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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________________to __________________
Commission file number 333-76409
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United Therapeutics Corporation
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 52-1984749
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
1110 Spring Street, Silver Spring, MD 20910
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(Address of Principal Executive
Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (301) 608-9292
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Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.
Indicate by check X whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No
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The number of shares outstanding of the issuer's common stock, par value $.01
per share, as of November 12, 1999 was 16,003,218.
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INDEX
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE
Item 1. Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 14
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED THERAPEUTICS CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
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1999 1998
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(UNAUDITED)
----------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 5,785,746 $ 6,779,067
Investments 53,863,750 10,023,190
Accounts receivable 12,048 53,750
Prepaid expense 103,246 -
----------------- -----------------
Total current assets 59,764,790 16,856,007
Property, plant, and equipment, net 3,156,940 1,367,508
Certificate of deposit 531,810 509,506
Other 75,547 13,817
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Total assets $ 63,529,087 $ 18,746,838
================= =================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,162,640 $ 1,707,103
Accrued professional fees 94,067 14,161
Payroll taxes withheld 20,058 33,629
Current portion of notes payable 21,206 4,098
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Total current liabilities 2,297,971 1,758,991
Note payable, excluding current portion 1,775,424 310,262
Other liabilities 28,078 1,759
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Total liabilities 4,101,473 2,071,012
Stockholders equity:
Preferred stock, par value $.01, 10,000,000 shares - -
authorized at September 30, 1999 and December 31, 1998, no
shares issued
Common stock, par value $.01, 100,000,000 and 159,020 101,156
50,000,000 shares authorized at September 30,
1999 and December 31, 1998, 15,901,967 and
10,115,597 shares issued and outstanding at
September 30, 1999 and December 31, 1998
Additional paid-in capital 99,720,381 32,341,370
Accumulated deficit (40,451,787) (15,766,700)
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Total stockholders' equity 59,427,614 16,675,826
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Total liabilities and stockholders' equity $ 63,529,087 $ 18,746,838
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- --------------------------------
1999 1998 1999 1998
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Grant revenue $ 53,750 $ - $ 161,250 $ -
Operating expenses:
Research and development 5,977,408 4,178,356 22,783,815 7,008,575
General and administrative 1,232,747 595,169 3,204,408 1,795,941
------------ ------------ ------------ ------------
Total operating expenses 7,210,155 4,773,525 25,988,223 8,804,516
------------ ------------ ------------ ------------
Loss from operations (7,156,405) (4,773,525) (25,826,973) (8,804,516)
Other income (expense):
Interest income 791,207 173,719 1,154,386 303,788
Interest expense (12,674) (4,333) (26,941) (8,215)
Rental income 11,548 - 11,548 -
Rental expense (5,193) - (5,193) -
Other 11,540 - 11,540 -
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Total other income 796,428 169,386 1,145,340 295,573
------------ ------------ ------------ ------------
Net loss before income tax (6,359,977) (4,604,139) (24,681,633) (8,508,943)
Income tax - - (3,454) (2,855)
------------ ------------ ------------ ------------
Net loss $ (6,359,977) $ (4,604,139) $(24,685,087) $ (8,511,798)
============ ============ ============ ============
Net loss per common share -
basic and diluted $ (.40) $ (.50) $ (1.97) $ (1.10)
============ ============ ============ ============
Weighted average number of
common shares outstanding -
basic and diluted 15,791,913 9,165,309 12,512,107 7,770,620
============ ============ ============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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UNITED THERAPEUTICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
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1999 1998
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Cash flows from operating activities:
Net loss $ (24,685,087) $ (8,511,798)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 86,740 24,930
Loss on disposals of equipment 9,319
Stock issued for exclusive license agreement 9,000,000 1,500,000
Stock and options issued in exchange for services 57,830 108,085
Amortization of discount on investments (918,420) -
Changes in operating assets and liabilities:
Accounts receivable 41,702 -
Prepaid expenses (103,246) -
Employee advances - (42,000)
Other assets (61,730) (10,250)
Accounts payable 453,580 715,661
Accrued professional fees 79,906 (33,945)
Payroll taxes withheld (13,571) (27,913)
Other liabilities 16,662 -
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Net cash used in operating activities (16,036,315) (6,277,230)
Cash flows used in investing activities:
Purchases of property, plant, and equipment (1,868,862) (1,179,712)
Purchases of investments and certificate of deposit (100,818,444) (502,202)
Sales and maturities of investments 57,874,000 -
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Net cash used in investing activities (44,813,306) (1,681,914)
Cash flows from financing activities:
Proceeds from issuance of common stock 58,379,045 17,090,572
Payments of principal of note payable (315,730) (1,691)
Proceeds from note payable 1,798,000 317,130
Principal payments under capital lease obligations (5,015) (1,020)
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Net cash provided by financing activities 59,856,300 17,404,991
Net increase (decrease) in cash and cash equivalents (993,321) 9,445,847
Cash and cash equivalents, beginning of period 6,779,067 5,018,145
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Cash and cash equivalents, end of period $ 5,785,746 $ 14,463,992
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Supplemental schedule of cash flow information -
cash paid for interest $ 26,942 $ 8,215
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Noncash investing and financing activities -
equipment acquired under a capital lease $ 16,629 $ -
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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UNITED THERAPEUTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. ORGANIZATION AND BUSINESS DESCRIPTION
United Therapeutics Corporation (United Therapeutics) was incorporated on
June 26, 1996 under the laws of the State of Delaware. United Therapeutics is
a pharmaceutical company based in Silver Spring, Maryland and Research
Triangle Park, North Carolina, that is focused on clinical development and
commercialization of in-licensed compounds for the treatment of life
threatening diseases characterized by high chronic care costs. The current
focus of United Therapeutics is the development of therapies to treat
patients with pulmonary hypertension, a generally fatal disorder of the
pulmonary arteries, and peripheral vascular disease, a limb-threatening
disorder affecting millions of Americans. All of United Therapeutics'
products are currently in clinical trial programs.
United Therapeutics has four wholly owned subsidiaries: Lung Rx, Inc.,
Unither Pharmaceuticals, Inc., Unither Telemedicine Services Corporation and
SynQuest Inc.
2. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared,
without audit, pursuant to Regulation S-X of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. These consolidated financial statements should be
read in conjunction with the audited financial statements and notes thereto
contained in United Therapeutics' Registration Statement on Form S-1 dated
June 17, 1999, as filed with the Securities and Exchange Commission.
In the opinion of United Therapeutics' management, any adjustments
contained in the accompanying unaudited consolidated financial statements are
of a normal recurring nature, necessary to present fairly its financial
position as of September 30, 1999 and its results of operations for the three
and nine month periods ended September 30, 1999 and 1998 and cash flows for
the nine month periods ended September 30, 1999 and 1998. Interim results are
not necessarily indicative of results for an entire year.
3. INVESTMENTS
Investments at September 30, 1999 consist of marketable debt securities
that have remaining maturities of six months or less.
4. NOTES PAYABLE
In June 1999, United Therapeutics refinanced its note payable. The
outstanding principal totaled approximately $315,000 and was paid in full
from the proceeds of a new mortgage note payable. The new mortgage note
payable was issued for $720,000 and is payable in monthly installments. This
30-year adjustable rate note had an interest rate of 6.25 percent in effect
at September 30, 1999 and is secured by the building and property owned by
United Therapeutics located at 1110 Spring Street in Silver Spring, Maryland.
In September 1999, United Therapeutics purchased a building adjacent to
1110 Spring Street in Silver Spring, Maryland. The total cost of the building
was approximately $1,544,000. United Therapeutics issued a mortgage note
payable to finance this purchase. The mortgage note payable was
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issued for $1,078,000 and is payable in monthly installments. This 30-year
adjustable rate note had an interest rate of 5.75 percent in effect at
September 30, 1999 and is secured by a certificate of deposit and the
building and property owned by United Therapeutics located at 1106 Spring
Street in Silver Spring, Maryland.
5. STOCKHOLDERS' EQUITY
During the nine month period ended September 30, 1999, the following
events and transactions impacted stockholders' equity:
(a) Private Placements of Common Stock
During the first quarter of 1999, United Therapeutics sold 111,370 shares
of common stock at a price of $18.00 per share through private placements.
Total proceeds from these private placements, net of offering expenses,
approximated $2.0 million.
(b) Issuance of Common Stock for License
In March 1999, United Therapeutics issued 500,000 shares of common stock
in exchange for an exclusive license agreement. The stock was valued at $9.0
million ($18.00 per share) based on recent sales at $18.00 per share. The
total of $9.0 million was expensed as research and development in the first
quarter of 1999.
(c) Reverse Stock Split
In April 1999, United Therapeutics' Board of Directors approved a
one-for-three reverse stock split of its outstanding common stock.
Shareholders of United Therapeutics subsequently approved the reverse split
and it was effected on June 11, 1999, prior to the public offering.
Fractional shares were not issued and no consideration was given for
fractional shares. Authorized shares and the par values of common and
preferred stock were not affected by the reverse stock split, although at the
same time United Therapeutics increased the total number of authorized shares
of common stock to 100,000,000. All share and per share amounts in these
notes, the accompanying financial statements and otherwise in this report on
Form 10-Q have been retroactively adjusted to reflect the reverse stock split
for all periods presented.
(d) Initial Public Offering
On June 17, 1999, United Therapeutics' initial public offering, which
involved the sale of 4,500,000 shares of common stock at $12.00 per share,
was declared effective by the SEC. United Therapeutics closed the initial
public offering on June 22, 1999 and received net proceeds, after deducting
underwriting commissions and offering expenses, of approximately $48.9
million.
(e) Underwriters' Exercise of Option on Over-allotment Shares
On July 16, 1999, United Therapeutics' closed on the sale of 675,000
over-allotment shares of common stock to its underwriters. The underwriters'
over-allotment option was exercised at the initial public offering price of
$12.00 per share. The net proceeds, after deducting underwriting commissions
and offering expenses, were approximately $7.5 million.
6. EQUITY INVESTMENTS
(a) AboveCable.com, Inc.
In July 1999, Unither Telemedicine Services Corporation (UTSC) entered
into an agreement to form AboveCable.com, Inc., a Delaware corporation, to
provide Internet access via cable television portals worldwide. UTSC received
20 percent of the initial outstanding common stock of AboveCable.com, Inc.
and the exclusive rights to offer telemedicine and electronic health services
at the portal level. United Therapeutics has agreed to provide the services
of its Chief Executive Officer as Vice Chair and a director of the new
company. The agreement does not require UTSC to contribute cash or other
capital. WorldSpace Corporation purchased a 50 percent common stock
shareholding in
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the new company. The Chairman and CEO of WorldSpace is a major shareholder
and Board member of United Therapeutics. At September 30, 1999, UTSC's 20
percent investment in AboveCable.com, Inc. was reported at zero, and UTSC's
equity in the underlying net assets was approximately $380,000.
(b) Quantum Medical Corporation
In August 1999, Unither Telemedicine Services Corporation (UTSC) entered
into an agreement to form Quantum Medical Corporation, a Delaware
corporation, to develop and commercialize infrared wound healing technology.
UTSC received approximately 35 percent of the initial outstanding common
stock of Quantum Medical Corporation. United Therapeutics has agreed to
provide the services of its Chief Executive Officer as Co-Chairman of the new
company. The agreement does not require UTSC to contribute cash or other
capital. From the date of the agreement until September 30, 1999, UTSC
provided office space and administrative services pursuant to a lease with
Quantum Medical Corporation for $3,000 per month, which lease terminated on
November 1, 1999. At September 30, 1999, accounts receivable in the
accompanying consolidated balance sheet includes $3,000 due from Quantum
Medical Corporation. At September 30, 1999, UTSC's 35 percent investment in
Quantum Medical Corporation was reported at zero and UTSC's equity in the
underlying net assets was approximately $100,000. A member of United
Therapeutics' Scientific Advisory Board received approximately 6 percent of
the initial outstanding common stock in the new company in exchange for his
willingness to serve as CEO of Quantum Medical Corporation.
7. COMMITMENTS
(a) Leases
In September 1999, United Therapeutics purchased a building and property
located at 1106 Spring Street in Silver Spring, Maryland. The building was
fully leased to tenants at the time of the purchase. These leases are
expected to continue in operation until their expiration, which will be at
various dates through 2002. Additionally, a subsidiary of United Therapeutics
subleased a portion of its office space to Quantum Medical Corporation (see
note 6). The minimum annual rents due from tenants are approximately as
follows:
Years ending December 31:
2000 $ 184,000
2001 130,000
2002 31,000
2003 8,000
(b) Employees' Retirement Plan
Effective January 1, 1999, United Therapeutics adopted the United
Therapeutics Corporation Employees' Retirement Plan (the Plan), a salary
reduction profit sharing plan. Employees employed on July 15, 1999 are
eligible to participate in the Plan. The Plan provides for annual
discretionary employer contributions. Employees may also contribute to the
Plan at their discretion. For the nine month period ended September 30, 1999,
no employer contributions were made to the Plan.
8. LICENSE AGREEMENT
In September 1999, United Therapeutics entered into an agreement with
Shearwater Polymers, Inc. to obtain an exclusive right to Shearwater's
know-how for the design, development, production, and use of pegylation
technology to develop and produce sustained release prostacyclin molecules
for the possible treatment of pulmonary hypertension, peripheral vascular
disease, stroke, heart disease, cancer, and related diseases worldwide. In
exchange, United Therapeutics paid Shearwater $100,000 in cash and agreed to
pay Shearwater milestone payments of up to $2,900,000. Milestone payments
will come due upon the achievement of certain product development goals set
forth in the agreement
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and are expected to be paid over a period of approximately six years. United
Therapeutics also agreed to pay royalties ranging from 2 to 4 percent of net
sales from developed products. Minimum annual royalties of $1,000,000 are
required commencing with the thirteenth month following government approval
of a developed product. License fees expensed as research and development for
the quarter ended September 30, 1999 were $100,000.
9. SUBSEQUENT EVENTS
SynQuest, Inc.
On October 7, 1999, United Therapeutics acquired all the outstanding stock
of SynQuest, Inc. (SynQuest), an Illinois corporation engaged in the
synthesis and manufacture of complex molecules. SynQuest manufactures UT-15,
United Therapeutics' lead compound. The total cost of this acquisition was
approximately $3.3 million, including transaction costs. Cash of $200,000 and
United Therapeutics' common stock valued at $3.0 million was paid to the
sellers as consideration. A holdback equivalent to $500,000 of United
Therapeutics' common stock, which will be reduced to $200,000 of United
Therapeutics' common stock on October 7, 2000, is being held in escrow for
unknown liabilities and will be paid to the sellers over four years, subject
to certain conditions.
Goodwill and other intangibles resulting from the acquisition are expected
to be approximately $2.6 million and will be amortized in a straight line
manner over periods ranging up to five years. The acquisition will be
accounted for as a purchase. Beginning on October 7, 1999, SynQuest's
operations will be included in United Therapeutics' consolidated financial
statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes appearing in the United Therapeutics' Registration
Statement on Form S-1 dated June 17, 1999. The following discussion contains
forward-looking statements concerning the cash needed for current research and
development contract obligations through the end of 1999, the adequacy of United
Therapeutics' resources to fund operations through 2002 and the anticipated
success and costs of United Therapeutics' efforts to become Year 2000 compliant.
These forward-looking statements reflect the plans and estimated beliefs of
management as of the date of this report. Actual results could differ materially
from those anticipated in the forward-looking statements. Factors that could
cause or contribute to such differences include those discussed below and in the
section "Risk Factors" in the Registration Statement, the accuracy of United
Therapeutics' assumptions concerning its contract research needs, and unexpected
developments in United Therapeutics' Year 2000 efforts.
OVERVIEW
United Therapeutics develops pharmaceuticals to treat vascular diseases
including pulmonary hypertension and peripheral vascular disease, as well as
selected other chronic conditions. United Therapeutics commenced operations in
June 1996 and, since its inception, has devoted substantially all of its
resources to its research and development programs. United Therapeutics has
generated no product revenues and has funded its operations primarily from the
proceeds of the sale of its equity securities. United Therapeutics operates with
a minimal number of employees and has contracted with qualified third parties
for substantially all pharmaceutical development activities, including drug
manufacturing and certain key aspects of clinical trials.
United Therapeutics has incurred net losses each year since inception and
had an accumulated deficit of $40.5 million at September 30, 1999. United
Therapeutics expects to continue to incur net losses and cannot provide
assurances that, in the future, it will have product sales or become profitable.
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United Therapeutics has contracted with various companies and research
organizations to coordinate and perform clinical trials and to provide other
activities related to the development of its lead product, UT-15, and other
products. It is anticipated that approximately $6.5 million in cash will be used
for the remainder of 1999 under these agreements. These expenses will be funded
from existing working capital.
FINANCIAL POSITION
On June 17, 1999, United Therapeutics completed an initial public offering
of 4.5 million shares of common stock at $12.00 per share. The offering closed
on June 22, 1999 and United Therapeutics received net proceeds, after deducting
underwriting commissions and offering expenses, of approximately $48.9 million.
On July 16, 1999, United Therapeutics closed on the sale of 675,000
over-allotment shares to its underwriters and received net proceeds, after
deducting underwriting commissions and offering expenses, of approximately $7.5
million.
Investments in marketable debt securities at September 30, 1999 were $53.9
million as compared to $10.0 million at December 31, 1998. The increase of
approximately $43.9 million is due to receipt of the net proceeds from the
initial public offering and the sale of the over-allotment shares, less amounts
used for operations during the nine months ended September 30, 1999.
Accounts payable at September 30, 1999 were $2.2 million as compared to
$1.7 million at December 31, 1998. This increase in accounts payable is due to
clinical trial activities. The notes payable as of September 30, 1999 totaled
$1.8 million as compared to $314,000 as of December 31, 1998. A new mortgage
note payable was issued in June 1999 for $720,000, the proceeds from which were
used to pay off the original mortgage note payable. The new mortgage note is
secured by the building and property owned by United Therapeutics located at
1110 Spring Street in Silver Spring, Maryland. Another mortgage note payable was
issued in September 1999 for $1,078,000, the proceeds from which were used to
purchase 1106 Spring Street in Silver Spring, Maryland. That mortgage note is
secured by a certificate of deposit and building and property owned by United
Therapeutics located at that address.
Common stock and additional paid-in capital at September 30, 1999
increased as compared to amounts at December 31, 1998. This increase of
approximately $67.4 million was due to the net proceeds of the initial public
offering of $48.9 million, sales of common stock through private placements
prior to commencement of the initial public offering totaling $2.0 million,
stock issued in exchange for an exclusive license agreement totaling $9.0
million, and approximately $7.5 million in net proceeds from the sale of
over-allotment shares to the underwriters.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenue for the three months ended September 30, 1999 was approximately
$54,000, as compared to none for the same period in 1998. This revenue was
earned under an "orphan drug" grant awarded by the FDA related to United
Therapeutics' development of UT-15 for the treatment of primary pulmonary
hypertension. The FDA may designate a product as an "orphan drug" if the drug is
one intended to treat a rare disease or condition and has done so with respect
to UT-15.
Research and development expenses consist primarily of costs to acquire
pharmaceutical products for development and amounts paid to contract research
organizations, hospitals and laboratories for the provision of services and
materials for drug development and clinical trials. Research and development
expenses were $6.0 million for the three months ended September 30, 1999, as
compared to $4.2 million for the three months ended September 30, 1998. This net
increase of approximately $1.8 million is due primarily to an increase of
approximately $3.1 million related to increased levels of patient enrollment in
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United Therapeutics' clinical trials of UT-15, offset by a decrease of
approximately $1.5 million in licensing fees.
General and administrative expenses consist primarily of personnel
salaries, office expenses and professional fees. General and administrative
expenses were $1.2 million for the three months ended September 30, 1999, as
compared to $595,000 for the three months ended September 30, 1998. This
increase was due primarily to increased staffing and related travel to support
expanded operations.
Interest income for the three months ended September 30, 1999 was
$791,000, as compared to $174,000 for the three months ended September 30, 1998.
This increase was attributable primarily to an increase in the amount of cash
available for investing resulting from sales of common stock totaling
approximately $48.9 million during the second quarter of 1999, and $7.5
million during the third quarter of 1999, less amounts used for operations.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenue for the nine months ended September 30, 1999 was approximately
$161,000, as compared to none for the corresponding period in 1998. This revenue
was earned under the "orphan drug" grant awarded by the FDA related to United
Therapeutics' development of UT-15 for the treatment of primary pulmonary
hypertension.
Research and development expenses consist primarily of costs to acquire
pharmaceutical products for development and amounts paid to contract research
organizations, hospitals and laboratories for the provision of services and
materials for drug development and clinical trials. Research and development
expenses were $22.8 million for the nine months ended September 30, 1999, as
compared to $7.0 million for the nine months ended September 30, 1998.
Approximately $6.1 million of the increase in research and development expenses
is related to increased levels of patient enrollment in United Therapeutics'
clinical trials of UT-15. Additionally, $9.1 million of the increase is related
to the payment in March 1999 of an up-front licensing fee consisting of common
stock valued at $9.0 million and $100,000 in cash to obtain the exclusive rights
to develop beraprost, an oral form of prostacyclin, to treat peripheral vascular
disease in the United States and Canada.
General and administrative expenses consist primarily of personnel
salaries, office expenses and professional fees. General and administrative
expenses were $3.2 million for the nine months ended September 30, 1999, as
compared to $1.8 million for the nine months ended September 30, 1998. This
increase was due primarily to increased staffing and related travel to support
expanded operations.
Interest income for the nine months ended September 30, 1999 was $1.2
million, as compared to $304,000 for the nine months ended September 30, 1998.
This increase was attributable to an increase in the amount of cash available
for investing resulting from sales of common stock since September 30, 1998,
less amounts used for operations.
LIQUIDITY AND CAPITAL RESOURCES
Until June 1999, United Therapeutics financed its operations principally
through various private placements of common stock. On June 17, 1999, United
Therapeutics completed an initial public offering of 4.5 million shares of
common stock at $12.00 per share. Net proceeds to United Therapeutics, after
deducting underwriting commissions and offering expenses, were approximately
$48.9 million. On July 16, 1999, United Therapeutics' closed on the sale of
675,000 over-allotment shares to its underwriters and received net proceeds,
after deducting underwriting commissions and offering expenses, of approximately
$7.5 million.
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United Therapeutics' working capital at September 30, 1999 was $57.5
million, as compared with $15.1 million at December 31, 1998. Current
liabilities at September 30, 1999 were approximately $2.3 million, as compared
with $1.8 million at December 31, 1998. United Therapeutics' debt at September
30, 1999 was approximately $1.8 million, as compared with $314,000 at December
31, 1998, and consisted of two mortgage notes, one secured by a certificate of
deposit, and both secured by the buildings and property owned by United
Therapeutics located at 1106 - 1110 Spring Street in Silver Spring, Maryland and
are due in monthly installments over 30 years.
Net cash used in operating activities was approximately $16.0 million and
$6.3 million for the nine months ended September 30, 1999 and 1998,
respectively. The increase resulted from the expansion of United Therapeutics'
operations, particularly with respect to increased costs for the UT-15 trials.
For the nine months ended September 30, 1999 and 1998, United Therapeutics
invested approximately $1.9 million and $1.2 million, respectively, in cash for
property, plant, and equipment. Net cash provided by financing activities was
approximately $59.9 million and $17.4 million for the nine months ended
September 30, 1999 and 1998, respectively. Cash flows from financing activities
for the nine months ended September 30, 1999 were derived primarily from private
equity financings in the first quarter, the initial public offering in June, and
the sale of the over-allotment shares to the underwriters in July. Cash flows
from financing activities for the nine months ended September 30, 1998 were
derived primarily from private equity financings during that period.
United Therapeutics has contracted with various companies and research
organizations to coordinate and perform clinical trials and to provide other
activities related to the development of UT-15 and other products. It is
anticipated that approximately $6.5 million in cash will be used for the
remainder of 1999 under these agreements. These expenses will be funded from
existing working capital. United Therapeutics does not expect to make any
milestone or royalty payments during 1999.
United Therapeutics expects that existing capital resources will be
adequate to fund its operations through 2002. United Therapeutics' future
capital requirements and the adequacy of its available funds will depend on many
factors, including:
- Regulatory approval of UT-15 and beraprost;
- Size and scope of its development efforts for additional products;
- Cost, timing and outcomes of regulatory reviews;
- Rate of technological advances;
- Determinations as to the commercial potential of United Therapeutics'
products under development;
- Status of competitive products;
- Defending and enforcing intellectual property rights;
- Establishment, continuation or termination of third-party manufacturing
arrangements;
- Development of sales and marketing resources or the establishment,
continuation or termination of third-party manufacturing arrangements;
- Development of sales and marketing resources or the establishment,
continuation or termination of third-party sales and marketing arrangements;
and
- Establishment of additional strategic or licensing arrangements with other
companies.
As of December 31, 1998, United Therapeutics had available approximately
$10.0 million in net operating loss carryforwards and $3.6 million in business
tax credit carryforwards for federal income tax purposes that expire at various
dates through 2018. As of September 30, 1999, United Therapeutics had available
approximately $29.1 million in net operating loss carryforwards and $8.8 million
in business tax credit carryforwards. United Therapeutics has not experienced
ownership changes as defined by rules enacted with the Tax Reform Act of 1986
that would limit United Therapeutics' ability to use its net operating loss and
tax credit carryforwards.
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YEAR 2000
United Therapeutics uses a number of computer software programs and
operating systems in its internal operations, including applications used in
financial business systems and various administrative functions. To the extent
that these software applications, and the software applications of United
Therapeutics' vendors, suppliers, financial institutions and service providers,
contain source code that is unable to appropriately interpret the upcoming
calendar year 2000, some level of modification or even possibly replacement of
such source code or applications will be necessary.
United Therapeutics has identified the software applications that are not
Year 2000 compliant. United Therapeutics anticipates its Year 2000 remediation
efforts will be completed by December 1, 1999 and expects to incur expenses of
less than $100,000 to complete its remediation efforts.
United Therapeutics has contacted all of its major vendors, suppliers,
financial institutions and service providers to ensure they are Year 2000
compliant. Key third party vendors have been asked to certify in writing that
their software or systems are Year 2000 compliant. United Therapeutics has
confirmed with MiniMed that the microinfusion devices used to deliver its key
drug, UT-15, to patients have been tested and are Year 2000 compliant.
United Therapeutics believes its worst case scenario relating to Year 2000
risks includes a power interruption and a lack of pharmaceutical products to
support clinical trials. United Therapeutics is implementing a contingency plan
to cover this situation by building up inventories of its drug products to
sustain its studies for 12 months and has purchased a generator to deal with
power failures. United Therapeutics has now accelerated its spending on
inventory of its drug products in order to build up inventories.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." United Therapeutics is required to adopt
SFAS No. 133, as amended, for fiscal quarters beginning after June 15, 2000.
SFAS No. 133 established methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. Because United Therapeutics holds no derivative financial
instruments and does not engage in hedging activities, adoption of SFAS No. 133
is not expected to have a material impact on United Therapeutics' financial
condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position, or "SOP", 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. United Therapeutics is required to implement SOP
98-1 for the year ending December 31, 1999. Adoption of SOP 98-1 is not expected
to have a material impact on United Therapeutics' financial condition or results
of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires that entities expense the cost of start-up
activities including organization costs. United Therapeutics is required to
implement SOP 98-5 for the year ending December 31, 1999. Adoption of SOP 98-5
is not expected to have a material impact on United Therapeutics' financial
condition or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) United Therapeutics registered 4,500,000 shares of its common stock,
par value $.01 per share, and an additional 675,000 shares of its common stock
for sale to the underwriters exclusively to cover over-allotments, on
Registration Statement on Form S-1, Commission File No. 333-76409. Deutsche Banc
Alex. Brown acted as lead manager of the underwriting. A.G. Edwards & Sons, Inc.
and Vector Securities International, Inc. acted as co-managers. The Securities
and Exchange Commission declared United Therapeutics' registration statement
effective on June 17, 1999.
United Therapeutics closed the sale of 4,500,000 shares on June 22, 1999.
On July 13, 1999, the underwriters exercised their option to purchase the
over-allotment shares and on July 16, 1999 United Therapeutics closed the sale
of the 675,000 over-allotment shares. The aggregate price of the offering amount
registered, including the over-allotment shares, was $86,250,000 and the
aggregate offering price of the amount sold, including the over-allotment
shares, was $62,100,000. The offering is now terminated.
From June 17, 1999 to September 30, 1999, the amount of expenses incurred
by United Therapeutics due to underwriting discounts and commissions, finders'
fees and expenses paid to or for underwriters for the sale of the 4,500,000
shares was $3,780,000 and a reasonable estimate of other expenses incurred by
United Therapeutics in connection with the offering is $39,300. Of the $39,300
in other expenses incurred, approximately $1,800 was paid to Mahon Patusky
Rothblatt & Fisher, Chartered, a law firm for which the Chief Executive Officer
of United Therapeutics serves as Of Counsel. The net proceeds to United
Therapeutics from the offering of the 4,500,000 shares, after deducting the
total expenses described above and expenses incurred prior to the effectiveness
of the registration statement, was approximately $48.9 million.
On July 13, 1999, the underwriters exercised their option to purchase the
675,000 over-allotment shares. The amount of expenses incurred by United
Therapeutics due to underwriting discounts and commissions, finders' fees and
expenses paid to or for underwriters for the over-allotment shares was $567,000
and a reasonable estimate of other expenses incurred by United Therapeutics in
connection with the over-allotment exercise is $18,500. Of the $18,500 in other
expenses incurred, approximately $3,500 was paid to Mahon Patusky Rothblatt &
Fisher, Chartered, a law firm for which the Chief Executive Officer of United
Therapeutics serves as Of Counsel. The net proceeds to United Therapeutics from
the sale of the 675,000 over-allotment shares, after deducting the total
expenses described above, was approximately $7.5 million.
From June 22, 1999 to September 30, 1999, United Therapeutics temporarily
invested all the net proceeds from the offering of the 4,500,000 shares in
marketable debt securities. United Therapeutics temporarily invested all of the
net proceeds from the sale of the 675,000 over-allotment shares in marketable
debt securities and money market funds. The net proceeds from the offering and
the over-allotment sale were added to cash equivalents and investments of United
Therapeutics on hand at the time of the offering of approximately $9 million.
The net proceeds remain temporarily invested and have not yet been applied.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 of
Registration Statement on Form S-1, File No. 333-76409).
3.2 Amended and Restated By-Laws of the Registrant (incorporated
by reference to Exhibit 3.2 of Registration Statement on
Form S-1, File No. 333-76409).
10.1 Agreement and Plan of Merger, dated October 7, 1999, among
United Therapeutics Corporation, SQ Acquisition, Inc.,
Robert M. Moriarty, Ph.D, Raju Penmasta, Ph.D, Liang Guo,
Ph.D, George W. Davis, Esq., David Moriarty and SynQuest,
Inc.
10.2 Registration Rights Agreement, dated October 7, 1999, by and
among United Therapeutics Corporation and the former
shareholders of SynQuest, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED THERAPEUTICS CORPORATION
Date: November 15, 1999 /s/ Martine A. Rothblatt
------------------------
By: Martine A. Rothblatt
Title: Chief Executive Officer
/s/ Gilles Cloutier
-------------------
By: Gilles Cloutier, Ph.D.
Title: Chief Financial Officer
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EXHIBIT INDEX
The following exhibits are filed as a part of this report:
10.1 Agreement and Plan of Merger, dated October 7, 1999, among
United Therapeutics Corporation, SQ Acquisition, Inc., Robert
M. Moriarty, Ph.D, Raju Penmasta, Ph.D, Liang Guo, Ph.D,
George W. Davis, Esq., David Moriarty and SynQuest, Inc.
10.2 Registration Rights Agreement, dated October 7, 1999, by and
among United Therapeutics and the former shareholders of
SynQuest, Inc.
27 Financial Data Schedule