UNITED THERAPEUTICS CORP - 10-Q Quarterly Report

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

United Therapeutics Corporation
(Exact Name of Registrant as Specified in Its Charter)

(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

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

As of November 7, 2003, the number of shares outstanding of the registrant’s common stock, par value $.01 per share, was 21,292,191.


Part I.	FINANCIAL INFORMATION (UNAUDITED)

Item 1.		Financial Statements (Unaudited)

		Consolidated Balance Sheets	1

		Consolidated Statements of Operations	2

		Consolidated Statements of Cash Flows	3

		Notes to Consolidated Financial Statements	4

Item 2.		Management’s Discussion and Analysis of Financial	10
		Condition and Results of Operations

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	18

Item 4.		Controls and Procedures	18

UNITED THERAPEUTICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)


			September 30,			December 31,
			2003			2002

			(Unaudited)
Assets
	Current assets:
		Cash and cash equivalents	$	86,443		$	122,655
		Accounts receivable, net of allowance of $225 for 2003 and $268 for 2002		8,798			9,649
		Interest receivable		388			10
		Prepaid expenses		1,562			1,234
		Inventories, net		7,676			7,164
		Due from affiliate		101			—
		Other current assets		359			1,145

		Total current assets		105,327			141,857

	Marketable investments			48,755			10,000
	Certificate of deposit			—			641
	Goodwill, net			7,465			7,465
	Other intangible assets, net			6,663			7,001
	Property, plant and equipment, net			11,375			9,120
	Investments in affiliates			6,553			6,388
	Due from affiliate			433			433
	Note receivable from employee and other assets			1,515			1,661

		Total assets	$	188,086		$	184,566

Liabilities and Stockholders’ Equity
	Current liabilities:
		Accounts payable	$	4,413		$	2,988
		Accrued expenses		9,452			4,451
		Due to affiliates		1,049			1,706
		Current portion of notes and leases payable		2,478			111
		Other current liabilities		59			51

		Total current liabilities		17,451			9,307

	Notes and leases payable, excluding current portion			31			1,767
	Due to affiliates			920			1,813
	Other liabilities			134			21

		Total liabilities		18,536			12,908

	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 shares authorized, no shares issued		—			—
		Common stock, par value $.01, 100,000,000 shares authorized, 21,816,419 and 21,449,470 shares issued at September 30, 2003 and December 31, 2002, respectively, and 21,289,819 and 20,922,870 outstanding at September 30, 2003 and December 31, 2002, respectively		218			215
		Additional paid-in capital		368,119			364,130
		Accumulated other comprehensive income		657			8
		Accumulated deficit		(192,570	)		(185,821	)
		Treasury stock, at cost, 526,600 shares		(6,874	)		(6,874	)

		Total stockholders’ equity		169,550			171,658

		Total liabilities and stockholders’ equity	$	188,086		$	184,566

UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)


			Three Months Ended September 30,						Nine Months Ended September 30,

			2003			2002			2003			2002

Revenues:
	Net product sales		$	14,163		$	4,358		$	36,994		$	15,599
	Service sales			872			770			2,757			2,499

		Total revenues		15,035			5,128			39,751			18,098

Operating expenses:
	Research and development			9,401			6,640			25,644			18,423
	Selling, general and administrative			5,624			3,750			16,607			10,607
	Cost of product sales			1,233			833			4,127			2,724
	Cost of service sales			520			442			1,376			1,234

		Total operating expenses		16,778			11,665			47,754			32,988

		Loss from operations		(1,743	)		(6,537	)		(8,003	)		(14,890	)

Other income (expense):
	Interest income			637			537			1,844			4,396
	Interest expense			(31	)		(25	)		(94	)		(90	)
	Equity loss in affiliate			(221	)		(7	)		(628	)		(151	)
	Other, net			17			65			132			10
	Write-down of investment in affiliate			—			(2,893	)		—			(2,893	)
	Loss on marketable investments			—			(3,328	)		—			(7,428	)

		Total other income (expense)		402			(5,651	)		1,254			(6,156	)

		Loss before income tax		(1,341	)		(12,188	)		(6,749	)		(21,046	)

Income tax				—			—			—			—

Net loss			$	(1,341	)	$	(12,188	)	$	(6,749	)	$	(21,046	)


Net loss per common share – basic and diluted			$	(0.06	)	$	(0.58	)	$	(0.32	)	$	(1.02	)


Weighted average number of common shares outstanding – basic and diluted				21,231,165			20,899,094			21,079,912			20,550,978

UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


			Nine Months Ended September 30,

			2003			2002

Cash flows from operating activities:
	Net loss		$	(6,749	)	$	(21,046	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization		1,710			1,532
		Provision for bad debt		230			(46	)
		Provision for inventory obsolescence		350			495
		Loss on disposals of equipment		110			—
		Stock and options issued in exchange for services		123			228
		Amortization of discount or premium on investments		(25	)		1,113
		Loss on marketable investments		—			7,428
		Equity loss in affiliate		628			151
		Write-down of investment in affiliate		—			2,893
	Changes in operating assets and liabilities:
		Accounts receivable		621			(10,177	)
		Interest receivable		(379	)		2,658
		Inventories		(787	)		(2,195	)
		Prepaid expenses		(328	)		(776	)
		Note receivable and other assets		830			(1,855	)
		Accounts payable		1,425			(2,427	)
		Accrued expenses		5,000			333
		Due to/from affiliates		(158	)		(809	)
		Other liabilities		7			(28	)

		Net cash provided by (used in) operating activities		2,608			(22,528	)

Cash flows from investing activities:
	Purchases of property, plant and equipment			(2,793	)		(2,644	)
	Investment in Northern Therapeutics, Inc.			(1,500	)		—
	Investment in AltaRex Corp.			—			(4,913	)
	Proceeds from disposals of property, plant and equipment			336			1
	Acquisition of patent rights			(300	)		—
	Purchases of investments and certificate of deposit			(44,711	)		(1,218	)
	Sales and maturities of investments			6,641			140,576

		Net cash provided by (used in) investing activities		(42,327	)		131,802

Cash flows from financing activities:
	Proceeds from the exercise of stock options			3,867			206
	Principal payments on notes payable and capital lease obligations			(360	)		(46	)

		Net cash provided by (used in) financing activities		3,507			160

Net increase (decrease) in cash and cash equivalents				(36,212	)		109,434

Cash and cash equivalents, beginning of period				122,655			24,373

Cash and cash equivalents, end of period			$	86,443		$	133,807

Supplemental schedule of cash flow information:
	Cash paid for interest		$	76		$	101

	Noncash investing and financing activities – note payable issued for building and land		$	974		$	—

UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)

United Therapeutics Corporation (United Therapeutics) is a biotechnology company focused on the development and commercialization of unique therapeutic products to treat patients with chronic and life-threatening cardiovascular, infectious and oncological diseases. United Therapeutics was incorporated on June 26, 1996 under the laws of the State of Delaware and has the following wholly owned subsidiaries: Lung Rx, Inc., Unither Pharmaceuticals, Inc. (UPI), Unither Telemedicine Services Corp. (UTSC), United Therapeutics Europe, Ltd., Unither Pharma, Inc., Medicomp, Inc. and Unither Nutriceuticals, Inc.

United Therapeutics’ lead product is Remodulin®. On May 21, 2002, the United States Food and Drug Administration (FDA) approved Remodulin (treprostinil sodium) Injection for the treatment of pulmonary arterial hypertension in patients with NYHA class II-IV symptoms to diminish symptoms associated with exercise. United Therapeutics agreed with the FDA that it would perform a post-marketing phase IV clinical study to further assess the clinical benefits of Remodulin. The phase IV study commenced in late 2002 and the final study report must be submitted to the FDA by December 2005. Continued FDA approval is conditioned on the completion and outcome of the phase IV study. International applications are pending. In September 2003, United Therapeutics was notified by the General Commission of the French Regulatory Commission that it would not recommend approval of Remodulin in France. United Therapeutics is committed to obtaining European approval and is pursuing a range of options to accomplish this objective. United Therapeutics has generated pharmaceutical revenues from sales of Remodulin and arginine products in the United States and Europe. In addition, United Therapeutics has generated non-pharmaceutical revenues from telemedicine products and services in the United States.

The consolidated financial statements included herein have been prepared, without audit, pursuant to Regulation S-X of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto contained in United Therapeutics’ Annual Report on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission.

Certain reclassifications have been made in the consolidated financial statements for the three and nine-month periods ended September 30, 2002 to conform to the 2003 presentation.

In the opinion of United Therapeutics’ management, the accompanying unaudited consolidated financial statements contain all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position as of September 30, 2003, results of operations and cash flows for the three and nine-month periods ended September 30, 2003 and 2002. Interim results are not necessarily indicative of results for an entire year.

Basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the respective periods. Options and warrants that could potentially dilute loss per share in the future were not included in the computation of diluted loss per share because to do so would have been anti-dilutive for the periods presented. As of September 30, 2003, these options and warrants covered approximately 907,996 shares of common stock. Accordingly, diluted loss per common share is the same as basic loss per common share.

United Therapeutics applies the provisions of Statement of Financial Accounting Standards (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, Accounting for Stock Issued to Employees, and related interpretations 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. United Therapeutics has elected to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosures of SFAS No. 123. United Therapeutics accounts for non-employee stock option awards in accordance with SFAS No. 123 and EITF 96-18.

As a result of applying APB Opinion No. 25 and related interpretations, no stock-based employee compensation expense is reflected in net loss, as all stock options granted to employees had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. In accordance with SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”, the effect on net loss and net loss per share if United Therapeutics had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation is as follows (in thousands, except per share amounts):


Delaware		52-1984749

(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)

1110 Spring Street, Silver Spring, MD		20910

(Address of Principal Executive Offices)		(Zip Code)


Part II. OTHER INFORMATION

Item 1.	Legal Proceedings	18

Item 4.	Submission of Matters to a Vote of Security Holders	19

Item 6.	Exhibits and Reports on Form 8-K	19

SIGNATURES		20