United Therapeutics Corporation
UNITED THERAPEUTICS Corp (Form: 10-Q, Received: 10/27/2011 07:01:57)

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended September 30, 2011

 

OR

 

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

 

For the transition period from                to                

 

Commission file number 0-26301

 

United Therapeutics Corporation

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

52-1984749

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

1040 Spring Street, Silver Spring, MD

 

20910

(Address of Principal Executive Offices)

 

(Zip Code)

 

(301) 608-9292

(Registrant’s Telephone Number, Including Area Code)

 

 

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x   No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x   No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer  x

 

Accelerated filer  o

 

 

 

Non-accelerated filer  o

 

Smaller reporting company  o

(do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  x

 

The number of shares outstanding of the issuer’s common stock, par value $.01 per share, as of October 21, 2011 was 58,334,621.

 

 

 



Table of Contents

 

INDEX

 

 

 

Page

 

 

 

Part I.

FINANCIAL INFORMATION (UNAUDITED)

 

 

 

 

Item 1.

Consolidated Financial Statements

 

 

 

 

 

Consolidated Balance Sheets

 

 

 

 

 

Consolidated Statements of Operations

 

 

 

 

 

Consolidated Statements of Cash Flows

 

 

 

 

 

Notes to Consolidated Financial Statements

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

Item 1A.

Risk Factors

 

 

 

 

Item 6.

Exhibits

 

 

 

 

SIGNATURES

 

 

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

 

UNITED THERAPEUTICS CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

 

 

September 30,
2011

 

December 31,
2010

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

343,984

 

$

252,162

 

Marketable investments

 

350,614

 

374,921

 

Accounts receivable, net of allowance of none for 2011 and 2010

 

87,390

 

73,707

 

Other current assets

 

6,277

 

6,840

 

Prepaid expenses

 

9,762

 

8,752

 

Inventories, net

 

45,797

 

35,520

 

Deferred tax assets

 

2,309

 

12,585

 

Total current assets

 

846,133

 

764,487

 

Marketable investments

 

249,995

 

132,849

 

Marketable investments and cash—restricted

 

5,123

 

5,122

 

Goodwill and other intangibles, net

 

19,402

 

9,861

 

Property, plant and equipment, net

 

333,225

 

306,044

 

Deferred tax assets

 

191,000

 

202,135

 

Other assets

 

22,175

 

11,137

 

Total assets

 

$

1,667,053

 

$

1,431,635

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

17,244

 

$

16,146

 

Accrued expenses

 

69,628

 

50,280

 

Convertible notes

 

248,537

 

235,968

 

Other current liabilities

 

89,542

 

126,292

 

Total current liabilities

 

424,951

 

428,686

 

Mortgage payable—noncurrent

 

68,929

 

68,929

 

Other liabilities

 

77,322

 

39,252

 

Total liabilities

 

571,202

 

536,867

 

Commitments and contingencies:

 

 

 

 

 

Common stock subject to repurchase

 

10,882

 

10,882

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, par value $.01, 10,000,000 shares authorized, no shares issued

 

 

 

Series A junior participating preferred stock, par value $.01, 100,000 authorized, no shares issued

 

 

 

Common stock, par value $.01, 245,000,000 shares authorized, 60,838,118 and 60,017,546 shares issued, and 58,334,461 and 57,555,893 shares outstanding at September 30, 2011 and December 31, 2010, respectively

 

608

 

600

 

Additional paid-in capital

 

959,302

 

928,690

 

Accumulated other comprehensive loss

 

(10,641

)

(9,175

)

Treasury stock at cost, 2,503,657 and 2,461,653 shares at September 30, 2011 and December 31, 2010, respectively

 

(70,149

)

(67,399

)

Retained earnings

 

205,849

 

31,170

 

Total stockholders’ equity

 

1,084,969

 

883,886

 

Total liabilities and stockholders’ equity

 

$

1,667,053

 

$

1,431,635

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

UNITED THERAPEUTICS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(Unaudited)

 

(Unaudited)

 

Revenues:

 

 

 

 

 

 

 

 

 

Net product sales

 

$

201,020

 

$

168,236

 

$

546,784

 

$

428,306

 

Other

 

722

 

339

 

1,221

 

903

 

Total revenues

 

201,742

 

168,575

 

548,005

 

429,209

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

59,433

 

40,337

 

131,379

 

103,391

 

Selling, general and administrative

 

16,656

 

45,593

 

98,775

 

120,699

 

Cost of product sales

 

22,676

 

20,155

 

63,577

 

49,139

 

Total operating expenses

 

98,765

 

106,085

 

293,731

 

273,229

 

Operating income

 

102,977

 

62,490

 

254,274

 

155,980

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

Interest income

 

1,016

 

564

 

2,520

 

2,308

 

Interest expense

 

(5,416

)

(4,809

)

(16,256

)

(14,255

)

Equity loss in affiliate

 

(43

)

(39

)

(110

)

(130

)

Other, net

 

(278

)

137

 

(1,301

)

457

 

Total other (expense) income, net

 

(4,721

)

(4,147

)

(15,147

)

(11,620

)

Income from continuing operations before income taxes

 

98,256

 

58,343

 

239,127

 

144,360

 

Income tax expense

 

(17,641

)

(18,217

)

(65,073

)

(47,332

)

Income from continuing operations

 

80,615

 

40,126

 

174,054

 

97,028

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

(Loss) income from discontinued operations, net of tax

 

 

(390

)

7

 

(656

)

Gain on disposal of discontinued operations, net of tax

 

3,783

 

 

618

 

 

Income (loss) from discontinued operations

 

3,783

 

(390

)

625

 

(656

)

Net income

 

$

84,398

 

$

39,736

 

$

174,679

 

$

96,372

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

1.38

 

$

0.71

 

$

3.00

 

$

1.74

 

Discontinued operations

 

$

0.07

 

$

(0.01

)

$

0.01

 

$

(0.01

)

Net income per basic common share

 

$

1.45

 

$

0.70

 

$

3.01

 

$

1.73

 

Diluted

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

1.32

 

$

0.67

 

$

2.80

 

$

1.63

 

Discontinued operations

 

$

0.06

 

$

(0.01

)

$

0.01

 

$

(0.01

)

Net income per diluted common share

 

$

1.38

 

$

0.66

 

$

2.81

 

$

1.62

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

58,321

 

56,536

 

58,087

 

55,790

 

Diluted

 

61,210

 

60,216

 

62,062

 

59,545

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

UNITED THERAPEUTICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

 

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

174,679

 

$

96,372

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

15,637

 

14,181

 

Provisions for inventory obsolescence

 

2,904

 

1,844

 

Deferred tax expense

 

65,384

 

46,962

 

Share-based compensation

 

(37,790

)

61,127

 

Expense associated with outstanding license fees

 

41,332

 

 

Amortization of debt discount and debt issue costs

 

13,647

 

12,520

 

Amortization of discount or premium on investments

 

3,406

 

1,465

 

Equity loss in affiliate and other

 

2,114

 

548

 

Excess tax benefits from share-based compensation

 

(6,486

)

(18,726

)

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(14,651

)

(25,313

)

Inventories

 

(13,996

)

(7,751

)

Prepaid expenses

 

(1,912

)

507

 

Other assets

 

(722

)

(2,971

)

Accounts payable

 

1,040

 

(7,451

)

Accrued expenses

 

(28,036

)

15,327

 

Other liabilities

 

(17,984

)

(16,361

)

Net cash provided by operating activities

 

198,566

 

172,280

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property, plant and equipment

 

(36,725

)

(13,199

)

Purchases of held-to-maturity investments

 

(616,571

)

(458,526

)

Maturities of held-to-maturity investments

 

519,334

 

310,348

 

Sales of trading investments

 

 

36,200

 

Acquisitions

 

(3,547

)

 

Restrictions on cash

 

 

(20,747

)

Net cash used in investing activities

 

(137,509

)

(145,924

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from the exercise of stock options

 

23,948

 

64,425

 

Excess tax benefits from share-based compensation

 

6,486

 

18,726

 

Net cash provided by financing activities

 

30,434

 

83,151

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

331

 

327

 

Net increase in cash and cash equivalents

 

91,822

 

109,834

 

Cash and cash equivalents, beginning of period

 

252,162

 

100,352

 

Cash and cash equivalents, end of period

 

$

343,984

 

$

210,186

 

 

 

 

 

 

 

Supplemental schedule of cash flow information:

 

 

 

 

 

Cash paid for interest

 

$

2,766

 

$

625

 

Cash paid for income taxes

 

$

25,050

 

$

2,335

 

Non-cash investing activities:

 

 

 

 

 

Non-cash additions to property, plant and equipment

 

$

14,290

 

$

1,362

 

Acquisitions—non cash consideration

 

$

3,400

 

$

 

 

See accompanying notes to consolidated financial statements.

 

5



Table of Contents

 

UNITED THERAPEUTICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011

(UNAUDITED)

 

1. Organization and Business Description

 

United Therapeutics Corporation is a biotechnology company focused on the development and commercialization of unique products to address the unmet medical needs of patients with chronic and life-threatening conditions. As used in these notes to the consolidated financial statements, unless the context otherwise requires, the terms “we,” “us,” “our,” and similar terms refer to United Therapeutics Corporation and its consolidated subsidiaries.

 

Our lead product, Remodulin ®  (treprostinil) Injection (Remodulin), was initially approved in 2002 by the United States Food and Drug Administration (FDA) and has also been approved for use in countries outside of the United States. We sell Remodulin in the United States and in many other countries around the world. In 2009, the FDA approved Tyvaso ®  (treprostinil) Inhalation Solution (Tyvaso) and Adcirca ®  (tadalafil) tablets (Adcirca), both of which we market in the United States.

 

2. Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information required by United States generally accepted accounting principles (GAAP) for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on February 24, 2011.

 

In our management’s opinion, the accompanying consolidated financial statements contain all adjustments, including normal, recurring adjustments, necessary to fairly present our financial position as of September 30, 2011, results of operations for the three- and nine-month periods ended September 30, 2011 and 2010, and cash flows for the nine months ended September 30, 2011 and 2010. Interim results are not necessarily indicative of results for an entire year. The operating results of Medicomp, Inc. for the three- and nine-month periods ended September 30, 2010 have been reclassified and presented within discontinued operations on our consolidated statements of operations. This change in presentation had no impact on net income as previously reported. We did not reclassify our consolidated balance sheet at December 31, 2010 or our consolidated statements of cash flows for the nine months ended September 30, 2011 and 2010 to reflect the classification of Medicomp, Inc. as a discontinued operation as the impact is not significant to those statements (refer to Note 14— Sale of Medicomp, Inc. ).

 

3. Inventories

 

Inventories are stated at the lower of cost (first-in, first-out method) or market (current replacement cost) and consist of the following, net of reserves (in thousands):

 

 

 

September 30,
2011

 

December 31,
2010

 

Pharmaceutical products:

 

 

 

 

 

Raw materials

 

$

6,377

 

$

2,788

 

Work-in-progress

 

17,352

 

18,598

 

Finished goods

 

22,064

 

13,098

 

Delivery pumps, supplies and equipment

 

4

 

1,036

 

Total inventories

 

$

45,797

 

$

35,520

 

 

6



Table of Contents

 

4. Fair Value Measurements

 

Assets and liabilities subject to fair value measurements are required to be disclosed within a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of inputs used to determine fair value. Accordingly, assets and liabilities carried at, or permitted to be carried at, fair value are classified within the fair value hierarchy in one of the following categories based on the lowest level input that is significant to a fair value measurement:

 

Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities.

 

Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models such as interest rates and yield curves that can be corroborated by observable market data.

 

Level 3—Fair value is determined by using inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgment.

 

Assets and liabilities subject to fair value measurements are as follows (in thousands):

 

 

 

As of September 30, 2011

 

 

 

Level 1

 

Level 2

 

Level 3

 

Balance

 

Assets

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

256,878

 

$

 

$

 

$

256,878

 

Federally-sponsored and corporate debt securities (2)

 

 

599,918

 

 

599,918

 

Available-for-sale equity investment

 

283

 

 

 

283

 

Total assets

 

$

257,161

 

$

599,918

 

$

 

$

857,079

 

Liabilities

 

 

 

 

 

 

 

 

 

Convertible Senior Notes

 

$

257,467

 

$

 

$

 

$

257,467

 

Contingent consideration (3)

 

 

 

3,984

 

3,984

 

Total liabilities

 

$

257,467

 

$

 

$

3,984

 

$

261,451

 

 

 

 

As of December 31, 2010

 

 

 

Level 1

 

Level 2

 

Level 3

 

Balance

 

Assets

 

 

 

 

 

 

 

 

 

Money market funds (1)

 

$

91,206

 

$

 

$

 

$

91,206

 

Federally-sponsored and corporate debt securities (2)

 

 

507,375

 

 

507,375

 

Available-for-sale equity investment

 

373

 

 

 

373

 

Total assets

 

$

91,579

 

$

507,375

 

$

 

$

598,954

 

Liabilities

 

 

 

 

 

 

 

 

 

Convertible Senior Notes

 

$

421,721

 

$

 

$

 

$

421,721

 

Contingent consideration (3)

 

 

 

1,894

 

1,894

 

Total liabilities

 

$

421,721

 

$

 

$

1,894

 

$

423,615

 

 


(1)           Included in cash and cash equivalents and marketable investments and cash—restricted on the accompanying consolidated balance sheets.

 

(2)           Included in current and non-current marketable investments on the accompanying consolidated balance sheets. The fair value of these securities is derived using a market approach — i.e., from pricing models that rely on relevant observable market data, including interest rates, yield curves, recently reported trades of comparable securities, credit spreads and benchmark securities. See also Note 5— Marketable Investments—Held-to-Maturity Investments to these consolidated financial statements.

 

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Table of Contents

 

(3)           Included in non-current liabilities on the accompanying consolidated balance sheets. The fair value of contingent consideration has been measured using a probability weighted discounted cash flow model which incorporates Level 3 inputs including estimated discount rates and the projected timing and amount of cash flows.

 

A reconciliation of the beginning and ending balance of the Level 3 liabilities for the three- and nine-month periods ended September 30, 2011, is presented below (in thousands):

 

 

 

Contingent
Consideration

 

Balance July 1, 2011—Asset (Liability)

 

$

(618

)

Transfers into Level 3

 

 

Transfers out of Level 3

 

 

Total gains/(losses) realized/unrealized

 

 

 

Included in earnings

 

 

Included in other comprehensive income

 

34

 

Purchases (see Note 15)

 

(3,400

)

Sales

 

 

Issuances

 

 

Settlements

 

 

Balance September 30, 2011—Asset (Liability)

 

$

(3,984

)

Amount of total gains/(losses) for the three-month period ended September 30, 2011 included in earnings that are attributable to the change in unrealized gains or losses related to outstanding liabilities

 

$

 

 

 

 

Contingent
Consideration

 

Balance January 1, 2011—Asset (Liability)

 

$

(1,894

)

Transfers into Level 3

 

 

Transfers out of Level 3

 

 

Total gains/(losses) realized/unrealized

 

 

 

Included in earnings

 

 

Included in other comprehensive income

 

(51

)

Purchases (see Note 15)

 

(3,400

)

Sales

 

 

Issuances

 

 

 

Settlements

 

1,361

 

Balance September 30, 2011—Asset (Liability)

 

$

(3,984

)

Amount of total gains/(losses) for the nine-month period ended September 30, 2011 included in earnings that are attributable to the change in unrealized gains or losses related to the outstanding liability

 

$

 

 

Fair Value of Financial Instruments

 

The carrying amounts of cash and cash equivalents, accounts receivables, accounts payable, and accrued expenses approximate fair value because of their short maturities. The fair values of our marketable investments and our 0.50% Convertible Senior Notes due October 2011 are reported above within the fair value hierarchy. The recorded value of our mortgage loan approximates its fair value as it bears a variable rate of interest that we believe approximates the market rate of interest for debt with similar credit risk profiles, terms and maturities. Refer to Note 9— Debt—Mortgage Financing for details.

 

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Table of Contents

 

5. Marketable Investments

 

Held-to-Maturity Investments

 

Marketable investments classified as held-to-maturity consist of the following (in thousands):

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

Government-sponsored enterprises at September 30, 2011

 

$

262,937

 

$

117

 

$

(112

)

$

262,942

 

Corporate notes and bonds at September 30, 2011

 

337,389

 

84

 

(497

)

336,976

 

Total

 

$

600,326

 

$

201

 

$

(609

)

$

599,918

 

Reported under the following captions on the consolidated balance sheet at September 30, 2011:

 

 

 

 

 

 

 

 

 

Current marketable securities

 

$

350,614

 

 

 

 

 

 

 

Noncurrent marketable securities

 

249,712

 

 

 

 

 

 

 

 

 

$

600,326

 

 

 

 

 

 

 

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

Government-sponsored enterprises at December 31, 2010

 

$

282,005

 

$

52

 

$

(152

)

$

281,905

 

Corporate notes and bonds at December 31, 2010

 

225,394

 

144

 

(68

)

225,470

 

Total

 

$

507,399

 

$

196

 

$

(220

)

$

507,375

 

Reported under the following captions on the consolidated balance sheet at December 31, 2010:

 

 

 

 

 

 

 

 

 

Current marketable securities

 

$

374,921

 

 

 

 

 

 

 

Noncurrent marketable securities

 

132,478

 

 

 

 

 

 

 

 

 

$

507,399

 

 

 

 

 

 

 

 

The following table summarizes gross unrealized losses and the length of time marketable investments have been in a continuous unrealized loss position (in thousands):

 

 

 

As of September 30, 2011

 

As of December 31, 2010

 

 

 

Fair
Value

 

Gross
Unrealized
Loss

 

Fair
Value

 

Gross
Unrealized
Loss

 

Government-sponsored enterprises:

 

 

 

 

 

 

 

 

 

Continuous unrealized loss position less than one year

 

$

154,319

 

$

(112

)

$

152,844

 

$

(152

)

Continuous unrealized loss position greater than one year

 

 

 

 

 

 

 

154,319

 

(112

)

152,844

 

(152

)

Corporate notes and bonds:

 

 

 

 

 

 

 

 

 

Continuous unrealized loss position less than one year

 

$

183,766

 

$

(497

)

$

107,883

 

$

(68

)

Continuous unrealized loss position greater than one year

 

 

 

 

 

 

 

183,766

 

(497

)

107,883

 

(68

)

Total

 

$

338,085

 

$

(609

)

$

260,727

 

$

(220

)

 

We attribute the unrealized losses on held-to-maturity securities as of September 30, 2011, to the variability in related market interest rates. We do not intend to sell these securities, nor is it more likely than not that we will be required to sell them prior to the end of their contractual term. Furthermore, we believe these securities do not expose us to undue market risk or counterparty credit risk. As such, we do not consider these securities to be other than temporarily impaired.

 

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Table of Contents

 

The following table summarizes the contractual maturities of held-to-maturity marketable investments at September 30, 2011 (in thousands):

 

 

 

September 30, 2011

 

 

 

Amortized
Cost

 

Fair
Value

 

Due in less than one year

 

$

350,614

 

$

350,627

 

Due in one to two years

 

249,712

 

249,291

 

Due in three to five years

 

 

 

Due after five years

 

 

 

Total

 

$

600,326

 

$

599,918

 

 

Equity Investments

 

We own less than 1 percent of the common stock of a publicly-traded company. Our investment in this company is classified as available-for-sale and reported at fair value based on the quoted market price.

 

We have equity investments totaling $8.0 million in privately-held corporations. We account for these investments at cost. The fair value of our investments has not been estimated as of September 30, 2011, as there have been no events or developments indicating that these investments may be impaired.  We include these investments within non-current other assets on our consolidated balance sheets.

 

6. Goodwill and Other Intangible Assets

 

Goodwill and other intangible assets comprise the following (in thousands):

 

 

 

As of September 30, 2011

 

As of December 31, 2010

 

 

 

Gross

 

Accumulated
Amortization

 

Net

 

Gross

 

Accumulated
Amortization

 

Net

 

Goodwill (1)

 

$

5,989

 

$

 

$

5,989

 

$

2,487

 

$

 

$

2,487

 

Other intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Technology, patents and tradenames

 

4,990

 

(1,883

)

3,107

 

8,991

 

(5,368

)

3,623

 

Customer relationships and non-compete agreements

 

4,886

 

(1,621

)

3,265

 

4,762

 

(1,011

)

3,751

 

Definite lived contract-based (2)

 

7,100

 

(59

)

7,041

 

 

 

 

Total

 

$

22,965

 

$

(3,563

)

$

19,402

 

$

16,240

 

$

(6,379

)

$

9,861

 

 


(1)           During the quarter ended September 30, 2011, we recognized $3.5 million of goodwill in connection with our acquisition of Revivicor, Inc. See Note 15— Acquisition of Revivicor, Inc.

 

(2)           Definite lived contract-based intangibles consist of an acquired license agreement. See Note 15— Acquisition of Revivicor, Inc.

 

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Table of Contents

 

Total amortization relating to other intangible assets for the five succeeding years and thereafter is presented below (in thousands):

 

Year ending December 31,

 

 

 

2012

 

$

1,722

 

2013

 

1,699

 

2014

 

1,692

 

2015

 

1,431

 

2016

 

910

 

Thereafter

 

5,547

 

 

 

$

13,001

 

 

7. Supplemental Executive Retirement Plan

 

We maintain the United Therapeutics Corporation Supplemental Executive Retirement Plan (SERP) to provide retirement benefits to certain senior members of our management team. To help fund our expected obligations under the SERP, we maintain the United Therapeutics Corporation Supplemental Executive Retirement Plan Rabbi Trust Document (Rabbi Trust). The balance in the Rabbi Trust was approximately $5.1 million as of September 30, 2011 and December 31, 2010. The Rabbi Trust is irrevocable and SERP participants will have no preferred claim on, nor any beneficial ownership interest in, any assets of the Rabbi Trust. The investments in the Rabbi Trust are classified as restricted marketable investments and cash on our consolidated balance sheets.

 

Net periodic pension cost consists of the following (in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Service cost

 

$

1,079

 

$

988

 

$

3,176

 

$

2,700

 

Interest cost

 

352

 

248

 

1,004

 

635

 

Amortization of prior service costs

 

207

 

90

 

566

 

163

 

Amortization of net actuarial loss

 

20

 

32

 

71

 

87

 

Net pension expense

 

$

1,658

 

$

1,358

 

$

4,817

 

$

3,585

 

 

8. Share Tracking Award Plans

 

We maintain the United Therapeutics Corporation Share Tracking Awards Plan, adopted in June 2008 (the 2008 STAP), under which we grant long-term, equity-based compensation to eligible participants. Share tracking awards convey the right to receive in cash an amount equal to the appreciation of our common stock, which is calculated as the positive difference between the closing price of our common stock on the date of exercise and the date of grant. Outstanding awards generally vest in equal increments on each anniversary of the date of grant over a three- or four-year period and expire on the tenth anniversary of the date of grant. On March 15, 2011, our Board of Directors approved the United Therapeutics Corporation 2011 Share Tracking Awards Plan (the 2011 STAP), pursuant to which up to 2,000,000 share tracking awards may be granted under provisions substantially similar to those of the 2008 STAP.  We refer to the 2008 STAP and the 2011 STAP collectively as the “STAP,” and awards granted under either of these plans as “awards.”

 

We account for outstanding awards as a liability because they are required to be settled in cash. Accordingly, we estimate the fair value of outstanding awards at each financial reporting date using the Black-Scholes-Merton valuation model until settlement occurs or awards are otherwise no longer outstanding. Changes in the fair value of outstanding awards are recognized as an adjustment to compensation expense on our consolidated statements of operations. The STAP liability balance was $58.5 million and $125.6 million at September 30, 2011 and December 31, 2010, respectively, and has been included within other current liabilities on our consolidated balance sheets.

 

In estimating the fair value of STAP awards, we are required to use inputs that materially impact the determination of fair value and the amount of compensation expense to be recognized. These inputs include the expected volatility of the price of our common stock, the risk-free interest rate, the expected term of awards, the expected forfeiture rate and the expected dividend yield.

 

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The table below presents the assumptions used to measure the fair value of awards at September 30, 2011 and 2010:

 

 

 

September 30,
2011

 

September 30,
2010

 

Expected volatility

 

46.6

%

45.7

%

Risk-free interest rate

 

0.6

%

1.2

%

Expected term of awards (in years)

 

4.1

 

4.7

 

Expected forfeiture rate

 

6.8

%

5.5

%

Expected dividend yield

 

0.0

%

0.0

%

 

A summary of the activity and status of the awards for the nine-month period ended September 30, 2011 is presented below:

 

 

 

Number of
Awards

 

Weighted-
Average
Exercise
Price

 

Weighted
Average
Remaining
Contractual
Term
(Years)

 

Aggregate
Intrinsic
Value
(in Thousands)

 

Outstanding at January 1, 2011

 

7,380,480

 

$

39.91

 

 

 

 

 

Granted

 

1,584,131

 

65.02

 

 

 

 

 

Exercised

 

(821,117

)

29.92

 

 

 

 

 

Forfeited

 

(312,003

)

45.51

 

 

 

 

 

Outstanding at September 30, 2011

 

7,831,491

 

$

45.81

 

7.8

 

$

26,444

 

Exercisable at September 30, 2011

 

3,756,037

 

$

36.07

 

7.5

 

$

23,412

 

Expected to vest at September 30, 2011

 

3,474,099

 

$

53.72

 

8.7

 

$

2,809

 

 

The weighted average fair value of awards granted during the nine-month periods ended September 30, 2011 and 2010 was $28.03 and $26.23, respectively.

 

Share-based compensation (benefit) expense related to the STAP is as follows (in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Research and development

 

$

(22,969

)

$

13,449

 

$

(17,877

)

$

23,173

 

Selling, general and administrative

 

(24,143

)

15,558

 

(20,031

)

25,899

 

Cost of product sales

 

(529

)

 

(529

)

 

Share-based compensation (benefit) expense before taxes (1)

 

(47,641

)

29,007

 

(38,437

)

49,072

 

Related income tax expense (benefit)

 

17,613

 

(10,725

)

14,210

 

(18,141

)

Share-based compensation (benefit) expense, net of taxes

 

$

(30,028

)

$

18,282

 

$

(24,227

)

$

30,931

 

Share-based compensation capitalized as part of inventory

 

$

(812

)

$

1,171

 

$

(458

)

$

1,710

 

 


(1)           Share-based compensation benefit for the three- and nine-month periods ended September 30, 2011 resulted from the decrease in the fair value of awards as a result of the decline in the price of our common stock at September 30, 2011.

 

Cash paid to settle awards exercised during the nine-month periods ended September 30, 2011 and 2010, was $27.9 million and $16.9 million, respectively.

 

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9. Debt

 

Convertible Senior Notes

 

On October 30, 2006, we issued at par value $250.0 million of Convertible Senior Notes, which matured on October 15, 2011 (2011 Convertible Senior Notes). At maturity, we paid approximately $250.0 million in outstanding principal and $625,000 in accrued interest to holders of the 2011 Convertible Senior Notes (note holders). Pursuant to the terms of the 2011 Convertible Senior Notes, the number of shares to be issued to note holders upon maturity will be determined over the twenty trading-day period beginning on October 17, 2011 to the extent that the conversion value (the number of shares underlying the 2011 Convertible Senior Notes multiplied by the then-current price of our common stock, as measured during the twenty trading day averaging period) exceeds the principal value. At September 30, 2011, the aggregate conversion value of the 2011 Convertible Senior Notes did not exceed their principal value, using a conversion price of  $37.49, the closing price of our common stock on September 30, 2011.

 

Because the terms of the 2011 Convertible Senior Notes provided for settlement wholly, or partially in cash, we accounted for their liability and equity components separately so that recognition of interest expense would reflect our non-convertible borrowing rate. Accordingly, we estimated the fair value of the 2011 Convertible Senior Notes without the conversion feature as of the date of issuance (Liability Component). The excess of the proceeds received over the estimated fair value of the Liability Component totaling $72.4 million was allocated to the conversion feature (Equity Component) and a corresponding offset was recognized as a discount to reduce the net carrying value of the 2011 Convertible Senior Notes. We are amortizing the discount using the interest method over a five-year period ending in October 2011 (the expected life of the Liability Component) at an effective rate of interest of 7.5 percent, which corresponded to our estimated non-convertible borrowing rate at the date of issuance.

 

The contractual coupon rate of interest and the discount amortization associated with the 2011 Convertible Senior Notes are as follows (in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Contractual coupon rate of interest

 

$

312

 

$

312

 

$

937

 

$

937

 

Discount amortization

 

4,268

 

3,962

 

12,569

 

11,670

 

Effective interest—Convertible Senior Notes

 

$

4,580

 

$

4,274

 

$

13,506

 

$

12,607

 

 

Amounts comprising the carrying value of the 2011 Convertible Senior Notes include the following (in thousands):

 

 

 

September 30,
2011

 

December 31,
2010

 

Principal balance

 

$

249,968

 

$

249,968

 

Discount, net of accumulated amortization of $70,971 and $58,402

 

(1,431

)

(14,000

)

Carrying amount

 

$

248,537

 

$

235,968

 

 

Convertible Bond Hedge and Warrant Transactions

 

Concurrent with the issuance of the 2011 Convertible Senior Notes, we purchased call options on our common stock in a private transaction with Deutsche Bank AG London (Call Option). The Call Option enables us to receive up to approximately 6.6 million shares of our common stock at a price of $37.61 per share.

 

In a separate transaction, we sold warrants to Deutsche Bank AG London under which Deutsche Bank AG London has the right to acquire up to approximately 6.6 million shares of our common stock at an exercise price of $52.85 per share (Warrants).

 

The shares deliverable to us under the Call Option must be obtained from existing shareholders. Any shares that we may be required to deliver under the Warrant can consist of registered or unregistered shares, subject to potential adjustments to the settlement amount. The maximum number of shares of our common stock that we may be required to deliver in connection with the Warrant is approximately 6.6 million. We have reserved approximately 6.6 million shares for the settlement of the Warrant and had sufficient shares available as of September 30, 2011 to effect such settlement.

 

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Table of Contents

 

We believe that the design of the Call Option and Warrants, which we collectively refer to as the hedge transactions, will eliminate, or significantly reduce, the potential dilutive impact related to the settlement of the 2011 Convertible Senior Notes. In accordance with the terms of these agreements, settlement and maturity of the Warrants will occur at various increments through March 2012.

 

Mortgage Financing

 

In December 2010, we entered into a Credit Agreement with Wells Fargo Bank, National Association (Wells Fargo) and Bank of America, N.A., pursuant to which we obtained $70.0 million in debt financing. The Credit Agreement has a forty-eight month term maturing in December 2014 and is secured by our facilities in Research Triangle Park, North Carolina and Silver Spring, Maryland. Annual principal payments are based on a twenty-five year amortization schedule using a fixed rate of interest of 7.0 percent and the outstanding debt bears a floating rate of interest per annum based on the one-month London Interbank Offer Rate (LIBOR), plus a credit spread of 3.75 percent, or approximately 4.0 percent as of September 30, 2011. Alternatively, we have the option to change the rate of interest charged on the loan to 2.75 percent plus the greater of: (1) Wells Fargo’s prime rate, or (2) the federal funds effective rate plus 0.05 percent, or (3) LIBOR plus 1.0 percent. The Credit Agreement also permits prepayment of the outstanding loan balance in its entirety, subject to a prepayment premium which was initially 1.5 percent during the first six months of the term. The prepayment premium declines in 0.5 percent increments at each successive six-month interval, such that there is no premium if the loan is prepaid after December 2012. The Credit Agreement subjects us to various financial and negative covenants.  As of September 30, 2011, we were in compliance with these covenants.

 

Interest Expense

 

Details of interest expense are presented below (in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Interest expense

 

$

5,646

 

$

4,836

 

$

16,702

 

$

14,282

 

Less: interest capitalized

 

(230

)

(27

)

(446

)

(27

)

Total interest expense

 

$

5,416

 

$

4,809

 

$

16,256

 

$

14,255

 

 

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Table of Contents

 

10. Stockholders’ Equity

 

Earnings per common share

 

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period, adjusted for the potential dilutive effect of other securities if such securities were converted or exercised.

 

The components of basic and diluted earnings per common share comprise the following (in thousands, except per share amounts):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Numerator:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

80,615

 

$

40,126

 

$

174,054

 

$

97,028

 

Income (loss) from discontinued operations

 

3,783

 

(390

)

625

 

(656

)

Net income

 

$

84,398

 

$

39,736

 

$

174,679

 

$

96,372

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average outstanding shares — basic

 

58,321

 

56,536

 

58,087

 

55,790

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Convertible Senior Notes (1)

 

1,489

 

1,661

 

2,444

 

1,998

 

Stock options (2)

 

1,400

 

2,019

 

1,531

 

1,757

 

Weighted average shares — diluted

 

61,210

 

60,216

 

62,062

 

59,545

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

1.38

 

$

0.71

 

$

3.00

 

$

1.74

 

Discontinued operations

 

$

0.07

 

$

(0.01

)

$

0.01

 

$

(0.01

)

Net income per basic common share

 

$

1.45

 

$

0.70

 

$

3.01

 

$

1.73

 

Diluted

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

1.32

 

$

0.67

 

$

2.80

 

$

1.63

 

Discontinued operations

 

$

0.06

 

$

(0.01

)

$

0.01

 

$

(0.01

)

Net income per diluted common share

 

$

1.38

 

$

0.66

 

$

2.81

 

$

1.62

 

 

 

 

 

 

 

 

 

 

 

Stock options and warrants excluded from calculation (3)

 

7,922

 

7,329

 

6,446

 

6,531

 

 


(1)           Shares that would be received under the terms of the Call Option (see Note 9 —Debt—Convertible Bond Hedge and Warrant Transactions to these consolidated financial statements) have been excluded from the calculation of diluted earnings per share as their impact would be anti-dilutive.

 

(2)           Calculated using the treasury stock method.

 

(3)           Certain stock options and warrants were excluded from the computation of diluted earnings per share because their impact would be anti-dilutive.

 

Stock Option Plan

 

We grant stock option awards under our equity incentive plan. The fair value of stock options is estimated using the Black-Scholes-Merton valuation model. Option pricing models, including Black-Scholes-Merton, require the input of assumptions that can materially impact the estimation of fair value and related compensation expense. These assumptions include the expected

 

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Table of Contents

 

volatility of our common stock, risk-free interest rate, the expected term of stock option awards, expected forfeiture rate and the expected dividend yield.

 

Presented below are the weighted average assumptions used to estimate the grant date fair value of stock options granted during the nine-month period ended September 30, 2010. We did not grant any stock options during the three-month periods ended September 30, 2011 and 2010 and the nine months ended September 30, 2011.

 

 

 

Nine Months Ended
September 30, 2010

 

Expected volatility

 

47.3

%

Risk-free interest rate

 

2.2

%

Expected term of options (years)

 

5.5

 

Expected dividend yield

 

0.0

%

Forfeiture rate

 

0.0

%

 

A summary of the activity and status of employee stock options during the nine-month period ended September 30, 2011 is presented below:

 

 

 

Number of
Options

 

Weighted-
Average
Exercise
Price

 

Weighted
Average
Remaining
Contractual
Term
(Years)

 

Aggregate
Intrinsic
Value
(in thousands)

 

Outstanding at January 1, 2011

 

5,925,968

 

$

35.64

 

 

 

 

 

Granted

 

 

 

 

 

 

 

Exercised

 

(806,404

)

29.18

 

 

 

 

 

Forfeited

 

(178,735

)

28.91

 

 

 

 

 

Outstanding at September 30, 2011

 

4,940,829

 

$

36.94

 

6.0

 

$

27,304

 

Exercisable at September 30, 2011

 

4,940,829

 

$

36.94

 

6.0

 

$

27,304

 

 

Total share-based compensation expense related to employee stock options for the three- and nine-month periods ended September 30, 2011 and 2010, is as follows (in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Research and development

 

$

3

 

$

700

 

$

196

 

$

2,931

 

Selling, general and administrative

 

5

 

1,613

 

315

 

8,743

 

Share-based compensation expense before taxes

 

8

 

2,313

 

511

 

11,674

 

Related income tax benefit

 

(3

)

(851

)

(189

)

(4,295

)

Share-based compensation expense, net of taxes

 

$

5

 

$

1,462

 

$

322

 

$

7,379

 

Share-based compensation capitalized as part of inventory

 

$

 

$

82

 

$

15

 

$

275

 

 

Employee and non-employee stock option exercise data is summarized below (dollars in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Number of options exercised

 

20,135

 

384,303

 

820,572

 

2,557,299

 

Cash received

 

$

224

 

$

9,820

 

$

23,948

 

$

64,425

 

 

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Table of Contents

 

11. Comprehensive Income

 

Comprehensive income consists of the following (in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Net income

 

$

84,398

 

$

39,736

 

$

174,679

 

$

96,372

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Foreign currency translation (loss) gain

 

(2,142

)

2,829

 

(983

)

(24

)

Unrecognized prior service cost, net of tax

 

131

 

(1,344

)

(652

)

(1,298

)

Unrecognized actuarial pension gain (loss), net of tax

 

13

 

(478

)

231

 

(620

)

Unrealized (loss) gain on available-for-sale securities, net of tax

 

(119

)

17

 

(62

)

63

 

Comprehensive income

 

$

82,281

 

$

40,760

 

$

173,213

 

$

94,493

 

 

12. Income Taxes

 

Income tax expense for the three- and nine-month periods ended September 30, 2011 and 2010 is based on the estimated effective tax rate for the entire year. The estimated annual effective tax rate can be subject to adjustment in subsequent quarterly periods if components used in its estimation are revised. The estimated annual effective tax rates as of September 30, 2011 and 2010 were 28 percent and 36 percent, respectively. The decrease in the annual effective tax rate as of September 30, 2011 reflects reductions in annual estimates of non-deductible compensation and an increase in tax credits expected to be generated.

 

As of September 30, 2011, we had available for federal income tax purposes $75.1 million in business tax credit carryforwards that will expire at various dates through 2025. Certain business tax credit carryforwards that were generated at various dates prior to December 2008 are subject to limitations on their use pursuant to Internal Revenue Code Section 382 (Section 382) as a result of ownership changes as defined by Section 382. However, we do not expect these business tax credits to expire unused.

 

We are subject to federal and state taxation in the United States and various foreign jurisdictions. Currently, our 2010 tax year is subject to examination by the Internal Revenue Service (IRS) and our tax years from 2008 to 2010 are subject to examination by state taxing authorities. During the quarter ended September 30, 2011, the IRS completed its audits of our 2009 and 2008 tax years. Based on the completion of these audits, we decreased our reserves for uncertain tax positions by $4.0 million at September 30, 2011.

 

13. Segment Information

 

Prior to June 30, 2011, we operated in two business segments: pharmaceutical and telemedicine. With the sale of our telemedicine subsidiary, Medicomp, Inc., in March 2011 and the subsequent discontinuation of our remaining telemedicine-related activities in June 2011, we no longer have a telemedicine segment. In light of these developments, we have presented the results of operations relating to Medicomp, Inc., including the gain recognized on its disposal, within discontinued operations on our consolidated statements of operations for the three- and nine-month periods ended September 30, 2011 and 2010. Refer to Note 14— Sale of Medicomp, Inc . for further details.

 

As doctors and patients have become increasingly familiar with Tyvaso and Adcirca since these products received regulatory approval in 2009 and we have become more familiar with the market for these products, our chief operating decision makers regularly review revenue and cost of revenue data for our three commercial products.

 

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Revenues, cost of revenues and gross profit for each of our commercial products for the three- and nine-month periods ended September 30, 2011 and 2010 were as follows (in thousands):

 

Three Months Ended September 30, 2011

 

Remodulin

 

Tyvaso

 

Adcirca

 

Total

 

Revenues

 

$

114,918

 

$

66,330

 

$

19,772

 

$

201,020

 

Cost of revenues

 

12,659

 

8,735

 

1,282

 

22,676

 

Gross profit

 

$

102,259

 

$

57,595

 

$

18,490

 

$

178,344

 

 

Three Months Ended September 30, 2010

 

 

 

 

 

 

 

 

 

Revenues

 

$

109,584

 

$

48,717

 

$

9,935

 

$

168,236

 

Cost of revenues

 

10,777

 

8,717

 

661

 

20,155

 

Gross profit

 

$

98,807

 

$

40,000

 

$

9,274

 

$

148,081

 

 

Nine Months Ended September 30, 2011

 

Remodulin

 

Tyvaso

 

Adcirca

 

Total

 

Revenues

 

$

323,016

 

$

175,835

 

$

47,933

 

$

546,784

 

Cost of revenues

 

36,860

 

23,551

 

3,166

 

63,577

 

Gross profit

 

$

286,156

 

$

152,284

 

$

44,767

 

$

483,207

 

 

Nine Months Ended September 30, 2010

 

 

 

 

 

 

 

 

 

Revenues

 

$

301,720

 

$

103,083

 

$

23,503

 

$

428,306

 

Cost of revenues

 

28,668

 

18,902

 

1,569

 

49,139

 

Gross profit

 

$

273,052

 

$

84,181

 

$

21,934

 

$

379,167

 

 

For the three-month periods ended September 30, 2011 and 2010, net revenues from our three U.S.-based distributors represented 81 percent and 84 percent, respectively, of our total net operating revenues. For the nine-month periods ended September 30, 2011 and 2010, net revenues from our three U.S.-based distributors represented 82 percent and 84 percent, respectively, of our total net operating revenues.

 

14. Sale of Medicomp, Inc.

 

In February 2011, we entered into an agreement and plan of merger to sell our wholly owned telemedicine subsidiary, Medicomp, Inc. (Medicomp), to a group of private investors, including Medicomp’s current president. At closing on March 31, 2011, we sold 100 percent of the outstanding stock of Medicomp in exchange for 42,004 shares of United Therapeutics common stock held by the investors, with an aggregate value of $2.8 million, and a $12.1 million, ten-year promissory note bearing interest at 5.0 percent per annum. Immediately after closing the sale, we purchased a 19.9 percent ownership interest in Medicomp in exchange for $1.0 million in cash and an approximately $2.0 million reduction in the face value of the promissory note which we believe approximated the fair value of our non-controlling interest. The carrying value of our 19.9 percent investment in Medicomp was based on the consideration Medicomp received. For the six-months ended June 30, 2011, we reported a loss on the disposal of Medicomp. However, due to a change in estimate in our 2010 tax return associated with contractual discounts on services rendered, we utilized Medicomp’s related deferred tax assets that were recognized prior to the disposal date. As a result of the adjustment to Medicomp’s carrying value as of the disposal date, we recognized a gain of $860,000 in connection with the sale.

 

In June 2011, we discontinued all activities related to the development of an arrhythmia detection application and do not expect to generate further direct cash flows from telemedicine-related activities. As such, we met the criteria for reporting discontinued operations during the one-year assessment period, which began on March 31, 2011. Accordingly, we have included the operating results of Medicomp, including the gain recognized on its disposal, within discontinued operations on our consolidated statements of operations for the three- and nine-month periods ended September 30, 2011 and 2010.

 

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We sold the following assets and liabilities of Medicomp as of the closing date, as adjusted (in thousands):

 

 

 

March 31, 2011

 

Assets

 

 

 

Cash

 

$

1,221

 

Accounts receivable and inventory

 

1,028

 

Deferred tax assets

 

4,262

 

Equipment and other assets

 

7,089

 

Total assets

 

$

13,600

 

 

 

 

 

Other current liabilities

 

$

1,433

 

 

Medicomp’s revenues and (loss) income before income tax reported in discontinued operations for the three- and nine-month periods ended September 30, 2011 and 2010 are presented below (in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Revenues

 

$

 

$

2,408

 

$

3,107

 

$

8,145

 

Income (loss) before income tax

 

$

5,366

 

$

(609

)

$

935

 

$

(1,026

)

 

15. Acquisition of Revivicor, Inc.

 

On July 11, 2011, we acquired 100 percent of the outstanding stock of Revivicor, Inc. (Revivicor), a company focused on developing genetic biotechnology platforms. We acquired Revivicor to pursue early stage product development in the field of tissue and organ transplantation. The acquisition date fair value of the consideration consisted of $3.5 million in cash, subject to a potential working capital adjustment, and $3.4 million in contingent consideration. We expect to finalize any necessary acquisition-date adjustments during the fourth quarter of 2011. Pursuant to the terms of the acquisition, contingent consideration consists of up to $25.0 million upon the achievement of specific developmental and regulatory milestones. We estimated the fair value of the contingent consideration using a probability-weighted, discounted cash flow model (DCF). Significant inputs to the DCF model included Revivicor’s estimated cost of borrowing and the projected amounts and timing of cash flows. Accordingly, the fair value of the contingent consideration has been estimated using significant unobservable inputs, which are classified as Level 3 inputs within the fair value hierarchy. Goodwill recognized in connection with the acquisition relates to intangible assets that do not qualify for separate recognition.

 

The table below presents the acquisition date fair value of assets acquired and liabilities assumed (in thousands):

 

 

 

July 11, 2011

 

Current assets

 

$

306

 

Property, plant and equipment

 

286

 

Identifiable intangible assets (1)

 

7,100

 

Goodwill (2)

 

3,472

 

Total assets acquired

 

$

11,164

 

 

 

 

 

Accrued expenses

 

$

713

 

Deferred revenue

 

2,424

 

Total liabilities assumed

 

$

3,137

 

 


(1)    Consists of contract-based intangible assets which consisted of a license agreement. Contract-based intangible assets will be amortized over an estimated economic life of twenty years which corresponds to the period expected cash flows are anticipated to be received under the license agreement.

 

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(2)    Goodwill is not deductible for tax purposes.

 

16. License Agreement

 

In July 2011, we entered into an exclusive license agreement with Toray Industries, Inc. (Toray) to amend and replace our existing March 2007 license agreement regarding the development of an orally-administered, modified release formulation of the prostacyclin analogue beraprost (beraprost-MR), for the treatment of pulmonary arterial hypertension. Terms of the July 2011 license agreement did not materially change from the previous license agreement and license agreement supplements except for a reduction in royalty rates. In exchange for the reduction in royalty rates, we agreed to pay Toray $50.0 million in equal, non-refundable payments over the five-year period ending in 2015. Since these payments are non-refundable and have no contingencies attached to them, we recognized an obligation of $46.3 million, which represents the present value of the related payments discounted by our estimated current cost of financing. In addition, we recognized a corresponding charge to research and development expenses during the quarter ended September 30, 2011.

 

17. Subsequent Events

 

Convertible Senior Notes

 

On October 17, 2011, we issued $250.0 million aggregate principal amount of 1.0% Convertible Senior Notes due September 15, 2016 (2016 Convertible Senior Notes). We received $241.4 million in net proceeds from the offering after deducting the initial purchaser’s (Deutsche Bank Securities, Inc.) discount, fees and our offering expenses. We used the net proceeds to repurchase shares of our common stock under an accelerated share repurchase arrangement and to pay the net cost of a call spread hedge. Both the accelerated share repurchase and call spread hedge transactions described below were entered into with Deutsche Bank AG London Branch, an affiliate of Deutsche Bank Securities, Inc., and became effective the date we issued the 2016 Convertible Senior Notes.

 

Terms of the 2016 Convertible Senior Notes are substantially similar to those of the 2011 Convertible Senior Notes. Interest will be payable semi-annually, in arrears, on March 15 th  and September 15 th  of each year. The initial conversion price is $47.96 per share and the maximum number of shares underlying the debt is approximately 5.2 million shares.

 

Conversion can occur: (1) anytime after June 15, 2016; (2) during any calendar quarter that follows a calendar quarter in which the price of our common stock exceeds 130% of the conversion price for at least 20 days during the 30 consecutive trading-day period ending on the last trading day of the quarter; (3) during the ten consecutive trading-day period following any five consecutive trading-day period in which the trading price of the 2016 Convertible Senior Notes is less than 95% of the closing price of our common stock multiplied by the then current number of shares underlying the 2016 Convertible Senior Notes; (4) upon specified distributions to our shareholders; (5) in connection with certain corporate transactions; or (6) in the event that our common stock ceases to be listed on the NASDAQ Global Select Market, the NASDAQ Global Market, or the New York Stock Exchange, or any of their respective successors.

 

Upon conversion, holders of our 2016 Convertible Senior Notes are entitled to receive: (1) cash equal to the lesser of the principal amount of the notes or the conversion value (the number of shares underlying the 2016 Convertible Senior Notes multiplied by the then-current conversion price per share); and (2) to the extent the conversion value exceeds the principal amount of the 2016 Convertible Senior Notes, shares of our common stock.  In the event of a change in control, as defined in the indenture under which the 2016 Convertible Senior Notes have been issued, holders can require us to purchase all or a portion of their 2016 Convertible Senior Notes for 100 percent of the principal value plus any accrued and unpaid interest.

 

Because the terms of the 2016 Convertible Senior Notes provide for settlement wholly or partially in cash, we will be required to account for the liability and equity components of the notes separately so that the subsequent recognition of interest expense will reflect our non-convertible borrowing rate. Accordingly, we anticipate accounting for the 2016 Convertible Senior Notes in a manner similar to that of our 2011 Convertible Senior Notes which matured on October 15, 2011.

 

Convertible Bond Hedge and Warrant Transactions

 

We used $33.3 million in net proceeds from the issuance of the 2016 Convertible Senior Notes to pay the net cost of a call spread hedge transactions, which are designed to reduce the potential dilutive impact upon the conversion of the 2016 Convertible Senior Notes. Under the call spread hedge, we purchased call options on our common stock, which give us the right to receive from Deutsche Bank AG London Branch up to 5.2 million shares of our common stock at a strike price of $47.69. The call options will terminate upon the maturity of the 2016 Convertible Senior Notes, or the first day the notes are no longer outstanding.  We also sold Deutsche Bank AG London Branch warrants to acquire up to approximately 5.2 million shares of our

 

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common stock at a strike price of $67.56. The warrants will expire in ratable portions on a series of expiration dates within approximately five months after the maturity of the 2016 Convertible Senior Notes. If the conversion price of the 2016 Convertible Senior Notes remains between the strike prices of the call options and warrants, our shareholders will not experience any dilution in connection with the conversion of the 2016 Convertible Senior Notes; however, to the extent that the conversion price exceeds the strike price of the warrants, there will be dilution upon conversion.

 

Share Repurchase

 

On October 3, 2011, our Board of Directors approved a share repurchase program authorizing up to $300.0 million in aggregate repurchases of our common stock, from time-to-time at our discretion, over a two-year period ending on October 3, 2013 (Repurchase Program).  In connection with the broader Repurchase Program, we paid $212.0 million funded primarily from the proceeds received from the 2016 Convertible Senior Notes offering to pay for the cost of an accelerated share repurchase agreement (ASR).  Under the ASR, we will repurchase a variable number of our shares subject to upper and lower stock price limits that establish the minimum and maximum number of shares that can be repurchased. The final number of shares to be repurchased under the ASR will be determined based on the daily volume weighted average price of our common stock over a specified averaging period ending on the contract termination date. The ASR is scheduled to terminate during the second quarter of 2012; however, Deutsche Bank AG London Branch can accelerate termination at its option. Pursuant to the terms of the ASR, on October 17, 2011, Deutsche Bank AG London Branch delivered to us approximately 4.7 million shares of our common stock, representing the minimum number of shares we were entitled to receive under the ASR. Upon settlement of the ASR, we may receive additional shares of our common stock.

 

Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010, and the consolidated financial statements and accompanying notes included in Part I, Item I of this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, including the statements listed in the section below entitled Part II, Item 1A—Risk Factors . These statements are based on our beliefs and expectations about future outcomes and are subject to risks and uncertainties that could cause our actual results to differ materially from anticipated results. Factors that could cause or contribute to such differences include those described in Part II, Item 1A—Risk Factors of this Quarterly Report on Form 10-Q; factors described in our Annual Report on Form 10-K for the year ended December 31, 2010, under the section entitled Part I, Item 1A—Risk Factors—Forward-Looking Statements ; and factors described in other cautionary statements, cautionary language and risk factors set forth in other filings with the Securities and Exchange Commission (SEC). We undertake no obligation to publicly update these forward-looking statements, whether as a result of new information, future events or otherwise.

 

Overview

 

We are a biotechnology company focused on the development and commercialization of unique products to address the unmet medical needs of patients with chronic and life-threatening conditions.

 

Our key therapeutic products and product candidates include:

 

·                   Prostacyclin analogues (Remodulin ® , Tyvaso ® , oral treprostinil and beraprost-MR) : stable synthetic forms of prostacyclin, an important molecule produced by the body that has powerful effects on blood vessel health and function;

 

·                   Phosphodiesterase type 5 (PDE-5) inhibitor (Adcirca ® ) : a molecule that acts to inhibit the degradation of cyclic guanosine monophosphate (cGMP) in cells. cGMP is activated by nitric oxide, a naturally occurring substance in the body that mediates the relaxation of vascular smooth muscle;

 

·                   Monoclonal antibodies for oncologic applications (Ch14.18 MAb and 8H9 MAb) : antibodies that treat cancer by activating the immune system; and

 

·                   Glycobiology antiviral agents : a novel class of small, sugar-like molecules that have shown antiviral activity in a range of pre-clinical settings.

 

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We concentrate substantially all of our research and development efforts on these key therapeutic programs. Our lead product is Remodulin (treprostinil) Injection (Remodulin) for the treatment of pulmonary arterial hypertension (PAH). The United States Food and Drug Administration (FDA) initially approved Remodulin in 2002 for subcutaneous (under the skin) administration. The FDA subsequently broadened its approval of Remodulin in 2004 for intravenous (in the vein) use and for the treatment of patients requiring transition from Flolan ® , the first drug approved by the FDA for the treatment of PAH. In addition to the United States, Remodulin is approved in many other countries, primarily for subcutaneous use. Our other commercial products include Adcirca (tadalafil) tablets (Adcirca) and Tyvaso (treprostinil) Inhalation Solution (Tyvaso). In May 2009, the FDA approved Adcirca, an orally administered therapy for the treatment of PAH to which we acquired certain exclusive commercialization rights from Eli Lilly and Company (Lilly). In July 2009, we received FDA approval of Tyvaso, an inhaled therapy for the treatment of PAH. We launched both of these products for commercial sale during the third quarter of 2009. These two products enable us to offer treatments to a broader range of patients who suffer from PAH. In addition, we are continuing to develop oral formulations of treprostinil and beraprost-MR, both for the treatment of PAH.

 

We sold Medicomp, Inc., our telemedicine subsidiary, to a group of private investors on March 31, 2011. In addition, in June 2011, we discontinued all of our continuing telemedicine-related activities. Accordingly, the results of Medicomp, Inc., including the gain recognized on its disposal, have been included in discontinued operations for the three- and nine-month periods ended September 30, 2011 and 2010. See Note 14— Sale of Medicomp, Inc. to our consolidated financial statements included in this Quarterly Report on Form 10-Q for further details.

 

Revenues

 

Sales of Remodulin comprise the largest share of our revenues. Other significant sources of revenues include sales of Tyvaso and Adcirca. Sales of Tyvaso and Adcirca have continued to grow since their commercial introduction in 2009, as each of these therapies has gained broader market acceptance. We sell Remodulin and Tyvaso in the United States to our specialty pharmaceutical distributors: Accredo Health Group, Inc., CuraScript, Inc. and CVS Caremark. Adcirca is sold to pharmaceutical wholesalers that are part of Lilly’s pharmaceutical wholesaler network. We also sell Remodulin to distributors outside of the United States. On July 21, 2011, Express Scripts, Inc., the parent company of CuraScript, announced the signing of a merger agreement with Medco Health Solutions, Inc., the parent company of Accredo.  The parties announced that the merger, which is subject to regulatory and shareholder approvals, is expected to close in the first half of 2012. Presently, we do not expect the merger, if approved, to materially affect our business.

 

We require our distributors to maintain reasonable levels of contingent inventory at all times as the interruption of Remodulin or Tyvaso therapy can be life threatening. Consequently, sales of these therapies in any given quarter may not precisely reflect patient demand. Our distributors typically place monthly orders based on estimates of future demand and considerations of contractual minimum inventory requirements. As a result, the sales volume of Remodulin and Tyvaso can vary, depending on the timing and magnitude of these orders.

 

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the Acts) contains broad provisions that will be implemented over the next several years. We are continually evaluating the impact of the Acts on our business; however, our evaluation is dependent upon the issuance of final regulations and the impact this legislation will have on insurance companies and their relationships with drug manufacturers.

 

On January 1, 2011, certain provisions of the Acts that address the coverage gap in the Medicare Part D prescription drug program (commonly known as the “donut hole”) became effective. Under these provisions, drug manufacturers are required to provide a 50 percent discount on branded prescription drugs to patients receiving reimbursement under Medicare Part D while they remain in this coverage gap. These provisions of the Acts apply to Adcirca, which is our only commercial pharmaceutical product covered by Medicare Part D. Approximately 35 percent of our Adcirca patients are covered under Medicare Part D.  The vast majority of our Remodulin and Tyvaso Medicare patients are covered under Medicare Part B, which does not contain a similar coverage gap.

 

We were not materially impacted by the Acts during 2010 and estimate that our revenues will be reduced by less than one percent in 2011 as a result of the Acts. However, the potential long-term impact of the Acts on our business is inherently difficult to predict as many details regarding the implementation of this legislation have not yet been determined. Presently, we have not identified any provisions that could materially impact our business, but will continue to monitor future developments related to this legislation.

 

Total revenues are reported net of: (1) estimated rebates; (2) prompt pay discounts; (3) allowances for product returns or exchanges; and (4) distributor fees. We estimate our liability for rebates based on an analysis of historical levels of rebates by product to both state Medicaid agencies and commercial third-party payers relative to sales of each product. In addition, we

 

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determine our obligation for prescription drug discounts required for Medicare Part D patients within the coverage gap based on estimations of the number of Medicare Part D patients and the period such patients will remain within the coverage gap. We provide prompt pay discounts to customers that pay amounts due within a specific time period and base our estimates for prompt pay discounts on observed customer payment behavior. We derive estimates relating to the allowance for returns of Adcirca from published industry data specific to specialty pharmaceuticals and will continue to do so until we have sufficient historical data on which to base our allowance. In addition, we compare patient prescription data for Adcirca to sales of Adcirca on a quarterly basis to ensure a reasonable relationship between prescription and sales trends. To date, we have not identified any unusual patterns in the volume of prescriptions relative to sales that would warrant reconsideration of, or adjustment to, the methodology we currently employ to estimate our allowance for returns. The allowance for exchanges for Remodulin is based on the historical rate of product exchanges, which has been too immaterial to record. In addition, because Tyvaso is distributed in the same manner and under similar contractual arrangements as Remodulin, the level of product exchanges for Tyvaso has been comparable to that of Remodulin and we anticipate minimal exchange activity in the future for both products. Lastly, we estimate distributor fees based on contractual rates for specific services applied to the estimated units of service provided for the period.

 

Cost of Product Sales

 

Cost of product sales are comprised of (1) costs to manufacture and acquire products sold to customers and (2) royalty payments under license agreements granting us rights to sell related products. We manufacture forms of treprostinil using advanced intermediate compounds purchased in bulk from several third-party vendors that have the capacity to produce greater quantities of these compounds more cost effectively than we do. Our manufacturing process has been designed to give us the flexibility to produce the forms of treprostinil used in Remodulin, Tyvaso, and our oral tablet, based on forecasted demand for each of these products. The approved shelf life for both Remodulin and Tyvaso is 36 months. Correspondingly, we maintain inventories of these products equivalent to approximately three years of expected demand to ensure sufficient availability of Remodulin and Tyvaso at all times.

 

In 2009, we amended our contract with our Remodulin manufacturer, Baxter Pharmaceutical Solutions, LLC (Baxter), to extend the contract term through 2013. As part of that contract amendment, we agreed that Baxter will manufacture Remodulin in greater quantities using larger capacity production equipment. This new manufacturing process and related equipment will require FDA and international regulatory approval. We are currently conducting validation testing for the new equipment and process. Until FDA approval of the new process and equipment, Baxter will continue to manufacture Remodulin using the approved process and equipment. In January 2011, we received FDA approval of Jubilant Hollister-Stier Contract Manufacturing and Services as an additional manufacturer for Remodulin in the larger quantities discussed above. In addition, in July 2011, we received FDA approval of our NDA supplement to use our Silver Spring, Maryland facility for the production of Remodulin.

 

We acquired the rights to the Tyvaso Inhalation System from NEBU-TEC International Med Products Eike Kern GmbH (NEBU-TEC) in September 2009. We currently manufacture the Tyvaso Inhalation System in Germany using labor supplied by NEBU-TEC. In addition, we received FDA approval in December 2010 for Minnetronix, Inc. to manufacture the Tyvaso Inhalation System and for Quality Tech Services, Inc. to package daily supplies. Catalent Pharma Solutions, Inc. continues to manufacture Tyvaso for us and in March 2011, we received FDA approval to produce Tyvaso in our Silver Spring, Maryland facility.

 

Operating Expenses

 

Since our inception, we have devoted substantial resources to our various research and development initiatives. Accordingly, we incur considerable costs related to our clinical trials and research, which are conducted both internally and through third parties, on a variety of projects to develop pharmaceutical products. We also seek to license or acquire promising technologies and/or compounds to be incorporated into our development pipeline.

 

Our operating expenses can be materially impacted by the recognition of share-based compensation expense (benefit) in connection with any stock option grants and our share tracking award plans (STAP). STAP awards are required to be measured at fair value at the end of each reporting period until the awards are no longer outstanding. The fair value of both STAP awards and stock option grants are measured using inputs and assumptions that can materially impact the amount of compensation expense for a given period. Additionally, some or all of the following factors, among others, can cause substantial variability in the amount of share-based compensation recognized in connection with the STAP from period to period: (1) changes in the price of our common stock; (2) changes in the number of outstanding awards; and (3) changes in both the number of vested awards and the period awards have accrued toward vesting. Generally, our stock option grants are measured at fair value at the date of grant and related compensation is recognized over the requisite service period, which typically coincides with the vesting period. However, in the case of options that vest upon issuance, we recognize all compensation expense immediately at

 

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the date of grant. We accrue compensation expense for performance-related stock option grants when we determine that it is probable that the performance criteria will be met.

 

Major Research and Development Projects

 

Our major research and development projects focus on the use of prostacyclin analogues to treat cardiopulmonary diseases, monoclonal antibodies to treat a variety of cancers, and glycobiology antiviral agents to treat infectious diseases.

 

Cardiopulmonary Disease Projects

 

Tyvaso

 

The FDA approved Tyvaso for the treatment of PAH in July 2009, and we launched the product for commercial sale in September 2009. In connection with the Tyvaso approval, we agreed to a post-marketing requirement (PMR) and certain post-marketing commitments (PMCs). PMRs and PMCs often obligate sponsors to conduct studies after FDA approval to gather additional information about a product’s safety, efficacy, or optimal use. PMRs are required studies, whereas PMCs are voluntary commitments. We are required to provide the FDA with annual updates on our PMR and PMCs. Failure to complete or adhere to the timelines set forth by the FDA for the PMR could result in penalties, including fines or withdrawal of Tyvaso from the market, unless we are able to demonstrate good cause for the failure or delay.

 

In accordance with our PMR, we are enrolling patients in a long-term observational study in the U.S. that will include 1,000 patient years of follow-up in patients treated with Tyvaso, and 1,000 patient years of follow up in control patients receiving other PAH treatments. This study will allow us to continue to assess the safety of Tyvaso. We are currently required to submit the results of the study by December 15, 2014.

 

Under the PMCs, we were committed to modify particular aspects of the Tyvaso Inhalation System. As part of these modifications, we agreed to perform a usability analysis incorporating the evaluation and prioritization of user-related risk followed by a human factors study. The modifications and usability analysis have been completed, and in September 2011, the FDA notified us that we had fulfilled the requirements of the PMCs.

 

Oral treprostinil

 

We recently completed two Phase III clinical trials, FREEDOM-M and FREEDOM-C 2 , to evaluate the safety and efficacy of oral treprostinil in patients with PAH.

 

In December 2006, we began our FREEDOM-M trial, which was a 12-week study of newly-diagnosed PAH patients not currently on any background therapy. In February 2009, we submitted a protocol amendment to the FDA to add patients to the ongoing FREEDOM-M trial. These additional patients were provided access to a 0.25 mg tablet when beginning the trial. We completed enrollment of FREEDOM-M in January 2011 with 349 patients, with the population for the primary analysis consisting of the 228 patients who had access to the 0.25 mg tablet at randomization. In June 2011, we announced the completion of the FREEDOM-M trial and that the trial met its primary endpoint of improvement in six-minute walk distance at week 12. Preliminary analysis of the FREEDOM-M results demonstrated that patients receiving oral treprostinil improved their median six-minute walk distance by approximately 23 meters (p=0.0125, Hodges-Lehmann estimate and non-parametric analysis of covariance in accordance with the trial’s pre-specified statistical analysis plan) as compared to patients receiving placebo.  The median change from baseline at week 12 was 25 meters for patients receiving oral treprostinil and -5 meters for patients receiving placebo. Based on the positive results achieved in this trial, we plan to file a New Drug Application (NDA) no later than the first quarter of 2012.

 

In June 2009, we began enrollment of our FREEDOM-C 2  trial, which was a 16-week study of PAH patients on an approved background therapy.  In this trial, patients were provided access to a 0.25 mg tablet and doses were titrated in 0.25 mg to 0.5 mg increments. In March 2011, we completed enrollment of FREEDOM-C 2  with 313 patients, compared to a target enrollment of 300 patients. In August 2011, we announced the completion of FREEDOM-C 2  and that the trial did not achieve statistical significance for the primary endpoint of improvement in six-minute walk distance at week 16. Specifically, the placebo-corrected median change in six-minute walk distance at week 16 was 10 meters (p=0.089, Hodges-Lehmann estimate and non-parametric analysis of covariance in accordance with the trial’s pre-specified statistical plan).

 

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