cash
by the Company upon the achievement of certain product development and
commercialization goals set forth in each agreement. Total milestone payments
under these agreements may come due approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C> <C>
2000...................... $ 525,000
2001...................... 1,300,000
2002...................... 3,650,000
2003...................... 4,800,000
2004 and thereafter....... 4,400,000
</TABLE>
Additionally, certain agreements described in note 4 require the Company to
pay royalties. The royalties are generally based on a percentage of net sales or
other product fees earned by the Company. Royalties will become due when sales
are generated and will range from 2.5 to 30 percent of net product revenues as
defined in the respective agreements.
EMPLOYMENT AGREEMENT
In April 1999, the Company executed an employment agreement with its CEO.
The agreement establishes minimum compensation and benefits for a renewing five
year period. The agreement also requires the Company to issue options to the CEO
at the end of each of the next five years to purchase a number of shares of
common stock equal to one percent of the increase in the Company's market
capitalization after the initial public offering over the prior year, divided by
18, subject to certain annual limitations. The exercise price of the options
will be 110 percent of the fair market value of a share of common stock on the
date of grant, or 100 percent of fair market value if the CEO owns less than 10
percent of the Company's outstanding common stock on the date of grant. If the
CEO is terminated without cause or leaves with good reason, she will receive
severance equal to three years of base salary plus the value of any vested
options.
6. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company was originally capitalized through the issuance of 1,666,663
shares of common stock for $0.06 per share, with a par value of $0.01. In 1997,
the number of authorized shares of common stock was increased from 20,000,000 to
50,000,000 shares. Also in 1997, 4,209,506 shares of common stock were issued at
prices ranging from $1.20 to $3.00. Of this total, 309,428 shares were issued as
a result of the conversion of a loan and accrued interest thereon from the
Chairman and CEO of the Company totaling $508,334.
On December 7, 1997, the Company's board of directors approved a one-for-two
reverse stock split of the Company's common stock. All common shares and per
share amounts in the accompanying financial statements have been retroactively
adjusted to reflect this reverse stock split. Authorized shares and the par
values of common and preferred stock were not affected.
In 1998, the Company issued 4,028,404 shares of common stock for cash at
prices ranging from $3.00 to $18.00.
In January and February 1999, the Company issued 111,370 shares of common
stock for cash at a price of $18.00 per share.
F-15
<PAGE> 46
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for the sale
of up to 6,000,000 shares of common stock. On June 17, 1999, the Company's
initial public offering, which involved the sale of 4,500,000 shares of common
stock at $12.00 per share, was declared effective by the SEC. The Company closed
the initial public offering on June 22, 1999 and received net proceeds, after
deducting underwriting commissions and offering expenses, of approximately
$48,874,000.
In April 1999, the Company's Board of Directors and stockholders approved an
amendment to the Company's Certificate of Incorporation increasing the number of
authorized shares of common stock to 100,000,000 shares. On June 11, 1999, the
Company increased the total number of authorized shares of common stock to
100,000,000.
In April 1999, the Company's Board of Directors approved a one-for-three
reverse stock split of its outstanding common stock which was effected on June
11, 1999. Authorized shares and the par values of common and preferred stock
were not affected by the reverse split. All share and per share amounts in the
accompanying financial statements have been retroactively adjusted to reflect
the reverse stock split for all periods presented.
On July 16, 1999, the Company closed on the sale of 675,000 over-allotment
shares of common stock to its underwriters. The underwriters' over-allotment
option was exercised at the initial public offering price of $12.00 per share.
The net proceeds, after deducting underwriting commissions and offering
expenses, were approximately $7,515,000.
PREFERRED STOCK
A total of 10,000,000 shares of preferred stock with a par value of $0.01
were authorized in 1997. No preferred stock has been issued.
STOCK AND OPTIONS ISSUED FOR EXCLUSIVE LICENSE AGREEMENTS AND IN EXCHANGE
FOR SERVICES
In 1998 the Company issued 166,666 shares of common stock and options to
purchase 166,666 shares of common stock in exchange for an exclusive license
agreement. The stock was valued at $1,500,000, based on prices of similar
quantities of stock sold to unrelated parties during the period. The options
have an exercise price of $9.00 per share, are exercisable immediately, and
expire 30 days following the date of the Company's first filing of a New Drug
Application in the United States for the licensed product. The fair value of the
options was estimated on the date of grant at $185,000 using the Black-Scholes
option pricing model with assumptions generally consistent with those used for
employee options. The total of $1,685,000 was expensed as research and
development in 1998.
In 1998, the Company issued warrants to purchase 116,666 shares of common
stock in exchange for an exclusive license agreement. The warrants have an
exercise price of $9.00 per share, are exercisable beginning in November 2000,
and expire in November 2004. The fair value of the warrants was estimated on the
date of grant at $168,000 using the Black-Scholes option pricing model with
assumptions generally consistent with those used for employee options and was
expensed as research and development in 1998.
F-16
<PAGE> 47
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1998, the Company issued a total of 37,694 shares of common stock in
recognition of consulting services rendered during the year. The stock's fair
value and related compensation expense (ranging from $3.00 to $9.00) per share
was estimated based on prices of similar quantities of stock sold to unrelated
parties during the period.
In March 1999 the Company issued 500,000 shares of common stock in exchange
for an exclusive license agreement. The stock was valued at $9,000,000 ($18.00
per share) by the Company based on recent sales at $18.00 per share. The total
of $9,000,000 was expensed as research and development in 1999.
In October 1999, the Company issued 101,251 shares of common stock to
purchase all of the outstanding stock of SynQuest, Inc.
The Company issued options to consultants for services during 1999 and 1998.
A total of 38,330 options to purchase common shares, with exercise prices of
$16.75 to $30.12, were granted in 1999. A total of 6,333 options to purchase
common shares with exercise prices of $15.00 to $18.00, were granted in 1998.
EMPLOYEE OPTIONS
The Company's Board of Directors adopted an equity incentive plan (the Plan)
effective November 12, 1997. On April 5, 1999 and April 8, 1999, the Company's
Board of Directors and stockholders approved an amendment and restatement of the
Plan to increase the total number of shares of common stock that may be issued
pursuant to the Plan to 14,939,517 shares, including 7,939,517 shares reserved
for issuance to the CEO under her employment agreement (see note 5). The Plan
provides for the grant of awards, including options, stock appreciation rights,
restricted stock awards and other rights as defined in the Plan, to eligible
participants. Options granted under the Plan are not transferable and must
generally be exercised within 10 years. The price of all options granted under
the Plan must be at least equal to the fair market value of the common stock on
the date of grant. With respect to any participant who owns 10 percent or more
of the Company's outstanding common stock on the date of grant, the exercise
price of any incentive stock option granted to that participant must equal or
exceed 110 percent of the fair market value of the common stock on the date of
grant and the option must not be exercisable for longer than five years. During
the year ended December 31, 1997, options to purchase a total of 274,000 shares
were granted under this Plan at exercise prices of $3.00 to $16.50. During the
year ended December 31, 1998, options to purchase a total of 610,401 shares were
granted under this Plan at exercise prices of $3.00 to $19.80. During the year
ended December 31, 1999, options to purchase a total of 442,907 shares were
granted under this Plan at exercise prices of $12.38 to $35.75.
An additional 126,666 options have been granted to employees outside of the
Plan that have terms between five and ten years.
F-17
<PAGE> 48
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB Opinion No. 25 in accounting for options granted to
employees and, accordingly, no compensation expense has been recognized in the
financial statements with respect to such options. Had the Company determined
compensation expense under SFAS No. 123 based on the fair value at the grant
date for its stock options, the Company's net loss would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
Net loss:
As reported....................... $(33,506,698) $(12,835,399) $(2,901,224)
Pro forma......................... $(34,819,629) $(12,989,645) $(2,905,862)
Basic and diluted loss per common
share:
As reported..................... $ (2.51) $ (1.54) $ (0.87)
Pro forma....................... $ (2.60) $ (1.56) $ (0.87)
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions generally used for grants in 1999, 1998, and 1997 were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
-------- -------- ----------
<S> <C> <C> <C>
Dividend yield 0 percent 0 percent 0 percent
Expected volatility 0.10 percent - 76 0.10 percent 0.10 percent
percent
Risk free interest rate 6.0 to 6.55 percent 4.4 to 5.7 percent 4.4 to 5.7 percent
Expected lives 7.5 years 7.5 years 7.5 years
</TABLE>
A summary of the status of the Company's employee stock options as of
December 31, 1999, 1998, and 1997, and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1998 1997 1999
----------------------- -------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period.......................... 878,485 $12.69 274,000 $ 13.77 -- $ --
Granted........................... 569,573 22.81 610,401 12.12 274,000 13.77
Exercised......................... -- -- -- -- -- --
Forfeited......................... (35,334) 8.66 (5,916) 3.00 -- --
---------- -------- ------- ------- ------- --------
Outstanding at end of period...... 1,412,724 $ 16.87 878,485 $12.69 274,000 $13.77
========== ======== ======= ======= ======= ========
Options exercisable at end of
period......................... 449,145 $ 11.90 180,318 $ 8.28 21,250 $ 7.80
========== ======== ======= ======= ======= ========
Weighted-average fair value
of options granted
during the period............... $ 16.69 $ 3.30 $ 0.06
========== ======= =======
</TABLE>
F-18
<PAGE> 49
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about employee stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE EXERCISE
PRICES NUMBER CONTRACTUAL LIFE PRICE NUMBER PRICE
- ------------- --------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 3.00 139,811 4.64 $ 3.00 82,902 $ 3.00
9.00 202,663 4.44 9.00 150,332 9.00
12.38 8,000 9.50 12.38 ------ -----
13.38 25,000 9.50 13.38 10,000 13.38
15.00 150,664 8.00 15.00 60,502 15.00
16.50 66,666 3.00 16.50 26,667 16.50
16.75 201,825 9.50 16.75 30,836 18.00
18.00 217,162 9.01 18.00 53,572 18.00
19.80 83,333 8.90 19.80 20,834 19.80
23.50 10,000 10.00 23.50 2,500 23.50
27.50 202,600 9.79 27.50 10,000 27.50
28.75 100,000 5.00 28.75 ------ -----
35.75 5,000 9.90 35.75 1,000 35.75
- ------------- --------- ------ ------- -------- -------
$3.00 - 35.75 1,412,724 7.44 $ 16.87 449,145 $11.90
============= ========= ====== ======= ======== =======
</TABLE>
7. INCOME TAXES
A reconciliation of tax benefit computed at the statutory federal tax rate
on losses from operations before income taxes to the actual income tax expense
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Federal tax provision
(benefit) computed at
the statutory rate........... $(11,391,103) $(4,362,981) $(1,015,428)
State tax provision
(benefit), net of
federal tax provision
(benefit).................... (2,680,260) (842,180) (113,936)
Change in the beginning
of the period valuation
allowance for deferred
tax assets allocated to
tax expenses................. 16,548,175 7,564,698 1,127,859
General business credit
generated.................... (7,811,718) (3,005,476) --
Nondeductible expenses
and other.................... 5,338,360 649,039 1,505
----------- ----------- -----------
Total income tax
expense................... $ 3,454 $ 3,100 $ --
=========== =========== ===========
</TABLE>
F-19
<PAGE> 50
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net effect of net operating loss
carryforwards and the temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the Company's deferred tax assets
as of December 31, 1999 and 1998, respectively, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............. $12,325,956 $ 4,245,686
General business credit....................... 11,258,448 3,640,146
Cumulative effect of using cash basis
accounting for income tax purposes......... 1,503,180 690,302
Furniture and equipment principally due to
differences in depreciation................ (46,666) (19,164)
Nonqualified stock options.................... 210,837 146,610
----------- -----------
Total deferred tax assets.................. 25,251,755 8,703,580
Valuation allowance............................. (25,251,755) (8,703,580)
----------- -----------
Net deferred tax assets.................... $ -- $ --
=========== ===========
</TABLE>
Based on the weight of available evidence, management has determined that
the deferred tax asset amount may not be realized. This is due primarily to the
uncertainty of product approvals, future product sales and profitability. The
valuation allowance for deferred tax assets increased $16,548,175 and $7,564,698
for the years ended December 31, 1999 and 1998, respectively.
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $33.6 million and business tax credit carryforwards of
approximately $11.5 million for federal income tax purposes which expire at
various dates from 2011 through 2019. Business tax credits can offset future tax
liabilities and arise from qualified research expenditures. 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. However, 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 taxable income and taxes,
as applicable, during their carryforward lives.
8. NOTES AND LEASES PAYABLE
On April 29, 1998, the Company purchased an office building from a company
owned by the Chairman and CEO of the Company for approximately $581,000. At that
time, the Company assumed an existing adjustable rate mortgage on the building
of approximately $318,000. In June 1999, the Company refinanced the note
payable. The outstanding principal totaled approximately $315,000 and was paid
in full from the proceeds of a new mortgage note payable. The new mortgage note
payable was issued for $720,000 and is payable in monthly installments. This
30-year adjustable rate note had an interest rate of 6.25 percent in effect at
December 31, 1999 and is secured by the building and property owned by the
Company located at 1110 Spring Street in Silver Spring, Maryland.
In September 1999, the Company purchased a building adjacent to 1110 Spring
Street in Silver Spring, Maryland. The total cost of the building was
approximately $1,544,000. The Company issued a mortgage note payable to finance
this purchase. The mortgage note payable was issued for $1,078,000 and is
payable in monthly installments. This 30-year adjustable rate note had an
interest rate of 5.75 percent in effect at December 31, 1999 and is secured by a
certificate of deposit in the amount of $512,000 and the building and property
owned by the Company located at 1106
F-20
<PAGE> 51
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Spring Street in Silver Spring, Maryland. The Company also leased certain
equipment under capital leases with interest rates of approximately 6.5 percent
and terms up to 4 years.
Future minimum payments under notes and leases payable are as follows:
<TABLE>
<CAPTION>
NOTES CAPITAL
PAYABLE LEASES
<S> <C> <C>
YEAR ENDING DECEMBER 31,
2000...................... $ 22,644 $ 36,560
2001...................... 24,043 8,377
2002...................... 25,512 4,962
2003...................... 27,069 2,067
2004...................... 28,722 --
2005 and thereafter....... 1,664,286 --
---------- --------
1,792,276 51,966
Less amount representing
interest................ -- (3,751)
Less current portion...... (22,644) (34,142)
---------- --------
$1,769,632 $ 14,073
========== ========
</TABLE>
9. INVESTMENTS
Investments at December 31, 1998 consisted of a single debt security issued
by the Federal Home Loan Mortgage Corporation. Investments at December 31, 1999
consist of a diversified portfolio of corporate and federally sponsored debt
securities maturing in 2000. Investments at December 31, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
Fair value $ 33,326,436 $ 10,025,887
Amortized cost $ 33,315,914 $ 10,023,190
Gross unrealized holding gains $ 527,284 $ 25,810
</TABLE>
10. OPERATING LEASES
The Company leases office space for use in its research and development
activities in North Carolina. The initial leases commenced in 1997 and had
initial terms of six months. The leases are renewable semi-annually and were
renewed in 1998 and 1999.
In March 1999, a subsidiary of the Company leased office space from a
company owned by the Chairman and CEO of the Company (see note 3). The lease
expires in 2001 and may be extended for two years. The subsidiary is responsible
for base rentals and its proportionate share of common utilities and
maintenance. Also in March 1999, the Company leased an automobile for its CEO.
In September 1999, the Company purchased a building and property located at
1106 Spring Street in Silver Spring, Maryland. The building was fully leased to
tenants at the time of the purchase. These leases are expected to continue in
operation until their expiration, which will be at various dates through 2002.
Additionally, a subsidiary of the Company subleased a portion of its office
space to Quantum Medical Corporation (see note 11).
F-21
<PAGE> 52
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Approximate minimum annual rent payments to be paid and received under these
noncancelable leases are as follows:
<TABLE>
<CAPTION>
RENTS TO RENTS TO
BE PAID BE RECEIVED
------- -----------
<S> <C> <C>
YEAR ENDING DECEMBER 31,
2000...................... $ 205,627 $ 184,316
2001...................... 142,011 129,705
2002...................... 39,521 30,707
2003...................... 12,046 7,605
2004...................... 3,046 --
</TABLE>
Total rent expense for the years ended December 31, 1999, 1998, and 1997 was
$206,943, $97,033, and $25,340, respectively.
11. ACQUISITIONS
WONDERCLICK.COM, INC.
In July 1999, a subsidiary of Unither Telemedicine Services Corporation
(UTSC) entered into an agreement to form WonderClick.com, Inc. (formerly
AboveCable.com, Inc.), a Delaware corporation, to provide Internet access via
cable television portals worldwide. This subsidiary received 20 percent of the
initial outstanding common stock of WonderClick.com, Inc. and the exclusive
rights to offer telemedicine and electronic health services at the portal level.
The agreement does not require the UTSC subsidiary to contribute cash or other
capital. WorldSpace Corporation purchased a 50 percent common stock shareholding
in the new company. The Chairman and CEO of WorldSpace is a major stockholder
and Board member of the Company. At December 31, 1999, UTSC's subsidiary's 20
percent investment in WonderClick.com, Inc. had an original cost of zero and was
reported at zero. The subsidiary's equity in the underlying net assets was
approximately $349,000.
QUANTUM MEDICAL CORPORATION
In August 1999, Unither Telemedicine Services Corporation (UTSC)
entered into an agreement to form Quantum Medical Corporation, a Delaware
corporation, to develop and commercialize millimeter wave wound healing
technology. UTSC received approximately 35 percent of the initial outstanding
common stock of Quantum Medical Corporation. The Company has agreed to provide
the services of its Chief Executive Officer as Co-Chairman of the new company.
The agreement does not require UTSC to contribute cash or other capital. From
the date of the agreement until September 30, 1999, UTSC provided office space
and administrative services pursuant to a lease with Quantum Medical Corporation
for $3,000 per month, which terminated on November 1, 1999. At December 31,
1999, UTSC's 35 percent investment in Quantum Medical Corporation had an
original cost of zero and was reported at zero. UTSC's equity in the underlying
net assets was approximately $158,000.
F-22
<PAGE> 53
UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SYNQUEST, INC.
On October 7, 1999, the Company acquired all the outstanding stock of
SynQuest, Inc. (SynQuest), an Illinois corporation engaged in the synthesis and
manufacture of complex molecules. SynQuest manufactures UT-15, the Company's
lead compound. The total cost of this acquisition was approximately $3.2
million, including transaction costs. Cash of $200,000 and the Company's common
stock valued at $2.9 million was paid to the sellers as consideration. A
holdback equivalent to $500,000 of the Company's common stock, which will be
reduced to $200,000 of the Company's common stock on October 7, 2000, is being
held in escrow for unknown liabilities and will be paid to the sellers over four
years, subject to certain conditions.
Goodwill and other intangible assets resulting from the acquisition
were approximately $2.8 million and are being amortized in a straight-line
manner over periods ranging up to five years. The acquisition was accounted for
as a purchase. SynQuest's operations since October 7, 1999 have been included in
the Company's consolidated financial statements.
The following pro forma financial information presents the combined
results of operations of the Company and SynQuest as if the acquisition had
occurred as of the beginning of 1998 and 1999, after giving effect to certain
adjustments, including amortization of goodwill and intercompany sales. The pro
forma financial information does not necessarily reflect the results of
operations that would have occurred had the Company acquired SynQuest at the
beginning of these periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
Total revenues................ $1,717,000 $1,120,000
Net loss......................($34,125,000) ($13,598,000)
Loss per share -- basic and
diluted..................... ($2.55) ($1.61)
</TABLE>
12. EMPLOYEES' RETIREMENT PLAN
Effective January 1, 1999, the Company adopted the United Therapeutics
Corporation Employees' Retirement Plan (the Plan), a salary reduction profit
sharing plan. Employees employed on July 15, 1999 are eligible to participate in
the Plan. The Plan provides for annual discretionary employer contributions.
Employees may also contribute to the Plan at their discretion. For the year
ended December 31, 1999, no employer contributions were made to the Plan.
13. ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
Professional fees......... $ 123,396 $14,161
Research.................. 1,851,437 --
Other..................... 132,972 --
----------- -------
$ 2,107,805 $14,161
----------- -------
</TABLE>
F-23
<PAGE> 54
14. SUBSEQUENT EVENTS
SALE OF COMMON STOCK
In December 1999, the Company 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 $75.0 million. The common stock was
registered for resale with the SEC in a filing that was declared effective on
January 18, 2000.
UNITED THERAPEUTICS EUROPE, LTD.
In February 2000, the Company established United Therapeutics Europe,
Ltd., a wholly owned subsidiary in the United Kingdom, to facilitate activities
in Europe. The new subsidiary has not yet commenced operations.
STOCK GRANT TO COLUMBIA UNIVERSITY
In February 2000, the Company agreed to fund a United Therapeutics
Chair in Pulmonary Hypertension at Columbia University with a grant of the
Company's common stock valued at $1.5 million. The first half of this grant was
funded with the issuance of 9,868 shares of the Company's common stock valued at
$750,000 based on the closing Nasdaq price on February 10, 2000. The second half
of this grant will be funded on February 10, 2001 with a number of shares of the
Company's common stock that are then equivalent to $750,000.
EXCLUSIVE LICENSE AGREEMENT
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. Unither will pay Synergy, at
closing, a $100,000 license fee. In addition, the agreement conditionally
requires Unither to 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. As part of the transaction,
Unither has agreed to acquire 15 percent of the outstanding stock of Synergy for
a total of $5 million, payable as $2 million in cash and $3 million in shares of
common stock of United Therapeutics, all payable at closing. Unither will
acquire an exclusive option to purchase the remaining stock of Synergy. The
closing is expected to occur by March 31, 2000, after obtaining the consents of
current Synergy shareholders.
F-24
<PAGE> 55
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by Item 10 regarding nominees and directors
appearing under "Election of Directors" in United Therapeutics' definitive
proxy statement for its 2000 annual shareholders meeting (the "2000 Proxy
Statement") is hereby incorporated herein by this reference. Information
regarding executive officers of United Therapeutics appears in Part I of this
Form 10-K under the heading "Executive Officers" and is hereby incorporated
herein by this reference.
Information appearing under "Section 16(a) Beneficial Ownership
Reporting Compliance" in the 2000 Proxy Statement is hereby incorporated herein
by this reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation required by Item 11
appears under "Management" in the 2000 Proxy Statement and is hereby
incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding beneficial ownership of United Therapeutics
capital stock required by Item 12 appears under "Security Ownership of Certain
Beneficial Owners and Management" in the 2000 Proxy Statement and is hereby
incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning related party transactions required by Item 13
appears under "Certain Relationships and Related Transactions" in the 2000 Proxy
Statement and is hereby incorporated herein by this reference.
28
<PAGE> 56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(i) Consolidated Balance Sheets as of December 31, 1999 and 1998.
(ii) Consolidated Statements of Operations for the three years ended
December 31, 1999.
(iii) Consolidated Statements of Stockholders' Equity for the three
years ended December 31, 1999.
(iv) Consolidated Statements of Cash Flows for the three years ended
December 31, 1999.
(v) Notes to Consolidated Financial Statements.
Exhibits filed as a part of this Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the
Registration, incorporated by reference to Exhibit 3.1 of the
Registrant's Registration Statement on Form S-1 (Registration
No. 333-76409).
3.2 Amended and Restated Bylaws of the Registrant, incorporated by
reference to Exhibit 3.2 of the Registrant's Registration
Statement (Registration No. 333-76409).
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 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).
4.3 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).
4.4 Warrant to purchase shares of United Therapeutics common stock,
issued on November 2, 1998 to Cortech, Inc., incorporated by
reference to Exhibit 4.4 of the Registrant's Registration
Statement on form S-1 (Registration No. 333-76409).
4.5 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).
4.6 Registration Rights Agreement, dated as of October 7, 1999, by
and among the Registrant and Robert M. Moriarty, Ph.D., Raju
Penmasta, Ph.D., Lian 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.
4.7 Form of Purchase Agreement dated as of December 22, 1999,
incorporated by reference to Exhibit 4.7 of the Registrant's
Registration Statement on form S-1 (Registration No. 333-93853)
10.1** Amended and Restated Equity Incentive Plan, incorporated by
reference to Exhibit 10.1 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-76409).
10.2 Form of Scientific Advisor Compensation Agreement, incorporated
by reference to Exhibit 10.2 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-76409).
10.3** Executive Employment Agreement (as amended) dated as of
April 2, 1999, between the Registrant and Martine A. Rothblatt,
incorporated by reference to Exhibit 10.3 of the Registrant's
Registration Statement on Form S-1 (Registration No.
333-76409).
10.4** Employment Agreement dated July 15, 1996, between the
Registrant and James W. Crow, incorporated by reference to
Exhibit 10.4 of the Registrant's Registration Statement on Form
S-1
</TABLE>
29
<PAGE> 57
<TABLE>
<S> <C>
(Registration No. 333-76409).
10.5** Employment Agreement dated April 7, 1996, between the
Registrant and Gilles Cloutier, incorporated by reference to
Exhibit 10.5 of the Registrant's Registration Statement on Form
S-1 (Registration No. 333-76409).
10.6** Employment Agreement dated August 1, 1996, between the
Registrant and Shelmer Blackburn, Jr., incorporated by
reference to Exhibit 10.6 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-76409).
10.7 First Flight Venture Lease Agreement dated July 1, 1997,
between North Carolina Technological Development Authority,
Inc. and the Registrant, incorporated by reference to Exhibit
10.2 of the Registrant's Registration Statement on Form S-1
(Registration No. 333-76409).
10.8 Exclusive License Agreement dated as of December 3, 1996,
between the Registrant and affiliate of Pharmacia & Upjohn
Company, incorporated by reference to Exhibit 10.8 of the
Registrant's Registration Statement on Form S-1 (Registration
No. 333-76409).*
10.9 Assignment Agreement dated as of January 31, 1997, between the
Registrant and affiliates of Glaxo Wellcome Inc., incorporated
by reference to Exhibit 10.9 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-76409).*
10.10 Cooperation and Strategic Alliance Agreement dated as of
September 3, 1997, between Registrant and MiniMed Inc.,
incorporated by reference to Exhibit 10.10 of the Registrant's
Registration Statement on Form S-1 (Registration No.
333-76409).*
10.11 Exclusive License Agreement dated as of September 24, 1998,
between the Registrant and Toray Industries, Inc., incorporated
by reference to Exhibit 10.11 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-76409).*
10.12 Exclusive License Agreement dated as of November 4, 1998,
between the Registrant and Cortech, Inc., incorporated by
reference to Exhibit 10.12 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-76409).*
10.13 Exclusive License and Distribution Agreement dated as of
February 4, 1999, among the Registrant, Global Medical
Enterprises Ltd. And Global Medical Enterprises Ltd., LLC.,
incorporated by reference to Exhibit 10.13 of the Registrant's
Registration Statement on Form S-1 (Registration No.
333-76409).*
10.14 Exclusive License Agreement dated as of March 15, 1999, between
the Registrant and Toray Industries, Inc., incorporated by
reference to Exhibit 10.14 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-76409).*
10.15 Manufacturing Agreement dated as of February 11, 1998, between
the Registrant and Steroids, Ltd., incorporated by reference to
Exhibit 10.15 of the Registrant's Registration Statement on
Form S-1 (Registration No. 333-76409).*
10.16 Agreement and Plan of Merger dated as of October 7, 1999, among
the Registrant, SQ Acquisition, Inc., Robert M. Moriarty,
Ph.D., Raju Penmasta, Ph.D., Laing Guo, Ph.D., George W. Davis,
Esq., David Moriarty and SynQuest, Inc., incorporated by
reference to Exhibit 10.1 of the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1999.
10.17 Lease dated as of March 1, 1999, between the Unither
Telemedicine Services Corp. and Beacon Projects, Inc.,
incorporated by reference to Exhibit 10.17 of the Registrant's
Registration Statement on Form S-1 (Registration No.
333-76409).
10.18 UAI Technology, Inc. Office Lease dated as of July 1, 1998,
between the Registrant and UAI Technology, Inc., incorporated
by reference to Exhibit 10.18 of the Registrant's Registration
Statement on Form S-1 (Registration No. 333-76409).
10.19 Form of Indemnification Agreement between the Registrant and
each of its Directors, incorporated by reference to Exhibit
10.19 of the Registrant's Registration Statement on Form S-1
(Registration No.
333-76409).
10.20 Guidelines to Govern the Strategic Activities, Co-Development
and Related Activities of the Parties dated as of November 1,
1999, between the Registrant and MiniMed, Inc., incorporated by
reference to Exhibit 10.20 of the Registrant's Amended
Registration Statement on Form S-1/A (Registration No.
333-93853).*
10.21 Short Form Commercial and Apartment House Real Estate Purchase
Agreement, accepted as of August 4, 1999 between the Registrant
and 1106 Spring Street Associates.
21 Subsidiaries of the Registrant.
</TABLE>
30
<PAGE> 58
<TABLE>
<S> <C>
23.1 Consent of KPMG LLP.
27 Financial Data Schedule.
</TABLE>
- ------------------
* Confidential treatment has been granted with respect to certain
portions of this exhibit pursuant to Rule 406 of the Securities Act of
1933, as amended.
** Designates management contracts and compensation plans.
(b) Reports on Form 8-K
None.
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
UNITED THERAPEUTICS CORPORATION
March 21, 2000 By: /s/ MARTINE A. ROTHBLATT
-------------------------------------------------
Martine A. Rothblatt
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ MARTINE A. ROTHBLATT Chairman of the Board and March 21,2000
- ---------------------------------------- Chief Executive
Officer
Martine A Rothblatt
/s/ JAMES W. CROW President, Chief Operating March 21,2000
- ---------------------------------------- Officer and Director
James W. Crow
/s/ GILLES CLOUTIER
- ---------------------------------------- Executive Vice President,
Gilles Cloutier Treasurer and Director March 21,2000
/s/ SHELMER D. BLACKBURN, JR Vice President of Operations,
- ---------------------------------------- Secretary and Director March 21,2000
Shelmer D. Blackburn, Jr.
/s/ FRED T. HADEED Chief Financial Officer March 21,2000
- ----------------------------------------
Fred T. Hadeed
/s/ JEAN-GUY LAMBERT Director March 21,2000
- ----------------------------------------
Jean-Guy Lambert
/s/ NOAH A. SAMARA Director March 21,2000
- ----------------------------------------
Noah A. Samara
/s/ DAVID GOORAY
Director March 21,2000
- ----------------------------------------
David Gooray
/s/ OLIVIA GISCARD D'ESTAING Director March 21, 2000
- ----------------------------------------
Olivia Giscard d'Estaing
</TABLE>
32
<PAGE> 60
UNITED THERAPEUTICS CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.21 Short Form Commercial and Apartment House Real Estate Purchase
Agreement, accepted as of August 4, 1999 between the Registrant and 1106
Spring Street Associates.
21 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.21
GREATER CAPITAL AREA ASSOCIATION OF REALTORS(R), INC.
SHORT FORM COMMERICAL AND APARTMENT HOUSE
REAL ESTATE PURCHASE AGREEMENT
Date of Offer: July 27, 1999
THIS PURCHASE AGREEMENT ("Agreement") is made and entered into by and
between United Therapeutics Corp. ("Purchaser"), and 1106 Spring Street
Associates ("Seller").
The parties hereto are desirous of entering into an agreement relating to
the sale by Seller to Purchaser of certain property. In consideration of the
foregoing and of the mutual covenants and agreements hereinafter set forth, the
parties hereto hereby agree as follows:
1. DEPOSIT: DESCRIPTION OF PROPERTY. Hanes Realty, Inc. ("Agent") has
received from Purchaser a deposit ("Deposit") wire transfer (by check, by cash,
by note) of Seventy-Five Thousand Dollars ($75,000.00) to be applied as part
payment of the Purchase Price of the real property legally described as Lot P4,
Square Blk "A" with improvements thereon known by street address as 1106 Spring
Street, Silver Spring, Maryland 20910 a three story and basement office/medical
building in J.C. Wilson estates in Montgomery County together with the
easements, rights, privileges and appurtenances belonging to the same, and
including all of the furniture, fixtures, furnishings, machinery, equipment and
(see addendum) (the "Personal Property") owned by Seller situated on or about
said property (said real and personal property being collectively referred to
herein as the "Property"). Seller agrees to sell and convey to Purchaser, and
Purchaser agrees to buy from Seller, the Property, upon the terms and conditions
herein set forth.
2. PURCHASE PRICE. The purchase price ("Purchase Price") of the Property is
One Million, Five Hundred and Forty Thousand dollars ($1,540,000.00). If the
Property shall be encumbered by a mortgage or a deed of trust which Purchaser is
to assume or take title subject to and if any regular payments on account of the
principal thereof shall be made by the Seller between the date of this Agreement
and the date of settlement, the aggregate amount of any such principal payments
shall be DNA (paid to Seller by Purchaser at settlement in addition to the
amount set forth in paragraph 3(a) hereof; added to the principal amount of the
DNA Deed of Trust provided for below.)
3. PAYMENT OF PURCHASE PRICE. [FINANCING CONTINGENCY (IF ANY) AND
ADDITIONAL OR ALTERNATIVE FINANCING TERMS (IF ANY) ARE ADDED BY ADDENDUM
YES XX NO]
- ----- -----
The Purchaser agrees:
To pay One Million, Five Hundred and Forty Thousand Dollars ($1,540,000.00)
cash on the date of settlement, of which the Deposit shall be a part.
4. TITLE. The Property is sold free of encumbrance except as aforesaid and
except for the rights of tenants in possession; title is to be good of record
and marketable, subject, however, to covenants, rights of way, easements,
conditions and restrictions of record, if any, otherwise, said Deposit is to be
returned and this Agreement declared void at the option of the Purchaser, unless
the defects are of such character that they may be readily remedied by legal
action or the Purchaser fails to object as provided below. The Seller and Agent
are hereby expressly released from all liability for damages by reason of any
defect in unmarketability of the title. In case legal steps are necessary to
perfect the title, such action must be taken by the Seller promptly at his own
expense, whereupon the time herein specified for full settlement by the
Purchaser will thereby be extended for period necessary for such perfecting of
title. Purchaser hereby authorizes Agent to order the examination of title from
_________ ("Title Company") a survey (if required), and the preparation of all
necessary conveyancing papers, at Purchaser's expense; provided, however, that
if upon examination the title should be found defective or unmarketable, and is
not
<PAGE> 2
remedied as aforesaid, the Seller hereby agrees to pay the cost of the
examination of the title and also to pay the Agent herein the commission
hereinafter provide for just as though the sale had actually been consummated
and the parties had complied with all the terms of this Agreement. All claims of
defect in or unmarketability of title by Purchaser shall be delivered by
Purchaser to Seller within fifteen (15 days) of issuance of the title report and
shall be deemed waived if not so delivered. Issuance by a title insurance
company of a title insurance commitment naming Purchaser as the proposed insured
for an owners' policy of title insurance on American Land title Association
standard form of owners' marketability policy (ALTA Form B-1970, as from time to
time amended), conforming to the requirements of this Agreement, shall be
conclusive evidence of marketability of title.
5. DEED. Seller agrees to execute and deliver at settlement a good and
sufficient special warranty deed: or, if the Property is located in the
Commonwealth of Virginia, seller agrees to execute and deliver at settlement a
good and sufficient general warranty deed.
6. ADJUSTMENTS. Rents, taxes, water rent, insurance and interest on
existing encumbrances (if any), cost of fuel in storage tanks, salaries and
accrued benefits of employees (if any), and operating charges (including,
without limitation, utilities charges) are to be adjusted to the date of
transfer. Rental security deposits, if any, plus any interest thereon shall be
transferred to Purchaser at the time of settlement. Taxes, general and special,
are to be adjusted according to the certificate of taxes as issued by the
Collector of Taxes, except that assessments for improvements completed prior to
the date hereof, whether assessment therefore has been levied or not, shall be
paid the Seller or allowance made therefor at the time of transfer. If the
Property is serviced by the Washington Suburban Sanitary Commission, annual
benefit charges of said Commission are to be adjusted to date of transfer and
assumed thereafter by Purchaser.
7. CLOSING AND RECORDING COSTS. Examination of title (except as otherwise
provided above), tax certificate, conveyancing, notary fees, survey if required,
State revenue stamps, if any, and all recording charges, including those for
purchase money trust, if any, are to be at the cost of the Purchaser. Transfer
and recordation taxes shall be equally divided between Seller and Purchaser.
8. SETTLEMENT: FORFEITURE OF DEPOSIT. On or before the 27th day of August,
1999, or as soon thereafter as (a) the report on the title can be secured if
promptly ordered by the Purchaser, (b) an appointment for settlement can be
arranged with the Title Company, (c) a survey procured, if one is necessary, and
(d) any and all contingencies herein set forth are satisfied, the Seller and
Purchaser agree to and are required to make full settlement of said purchase in
accordance with the terms hereof. At the settlement, in addition to all other
documents required to be delivered by the provisions hereof (a) Seller shall
deliver to Purchaser a bill of sale for the Personal Property, an assignment of
such insurance policies on the Property as shall be assignable, all books and
records pertaining to the operation of the Property, plans and specifications of
the Property in Seller's possession, assignments of the leases described in
paragraph 11 hereof, such certificates, permits and licenses with respect to the
Property as shall be assignable, and DNA (additional items, if any); and (b)
Purchaser shall deliver to Seller a promissory note an deed of trust, in a form
reasonably satisfactory to Seller, for financing (if any) taken back by Seller
in accordance with the terms hereof, a security agreement and financing
statement secured by the Personal Property, and DNA (additional items if any).
As of the settlement date (a) no part of the Property shall have been acquired,
or shall be about to be acquired, by any governmental authority or agency in the
exercise of its power of eminent domain or by private purchase in lieu thereof,
nor shall there by any threat or imminence of any such acquisition or purchase;
and (b) all representations and warranties as set forth in this Agreement shall
be true and correct.
If Purchaser shall fail to make full settlement in accordance herewith,
the Deposit herein provided for may be forfeited as liquidated damages at the
option of the Seller, in which event the Purchaser shall be relieved from
further liability hereunder.
If after breach by Purchaser, the Seller (a) elects to declare the
Purchaser's Deposit forfeited under the provisions of this Agreement, in any
such event, the Seller and Purchaser agree that Agent shall be paid by Seller,
or shall retain from the Deposit (if then in escrow), one-half (1/2) of said
Deposit as compensation for services rendered by Agent, said amount not to
exceed the full commission as hereinafter provided. If Seller elects to declare
the Deposit forfeited, the Purchaser agrees that the Agent may deliver the
remaining one-half (1/2) of said Deposit to the Seller, to be retained as
liquidated damages; and when the foregoing has been accomplished, the Purchaser
and Seller hereby expressly relieve and release said Agent from any further
liability or responsibility.
9. PLACEMENT OF SETTLEMENT AND TITLE COMPANY. Settlement is to be made at
the Title Company or other agency employed to examine the title. Deposit with
the Title Company or such other agency of that part of the Purchase Price to be
paid in case, the deed of conveyance for execution and such other papers as are
required of either the Seller or Purchaser by the terms of this Agreement,
within the time above provided for the
<PAGE> 3
consummation of this Agreement, shall be considered good and sufficient tender
of performance by either of said parties of the terms hereof. IT IS UNDERSTOOD
THAT THE PURCHASER HAS THE RIGHT TO NAME AND EMPLOY A PARTICULAR TITLE INSURANCE
COMPANY, SETTLEMENT, OR ESCROW COMPANY OR TITLE ATTORNEY, WHICH HAS BEEN
DESIGNATED BY PURCHASER AS SET FORTH IN PARAGRAPH 4 ABOVE.
10. DISPOSITION OF DEPOSIT. The entire Deposit, receipt of which is hereby
acknowledged, shall be held by Agent as escrow agent and deposited in an account
in accordance with applicable law until settlement hereunder is made, or until
disposition thereof is made pursuant to the terms of this Agreement. Agent shall
have the right to disburse the Deposit to Purchaser or Seller and the interest
earned thereon to Purchaser (a) at the settlement, or (b) otherwise as provided
in this Agreement upon ten (10) days' written notice to the parties, provided,
however, that Agent shall not have received any written objections to such
disbursement within ten (10) days after receipt by Purchaser and Seller of said
notice. The parties hereto hereby acknowledge that Agent shall have no liability
to any party on account of Agent's failure to disburse the Deposit or interest
thereon if a dispute shall have arisen with respect to the propriety of such
disbursement; and, in the event of any dispute as to who is entitled to receive
the Deposit or interest earned thereon, Agent shall have the right to retain the
funds and disburse them in accordance with the final order of a court of
competent jurisdiction, or to deposit such funds with said court pending a final
decision of such controversy. The parties further agree that Agent shall not be
liable for failure of any depository in which the Deposit is placed, and that
Seller and Purchaser each will indemnify, defend and save harmless Agent from
and against every claim, liability, cost, damage, loss and expense arising out
of the disbursement of the Deposit or failure to disburse the Deposit by Agent,
except in the case of Agent's gross negligence or willful misconduct.
11. EXISTING TENANCY. The Property is sold and shall be conveyed subject to
an existing tenancy or tenancies as follows: as listed in addendum. Without the
prior written consent of Purchaser (which shall not be unreasonably withheld),
Seller shall not (a) modify the terms or terminate any such tenancies, except
for nonpayment of rent; or (b) enter into any new leases or tenancies with
respect to the property.
12. POSSESSION. Seller agrees to give possession of the Property at time of
settlement, subject to the aforesaid existing tenancy or tenancies. If Seller
shall fail so to do and occupies said Property, Seller shall be a DNA (tenant by
sufferance, trespasser), and Seller agrees to pay Purchaser $DNA per week for
use and occupancy, and hereby expressly waives all notice to quit, if any,
provided by law.
13. RESIDENTIAL TENANCIES. (This clause is inapplicable and of no further
effect if the Property is not subject to residential tenancy.) Within DNA days
following the Date of Agreement, Seller shall provide to any residential tenant,
subtenant, lessee, sublessee, or other person entitled to the possession,
occupancy or benefits of a rental unit in the Property or any group thereof (the
"Tenants") and to any governmental entity such notice of the intended sale of
the Property and of their rights, as shall be required by applicable law. It is
expressly agreed that the obligations of Seller and Purchaser to make settlement
hereunder are conditioned upon the right of the Tenants and/or such governmental
entity to an opportunity to purchase the Property, as and if provided by the
applicable law. The Seller hereby expressly reserves the right to sell the
Property to the Tenants and/or such governmental entity on terms which comply
with the applicable law. Upon settlement of the sale of the Property to the
Tenants, and/or such governmental entity, this Agreement shall be void and the
Deposit shall be returned to the Purchaser within 15 days of the settlement
thereunder; provided, however, that in the event of any such settlement, Seller
shall pay to Agent the commission provided for herein. The Seller shall keep
purchaser and Agent apprised of all negotiation, correspondence, contracts and
other developments with respect to the negotiations with the Tenants and/or such
governmental entity under the applicable law.
14. RISK OF LOSS. Seller assumes the risk of loss or damage to the Property
by fire or other casualty until the executed deed of conveyance is delivered to
Purchaser or is recorded for him by the title company making the settlement.
15. LOCAL VIOLATIONS; CONDITION AND OPERATION OF PROPERTY. All written
notices of violations of statutes, municipal order or regulations issued by any
department of the jurisdiction in which the Property is situated, or
prosecutions in any of the courts of the jurisdiction in which the Property is
situated on account thereof, against or affecting the Property that have been
received by Seller as of the Date of Agreement shall be complied with by the
Seller and the Property conveyed free thereof, Seller sates that, tot he best of
his knowledge, all such notices and prosecutions are as set forth in the Addenda
hereto. Purchaser agrees that, except as expressly provided herein, Seller has
made no representation, warranty or other statement as to the physical
condition, operation or any other matter or thing affecting the Property.
Purchaser has inspected the Property, is
<PAGE> 4
fully familiar with the condition thereof, and Purchaser agrees to take the
Property AS IS as of the Date of Agreement. Seller shall: (a) deliver the
Property in substantially the same physical condition as of the Date of
Agreement; (b) not defer normal maintenance of the Property during the period
from the Date of Agreement to the date of settlement; and (c) not enter into,
modify or terminate any maintenance or service contracts relating to the
Property prior to the date of settlement without the prior written consent of
Purchaser.
16. CHOICE OF LAW; REFERENCES TO DISTRICT OF COLUMBIA. This Agreement, the
rights and obligations of the parties hereto, and any claims or disputes
relating thereto shall be governed by and construed in accordance with the laws
of the jurisdiction in which the Property is located (but excluding the choice
of law rules thereof) (the "applicable law"). If the Property involved in this
Agreement is located in a jurisdiction other than the District of Columbia,
wherever any reference is made to the District or any official thereof, the name
of the jurisdiction in which the Property is located and the proper official
thereof is substituted automatically.
17. AGENT. Seller recognizes Hanes Realty, Inc. (the "Agent) as agent
negotiating this Agreement and agrees to pay to agent a commission for services
rendered amounting to 6% of the gross Purchase Price set forth herein. The
amount of commission, as aforesaid, is hereby assigned to the Agent by Seller
out of the proceeds of sale and the Deposit. The party through or by whom
settlement hereof is made is hereby irrevocably authorized and directed to make
deduction of the aforesaid commission from the proceeds of sale and to make
payment thereof to said Agent after the proper credit for the Deposit, if any,
retained by Agent, under and by virtue of the terms hereof. However, should
settlement fail to occur within the time herein set forth, Agent shall
nonetheless be entitled to receive the commission herein provided.
18. GENERAL MASTER PLANS; SEWAGE DISPOSAL; SUBDIVISION PLAT. IF THE
PROPERTY IS LOCATED IN MONTGOMERY COUNTY, MARYLAND, EXECUTE AND APPEND ADDENDUM
ENTITLED "GENERAL MASTER PLANS; SEWAGE DISPOSAL; SUBDIVISION PLAT."
19. D.C. SOIL DISCLOSURE REQUIREMENTS. (This clause is inapplicable and of
no further effect if Property is not located in the District of Columbia.) The
characteristics of the soil on the Property as described by the Soil
Conservation Service of the United States of Agriculture in the Soil Survey of
the District of Columbia published in 1976 and as shown on the Soil Maps of the
District of Columbia is DNA. For further information, the Purchaser can contact
a soil testing laboratory, the District of Columbia Department of Environmental
Services, or the Soil Conservation Service of the Department of Agriculture.
20. TIME OF ESSENCE. The Purchaser and Seller agree that time is of the
essence of this Agreement.
21. ACCEPTANCE DATE OF AGREEMENT. This Agreement must be ratified and
accepted by the Seller and spouse (if Seller is married), within five days from
the date set forth under the title hereof (Date of Offer), in order to be
effectual and binding; otherwise the obligation of the Purchaser hereunder shall
cease and terminate and the Deposit shall be refunded. The Date of this
Agreement ("Date of Agreement") shall be the date on which this Agreement is
ratified and accepted as aforesaid.
22. BINDING EFFECT; ENTIRE AGREEMENT. Purchaser and Seller mutually agree
that this Agreement shall be binding upon them, and their respective heirs,
executors, administrators, successors and assigns; that the provisions hereof
shall survive the execution and delivery of the deed aforesaid and shall not be
merged therein; that this Agreement contains the final and entire Agreement
between the parties hereto, and that they shall not be bound by any terms,
conditions, statements, warranties, or representations, oral or written, express
or implied, not herein contained.
23. ASSIGNMENT. This Agreement may be assigned by either party hereto
without the consent of the other party hereto, unless paragraph 3(b) or (c)
(Deeds of Trust) is applicable, in which event, this Agreement shall not be
assigned without the prior written consent of Seller.
24. GRANTEE. The Property is to be conveyed in the names(s) to be
designated in writing by Purchaser prior to settlement.
25. NO REPRESENTATIONS. THE AGENT ASSUMES NO RESPONSIBILITY FOR THE
CONDITION OF THE PROPERTY NOR FOR THE PERFORMANCE OF THIS AGREEMENT BY ANY OR
ALL PARTIES HERETO PURCHASER, HEREBY WARRANTS AND REPRESENTS UNTO SELLER AND THE
REAL ESTATE BROKERS HEREIN (INCLUDING AGENT) THAT NO AGENT, SERVANT OR EMPLOYEE
OR SAID REAL ESTATE BROKERS HAS MADE ANY STATEMENT, REPRESENTATION OR WARRANTY,
ORAL OR WRITTEN, EXPRESS OR IMPLIED, TO PURCHASER REGARDING THE CONDITION OF THE
PROPERTY OF ANY PART THEREOF UPON WHICH PURCHASE HAS RELIED AND WHICH IS NOT
EXPRESSLY SET FORTH IN THIS AGREEMENT.
<PAGE> 5
26. ADDITIONAL PROVISION. Special provisions in the attached Addendum,
bearing the signatures of all parties hereto, and all plats and surveys attached
hereto, are incorporated herein and made a part hereof. Addendum attached:
XX yes no; Plat attached yes XX no; Survey attached: yes
- ---- ---- ---- ---- ----
XX no.
- ----
27. PRONOUNS. The words "Seller," "Purchaser," all pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine, neuter,
singular or plural as the identity of the person or entity and the context may
require.
28. NOTICES. All notices required or permitted herein shall be in writing
and effective as of the date on which such notice is mailed in any United States
Post Office, by certified or registered mail, postage prepaid, or hand-delivered
to Seller, the Agent or Purchaser (as shall be applicable) at the addresses
designated herein, or to such other addresses as the parties may designate in
writing from time to time.
We, the undersigned, hereby ratify, accept and agree to the above and
acknowledge it to be our Agreement.
THIS IS A LEGALLY BINDING AGREEMENT , PURCHASER AND SELLER SHOULD SEEK COMPETENT
LEGAL ADVICE BEFORE SIGNING.
<TABLE>
<S> <C>
/s/ M. Rothblatt for /s/ Judith Danish, Managing Partner
- -------------------------------------------- -------------------------------------
Purchaser Seller
United Therapeutics Corp. for 1106 Spring Street Associates
- -------------------------------------------- -------------------------------------
Purchaser Seller
DATE OF RATIFICATION AND ACCEPTANCE
(DATE OF AGREEMENT)
7/30/ , 1999 9:40 P.M. 8/4/ 1999
- ------------------------------------------ ------------------------------------------------
Address of Purchaser: Address of Seller:
United Therapeutics 4932 Cloister Drive
- ------------------------------------------ ------------------------------------------------
1110 Spring Street Rockville, MD 20852
- ------------------------------------------ ------------------------------------------------
Silver Spring, MD 20910
- ------------------------------------------
Telephone: Telephone:
Residence 301-254-2462 Residence 301-530-9559
---------------- ------------------------
Office 301-608-9292 Office NA
---------------- ------------------------
Agent hereby acknowledges receipt of the Deposit and agrees to hold same pursuant to the terms of this Agreement
AGENT: Hanes Realty, Inc.
By
-------------------------------
Title President/Broker (Officer must sign)
-------------------------------
Address: 519 Kennedy Street N.W.
-------------------------------
Washington, DC 20011
-------------------------------
Telephone: 202-882-6800
-------------------------------
</TABLE>
<PAGE> 6
ADDENDUM
Additional Provisions
Addendum to contract dated July 27, 1999 between UNITED THERAPEUTICS CORP.,
Purchaser and 1106 SPRING STREET ASSOCIATES, Seller
1. Re: personal property -
a. all cleaning equipment (i.e. carts, supplies, electric buffers,
etc.) are the property of the cleaning company
b. all equipment, both medical and office, in the Suite 301,
currently occupied by Dr. Louis Butler, is the property of 1106
Spring Street Associates.
2. All existing service contracts (i.e. trash, elevator maintenance, cleaning)
can be assigned or cancelled at the direction of the Purchaser.
3. The management company, Hanes Realty, Inc., will work with the Purchaser in
the orderly transfer of all documents and information pertaining to the
building.
4. Existing Tenancy:
<TABLE>
<CAPTION>
Suite # Tenant Lease Expires Monthly Rent
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
#1 Community Radiology 6/3/00 $ 800.00
#2 Dr. Bernadette Soong 2/28/00 749.00
#3 Dr. Mofikpara Wright 4/30/02 641.50*
#4/5 Dr. Howard Martin 4/30/02 1,316.00
#10 Levels of Elevation 9/30/03 845.00
#20 Glick Opticians 5/31/00 1,800.00
#101 Community Radiology 6/30/00 3,200.00
#200 Dr. Crystal McGinty 2/28/02 2,811.62
#205 Affinity Physical Ther. 12/14/01 2,123.00
#301 Dr. Louis Butler m/t/m 1,216.00
#303 Dr. Stuart Dulin 4/30/02 1,316.00
#305 Dr. Jonathan Lyons 5/31/01 3,200.00
</TABLE>
5. The Sellers are to pay the following settlement charges:
State Recordation Tax..................$ 6,776.00
Loan Origination fee 2 pts.............$23,100.00
State Transfer Tax.....................$ 7,700.00
County Transfer Tax....................$15,400.00
----------
$52,976.00
Broker's Commission and Seller's legal fees
<TABLE>
<CAPTION>
Purchaser: Seller:
1106 Spring Street Associates
<S> <C>
By: /s/ M. Rothblatt By: /s/ Judith Danish, Managing Partner
--------------------------- -----------------------------------
Date: 7/30/99 Date: 8/4/99 9:40 pm
--------------------------- ------------------
</TABLE>
<PAGE> 1
SUBSIDIARIES OF THE REGISTRANT
Lung Rx, Inc., a Delaware corporation.
SynQuest, Inc., an Illinois Corporation.
United Therapeutics Europe, Ltd., a United Kingdom Company.
Unither Pharmaceuticals, Inc., a Delaware Corporation.
Unither Telemedicine Services, Inc., a Delaware Corporation.
<PAGE> 1
The Board of Directors
United Therapeutics Corporation:
We consent to incorporation by reference in the registration statement (No.
33-95419) on Form S-8 of United Therapeutics Corporation of our report dated
February 25, 2000, relating to the consolidated balance sheets of United
Therapeutics Corporation and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of earnings, retained earnings, and cash
flows for each of the years in the three-year period ended December 31, 1999,
and all related schedules, which report appears in the December 31, 1999, annual
report on Form 10-K of United Therapeutics Corporation.
KPMG LLP
McLean, Virginia
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US $
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 18,280
<SECURITIES> 33,316
<RECEIVABLES> 362
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,656
<PP&E> 3,994
<DEPRECIATION> 203
<TOTAL-ASSETS> 59,943
<CURRENT-LIABILITIES> 4,577
<BONDS> 1,844
0
0
<COMMON> 160
<OTHER-SE> 53,406
<TOTAL-LIABILITY-AND-EQUITY> 59,943
<SALES> 225
<TOTAL-REVENUES> 436
<CGS> 164
<TOTAL-COSTS> 35,857
<OTHER-EXPENSES> 1,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> (33,503)
<INCOME-TAX> 3
<INCOME-CONTINUING> (33,507)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,507)
<EPS-BASIC> (2.51)
<EPS-DILUTED> (2.51)
</TABLE>
