UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2019

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 0-26301

United Therapeutics Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware	52-1984749
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer 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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, par value $0.01 per share	UTHR	Nasdaq Global Select Market

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 ⌧  No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ⌧  No ◻

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

Large accelerated filer ⌧	Accelerated filer ◻
Non-accelerated filer ◻	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

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

The number of shares outstanding of the issuer’s common stock, par value $.01 per share, as of July 24, 2019 was 43,850,322.

INDEX

		Page
Part I.	FINANCIAL INFORMATION (UNAUDITED)	3
Item 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
Part II.	OTHER INFORMATION	41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 6.	Exhibits	58
SIGNATURES		59

2

PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

UNITED THERAPEUTICS CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

	June 30,		December 31,
	2019		2018
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	881.3	$	669.2
Marketable investments		904.9		746.7
Accounts receivable, no allowance for 2019 and 2018		181.0		175.7
Inventories, net		96.9		101.0
Other current assets		75.7		75.4
Total current assets		2,139.8		1,768.0
Marketable investments		420.7		442.6
Goodwill and other intangible assets, net		161.9		170.8
Property, plant and equipment, net		709.3		699.7
Deferred tax assets, net		264.3		95.7
Other non-current assets		202.9		224.2
Total assets	$	3,898.9	$	3,401.0
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	163.9	$	166.1
Line of credit (current)		250.0		—
Share tracking awards plan		17.7		72.2
Other current liabilities		31.9		38.3
Total current liabilities		463.5		276.6
Line of credit (non-current)		800.0		250.0
Other non-current liabilities		68.6		66.6
Total liabilities		1,332.1		593.2
Commitments and contingencies
Temporary equity		8.4		19.2
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, 245,000,000 shares authorized, 70,467,684 and 70,207,581 shares issued, and 43,848,468 and 43,588,365 shares outstanding at June 30, 2019 and December 31, 2018, respectively		0.7		0.7
Additional paid-in capital		2,001.7		1,940.2
Accumulated other comprehensive loss		(5.0)		(7.9)
Treasury stock, 26,619,216 shares at June 30, 2019 and December 31, 2018		(2,579.2)		(2,579.2)
Retained earnings		3,140.2		3,434.8
Total stockholders’ equity		2,558.4		2,788.6
Total liabilities and stockholders’ equity	$	3,898.9	$	3,401.0

See accompanying notes to consolidated financial statements.

3

UNITED THERAPEUTICS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(Unaudited)				(Unaudited)
Revenues:
Net product sales	$	373.6	$	444.5	$	736.2	$	833.7
Total revenues		373.6		444.5		736.2		833.7
Operating expenses:
Cost of product sales		26.7		61.7		55.8		114.9
Research and development		85.9		82.3		983.3		118.0
Selling, general and administrative		39.6		83.1		131.6		76.5
Total operating expenses		152.2		227.1		1,170.7		309.4
Operating income (loss)		221.4		217.4		(434.5)		524.3
Interest income		10.8		6.7		20.6		12.0
Interest expense		(12.2)		(2.9)		(22.5)		(5.5)
Other income (expense), net		30.4		(3.3)		36.2		(3.9)
Total other income, net		29.0		0.5		34.3		2.6
Income (loss) before income taxes		250.4		217.9		(400.2)		526.9
Income tax (expense) benefit		(45.3)		(45.0)		110.7		(109.5)
Net income (loss)	$	205.1	$	172.9	$	(289.5)	$	417.4
Net income (loss) per common share:
Basic	$	4.68	$	4.01	$	(6.61)	$	9.62
Diluted	$	4.66	$	3.98	$	(6.61)	$	9.51
Weighted average number of common shares outstanding:
Basic		43.8		43.1		43.8		43.4
Diluted		44.0		43.4		43.8		43.9

See accompanying notes to consolidated financial statements.

4

UNITED THERAPEUTICS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(Unaudited)				(Unaudited)
Net income (loss)	$	205.1	$	172.9	$	(289.5)	$	417.4
Other comprehensive income:
Defined benefit pension plan:
Actuarial loss arising during period, net of tax		(0.6)		—		(0.6)		—
Amortization of actuarial gain and prior service cost included in net periodic pension cost, net of tax		(1.6)		0.3		(1.5)		0.6
Total defined benefit pension plan, net of tax		(2.2)		0.3		(2.1)		0.6
Unrealized gain (loss) on available-for-sale securities, net of tax		2.4		(0.5)		5.0		(2.9)
Other comprehensive income (loss), net of tax		0.2		(0.2)		2.9		(2.3)
Comprehensive income (loss)	$	205.3	$	172.7	$	(286.6)	$	415.1

See accompanying notes to consolidated financial statements.

5

UNITED THERAPEUTICS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)

	Three Months Ended June 30, 2019
	(Unaudited)
						Accumulated
				Additional		Other
	Common Stock			Paid-in		Comprehensive		Treasury		Retained		Stockholders’
	Shares	Amount		Capital		Loss		Stock		Earnings		Equity
Balance, April 1, 2019	70.4	$	0.7	$	1,967.6	$	(5.2)	$	(2,579.2)	$	2,935.1	$	2,319.0
Net income	—		—		—		—		—		205.1		205.1
Unrealized gain on available-for-sale securities	—		—		—		2.4		—		—		2.4
Defined benefit pension plan	—		—		—		(2.2)		—		—		(2.2)
Common stock issued upon RSU vesting	0.1		—		—		—		—		—		—
Exercise of stock options	—		—		1.1		—		—		—		1.1
Share-based compensation	—		—		22.2		—		—		—		22.2
Reclassification from temporary equity to permanent equity(1)	—		—		10.8		—		—		—		10.8
Balance, June 30, 2019	70.5	$	0.7	$	2,001.7	$	(5.0)	$	(2,579.2)	$	3,140.2	$	2,558.4

(1) Pursuant to a license agreement with Toray Industries Inc. (Toray), we issued 200,000 shares of our common stock (which have since split into 400,000 shares) to Toray in 2007, and provided Toray the right to require us to repurchase the shares at a price of $27.21 per share (the Put Right), which resulted in classification of such shares within temporary equity. During the three months ended June 30, 2019, we terminated our license agreement with Toray and therefore the Put Right no longer exists. As a result, upon the termination of the license agreement, we reclassified $10.8 million from temporary equity to additional paid-in capital during the quarter ended June 30, 2019.

	Three Months Ended June 30, 2018
	(Unaudited)
						Accumulated
				Additional		Other
	Common Stock			Paid-in		Comprehensive		Treasury		Retained		Stockholders’
	Shares	Amount		Capital		Loss		Stock		Earnings		Equity
Balance, April 1, 2018	70.1	$	0.7	$	1,879.5	$	(21.7)	$	(2,579.2)	$	3,090.1	$	2,369.4
Net income	—		—		—		—		—		172.9		172.9
Unrealized loss on available-for-sale securities	—		—		—		(0.5)		—		—		(0.5)
Defined benefit pension plan	—		—		—		0.3		—		—		0.3
Exercise of stock options	0.1		—		5.7		—		—		—		5.7
Share-based compensation	—		—		17.8		—		—		—		17.8
Balance, June 30, 2018	70.2	$	0.7	$	1,903.0	$	(21.9)	$	(2,579.2)	$	3,263.0	$	2,565.6

6

	Six Months Ended June 30, 2019
	(Unaudited)
						Accumulated
				Additional		Other
	Common Stock			Paid-in		Comprehensive		Treasury		Retained		Stockholders’
	Shares	Amount		Capital		Loss		Stock		Earnings		Equity
Balance, January 1, 2019	70.2	$	0.7	$	1,940.2	$	(7.9)	$	(2,579.2)	$	3,434.8	$	2,788.6
Net loss	—		—		—		—		—		(289.5)		(289.5)
Unrealized gain on available-for-sale securities	—		—		—		5.0		—		—		5.0
Defined benefit pension plan	—		—		—		(2.1)		—		—		(2.1)
Shares issued under employee stock purchase plan	—		—		2.2		—		—		—		2.2
Restricted stock units withheld for taxes	—		—		(1.9)		—		—		—		(1.9)
Common stock issued upon RSU vesting	0.1		—		—		—		—		—		—
Exercise of stock options	0.2		—		9.9		—		—		—		9.9
Share-based compensation	—		—		40.5		—		—		—		40.5
Cumulative effect of accounting change	—		—		—		—		—		(5.1)		(5.1)
Reclassification from temporary equity to permanent equity(1)	—		—		10.8		—		—		—		10.8
Balance, June 30, 2019	70.5	$	0.7	$	2,001.7	$	(5.0)	$	(2,579.2)	$	3,140.2	$	2,558.4

(1) Pursuant to a license agreement with Toray, we issued 200,000 shares of our common stock (which have since split into 400,000 shares) to Toray in 2007, and provided Toray the Put Right, which resulted in classification of such shares within temporary equity. During the six months ended June 30, 2019, we terminated our license agreement with Toray and therefore the Put Right no longer exists. As a result, upon termination of the license agreement, we reclassified $10.8 million from temporary equity to additional paid-in capital during the six months ended June 30, 2019.

	Six Months Ended June 30, 2018
	(Unaudited)
						Accumulated
				Additional		Other
	Common Stock			Paid-in		Comprehensive		Treasury		Retained		Stockholders’
	Shares	Amount		Capital		Loss		Stock		Earnings		Equity
Balance, January 1, 2018	69.9	$	0.7	$	1,854.3	$	(19.6)	$	(2,579.2)	$	2,845.6	$	2,101.8
Net income	—		—		—		—		—		417.4		417.4
Unrealized loss on available-for-sale securities	—		—		—		(2.9)		—		—		(2.9)
Defined benefit pension plan	—		—		—		0.6		—		—		0.6
Shares issued under employee stock purchase plan	—		—		2.1		—		—		—		2.1
Exercise of stock options	0.3		—		14.9		—		—		—		14.9
Share-based compensation	—		—		31.7		—		—		—		31.7
Balance, June 30, 2018	70.2	$	0.7	$	1,903.0	$	(21.9)	$	(2,579.2)	$	3,263.0	$	2,565.6

See accompanying notes to consolidated financial statements.

7

UNITED THERAPEUTICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

	Six Months Ended
	June 30,
	2019		2018
	(Unaudited)
Cash flows from operating activities:
Net (loss) income	$	(289.5)	$	417.4
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		20.7		16.0
Share-based compensation benefit		(8.0)		(80.6)
Intangible asset impairment charges		8.8		—
Other		(37.0)		(2.1)
Changes in operating assets and liabilities:
Accounts receivable		(5.3)		45.8
Inventories		4.4		8.9
Accounts payable and accrued expenses		(3.0)		39.9
Other assets and liabilities		(185.6)		10.2
Net cash (used in) provided by operating activities		(494.5)		455.5
Cash flows from investing activities:
Purchases of property, plant and equipment		(45.4)		(91.1)
Purchases of held-to-maturity and other investments		—		(37.7)
Sales/maturities of held-to-maturity investments		38.2		27.6
Purchases of available-for-sale investments		(519.0)		(438.5)
Sales/maturities of available-for-sale investments		430.3		126.2
Purchase of investments in privately-held companies		(7.0)		(5.0)
Net cash used in investing activities		(102.9)		(418.5)
Cash flows from financing activities:
Proceeds from line of credit		800.0		250.0
Repayment of line of credit		—		(250.0)
Payments of debt issuance costs		(0.7)		(13.2)
Proceeds from the exercise of stock options		9.9		14.9
Proceeds from the issuance of stock under employee stock purchase plan		2.2		2.1
Restricted stock units withheld for taxes		(1.9)		—
Net cash provided by financing activities		809.5		3.8
Net increase in cash and cash equivalents		212.1		40.8
Cash and cash equivalents, beginning of period		669.2		705.1
Cash and cash equivalents, end of period	$	881.3	$	745.9
Supplemental cash flow information:
Cash paid for interest	$	20.6	$	4.5
Cash paid for income taxes	$	62.7	$	31.5
Non-cash investing and financing activities:
Non-cash additions to property, plant and equipment	$	4.0	$	17.4

See accompanying notes to consolidated financial statements.

8

UNITED THERAPEUTICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(UNAUDITED)

1.    Organization and Business Description

United Therapeutics Corporation is a biotechnology company focused on the development and commercialization of innovative products to address the unmet medical needs of patients with chronic and life-threatening conditions.

We have approval from the U.S. Food and Drug Administration (FDA) to market the following therapies: Remodulin^® (treprostinil) Injection (Remodulin), Tyvaso^® (treprostinil) Inhalation Solution (Tyvaso), Orenitram^® (treprostinil) Extended-Release Tablets (Orenitram), Unituxin^® (dinutuximab) Injection (Unituxin) and Adcirca^® (tadalafil) Tablets (Adcirca). Our only significant revenues outside the United States are derived from sales of Remodulin in Europe.

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.

2.    Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information required by U.S. 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, 2018, as filed with the SEC on February 27, 2019.

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 June 30, 2019 and December 31, 2018, statements of operations, comprehensive income, and stockholders’ equity for the three- and six-month periods ended June 30, 2019 and 2018 and statements of cash flows for the six-month periods ended June 30, 2019 and 2018. Interim results are not necessarily indicative of results for an entire year.

Recently Issued Accounting Standards

Accounting Standards Adopted During the Period

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (ASU 2016-02), which requires that assets and liabilities arising under leases be recognized on the balance sheets. ASU 2016-02 also requires additional quantitative and qualitative disclosures of the amount, timing and uncertainty of cash flows relating to lease arrangements. ASU 2016-02 was effective for annual reporting periods beginning after December 15, 2018. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842)—Targeted Improvements (ASU 2018-11). ASU 2018-11 allows entities to elect a simplified transition method, allowing for application of ASU 2016-02 at the adoption date, with recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted this standard on January 1, 2019 using the simplified transition method, allowing us to not restate comparative periods and apply ASC 842 on a prospective basis, resulting in a balance sheet presentation that, in certain respects, is not comparable to the prior period in the first year of adoption. We elected the practical expedient package permitted under the transition guidance within the new standard, which among other things, allows us to carry forward historical lease classifications. We also elected to use the lessee component election, allowing us to account for the lease and non-lease components as a single lease component. As the majority of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. We made an accounting policy election to keep leases with an initial term of 12 months or less off of our consolidated balance sheets. We

9

recognize lease payments for such leases in the consolidated statements of operations on a straight-line basis over the lease term.

Upon adoption of this standard, we recognized a right-of-use asset of $8.2 million, and a corresponding lease liability of the same amount, related to our operating leases as of January 1, 2019. In addition, we recognized a cumulative-effect adjustment for the de-recognition of our build-to-suit leases as these leases no longer qualify for build-to-suit accounting and have instead been recognized as operating leases under ASC 842. The adjustment resulted in a decrease to retained earnings of $5.1 million, which is net of a tax benefit. At adoption, our weighted-average remaining lease term was 3.0 years and our weighted-average discount rate was 4.9%.

Supplemental balance sheet information related to operating leases was as follows (in millions):

	Financial Statement Line Item	June 30,		January 1,
Operating Leases	on the Consolidated Balance Sheets	2019		2019
Right-of-use assets	Other non-current assets	$	6.8	$	8.2
Current lease liabilities	Other current liabilities	$	2.9	$	4.1
Non-current lease liabilities	Other non-current liabilities		4.0		4.1
Total operating lease liabilities		$	6.9	$	8.2

We recorded $1.3 million and $2.7 million in operating lease expense for the three and six months ended June 30, 2019 and recorded $1.0 million and $2.2 million in operating lease expense for the three and six months ended June 30, 2018. The amounts recorded in operating lease expense include short-term leases and variable lease costs, which are immaterial.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). The standard provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect (or portion thereof) of the change in the U.S. federal corporate income tax rate under the Tax Cuts and Jobs Act (Tax Reform) is recorded. We adopted the new standard on January 1, 2019. Adoption of this standard did not have a material impact on our financial statements.

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, to eliminate or modify certain disclosure rules that are redundant, outdated, or duplicative of U.S. GAAP or other regulatory requirements. Among other changes, the amendments eliminated the annual requirement to disclose the high and low trading prices of our common stock. In addition, the amendments expanded the disclosure requirements related to the analysis of shareholders’ equity for interim financial statements. An analysis of the changes in each caption of shareholders’ equity presented in the balance sheet must be provided in a note or separate statement, and we have provided this disclosure in a separate statement (Consolidated Statements of Stockholders’ Equity) beginning in the first quarter of 2019.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which introduces new guidance for estimating credit losses on certain types of financial instruments based on expected losses and the timing of the recognition of such losses. ASU 2016-13 will be effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment (ASU 2017-04), which simplifies how an entity is required to test goodwill for impairment. A goodwill impairment will be measured by the amount by which a reporting unit’s carrying value exceeds its fair value, with the amount of impairment not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, and

10

must be adopted on a prospective basis. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our financial statements.

In August 2018, the FASB issued ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Topic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14). The standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. ASU 2018-14 is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our financial statements.

3.    Investments

Available-for-Sale Debt Securities

Available-for-sale debt securities are recorded at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive income in stockholders’ equity, until realized. Available-for-sale debt securities consisted of the following (in millions):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
As of June 30, 2019	Cost		Gains		Losses		Value
U.S. government and agency securities	$	1,083.3	$	3.3	$	(0.6)	$	1,086.0
Corporate debt securities		180.0		1.4		—		181.4
Total	$	1,263.3	$	4.7	$	(0.6)	$	1,267.4
Reported under the following captions on the consolidated balance sheet:
Cash and cash equivalents							$	21.2
Current marketable investments								825.5
Non-current marketable investments								420.7
Total							$	1,267.4

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
As of December 31, 2018	Cost		Gains		Losses		Value
U.S. government and agency securities	$	1,077.4	$	0.7	$	(3.9)	$	1,074.2
Corporate debt securities		72.3		—		(0.3)		72.0
Total	$	1,149.7	$	0.7	$	(4.2)	$	1,146.2
Reported under the following captions on the consolidated balance sheet:
Cash and cash equivalents							$	—
Current marketable investments								705.8
Non-current marketable investments								440.4
Total							$	1,146.2

The following table summarizes the contractual maturities of available-for-sale marketable investments (in millions):

	As of June 30, 2019
	Amortized		Fair
	Cost		Value
Due within one year	$	846.0	$	846.7
Due in one to three years		417.3		420.7
Total	$	1,263.3	$	1,267.4

11

	As of December 31, 2018
	Amortized		Fair
	Cost		Value
Due within one year	$	708.2	$	705.8
Due in one to three years		441.5		440.4
Total	$	1,149.7	$	1,146.2

Investments in Privately-Held Companies

As of June 30, 2019, we maintained non-controlling equity investments in privately-held companies of $100.7 million in the aggregate. We measure these investments using the measurement alternative because the fair values of these investments are not readily determinable. Under this alternative, the investments are measured at cost, less any impairment, adjusted for any observable price changes. There were no impairments or observable price changes in our investments in privately-held companies during the three and six months ended June 30, 2019. We include our investments in privately-held companies within other non-current assets on our consolidated balance sheets. These investments are subject to a periodic impairment review and if impaired, the investment is measured and recorded at fair value in accordance with ASC 820, Fair Value Measurements.

Variable Interest Entity

In April 2017, we made a $7.5 million minority equity investment in a privately-held company. In addition to our investment, we entered into an exclusive license, development and commercialization agreement (the License Agreement) with this company. The License Agreement entitled us to control rights sufficient to require us to consolidate its balance sheet and results of operations, as the primary beneficiary of this company. The control rights related to additional research and development funding that we could have decided to provide to this company over a period of six years. We were also entitled to representation on a joint development committee that approved the company’s use of funding provided by us.

In June 2019, we elected to terminate the License Agreement. Upon effectiveness of the termination of the License Agreement in the third quarter of 2019, we will no longer have any control rights over the variable interest entity, and will deconsolidate the entity. Although we still hold our minority investment, the termination of the License Agreement caused us to impair an associated in-process research and development (IPR&D) asset during the second quarter of 2019. Refer to Note 6–Goodwill and Other Intangible Assets.

Investments in Equity Securities with Readily Determinable Fair Values

We held investments in equity securities with readily determinable fair values of $77.9 million and $3.5 million as of June 30, 2019 and December 31, 2018, respectively, which are included in current marketable investments on the accompanying consolidated balance sheets. During the quarter ended June 30, 2019, TransMedics Group, Inc., one of the privately-held companies in which we had invested, completed its initial public offering and its common stock began trading on the Nasdaq Stock Market. As a result, the equity securities we own in this company are now recorded at fair value rather than reflected as an investment in a privately-held company. Changes in the fair value of publicly traded equity securities are recorded on our consolidated income statements within “other income (expense), net.” Refer to Note 4—Fair Value Investments.

12

4.    Fair Value Measurements

We account for certain assets and liabilities at fair value and classify these assets and liabilities within a fair value hierarchy (Level 1, Level 2 or Level 3). Our other current assets and other current liabilities have fair values that approximate their carrying values. Assets and liabilities subject to fair value measurements are as follows (in millions):

	As of June 30, 2019
	Level 1		Level 2		Level 3		Balance
Assets
Money market funds(1)	$	428.8	$	—	$	—	$	428.8
Time deposits(2)		—		87.9		—		87.9
U.S. government and agency securities(3)		—		1,086.0		—		1,086.0
Corporate debt securities(3)		—		181.4		—		181.4
Equity securities(4)		77.9		—		—		77.9
Total assets	$	506.7	$	1,355.3	$	—	$	1,862.0
Liabilities
Contingent consideration(5)		—		—		13.4		13.4
Total liabilities	$	—	$	—	$	13.4	$	13.4

	As of December 31, 2018
	Level 1		Level 2		Level 3		Balance
Assets
Money market funds(1)	$	247.6	$	—	$	—	$	247.6
Time deposits(2)		—		35.9		—		35.9
U.S. government and agency securities(3)		—		1,074.2		—		1,074.2
Corporate debt securities(3)		—		75.7		—		75.7
Equity securities(4)		3.5		—		—		3.5
Total assets	$	251.1	$	1,185.8	$	—	$	1,436.9
Liabilities
Contingent consideration(5)		—		—		13.4		13.4
Total liabilities	$	—	$	—	$	13.4	$	13.4

(1) Included in cash and cash equivalents on the accompanying consolidated balance sheets.

(2) Included in cash equivalents and current and non-current marketable investments on the accompanying consolidated balance sheets. The fair value of these securities is principally measured or corroborated by trade data for identical securities in which related trading activity is not sufficiently frequent to be considered a Level 1 input or comparable securities that are more actively traded.

(3) Included in cash equivalents and current and non-current marketable investments on the accompanying consolidated balance sheets. Refer to Note 3—Investments—Available-for-Sale Debt Securities for further information. The fair value of these securities is principally measured or corroborated by trade data for identical securities for which related trading activity is not sufficiently frequent to be considered a Level 1 input or comparable securities that are more actively traded.

(4) Included in current marketable investments on the accompanying consolidated balance sheets. The fair value of these securities is based on quoted market prices for identical instruments in active markets. During the three and six months ended June 30, 2019, we recognized $29.5 million and $32.5 million of net unrealized gains on these securities and recorded these gains on our consolidated income statements within “other income (expense), net”. Refer to Note 3—Investments—Investments in Equity Securities with Readily Determinable Fair Values.

(5) Included in non-current liabilities on the accompanying consolidated balance sheets. The fair value of contingent consideration has been estimated using probability-weighted discounted cash flow models (DCFs). The DCFs incorporate Level 3 inputs including estimated discount rates that we believe market participants would consider

13

relevant in pricing and the projected timing and amount of cash flows, which are estimated and developed, in part, based on the requirements specific to each acquisition agreement. The change in the fair value of contingent consideration for the three and six months ended June 30, 2019 was not material.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of their short maturities. The fair values of our marketable investments are reported above within the fair value hierarchy. Refer to Note 3—Investments. The carrying value of our debt is a reasonable estimate of the fair value of the outstanding debt based on the variable interest rate of the debt.

5.    Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value and consist of the following, net of reserves (in millions):

	June 30,		December 31,
	2019		2018
Raw materials	$	20.7	$	24.3
Work-in-progress		28.1		28.0
Finished goods		48.1		48.7
Total inventories	$	96.9	$	101.0

6.    Goodwill and Other Intangible Assets

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

	As of June 30, 2019						As of December 31, 2018
			Accumulated						Accumulated
	Gross		Amortization		Net		Gross		Amortization		Net
Goodwill	$	31.5	$	—	$	31.5	$	31.5	$	—	$	31.5
Other intangible assets:
Technology, patents and trade names		6.7		(5.2)		1.5		6.7		(5.1)		1.6
In-process research and development		128.9		—		128.9		137.7		—		137.7
Total	$	167.1	$	(5.2)	$	161.9	$	175.9	$	(5.1)	$	170.8

In June 2019, we elected to terminate our license, development and commercialization agreement (License Agreement) with the variable interest entity discussed under Note 3—Investments—Variable Interest Entity. Since we will not pursue further development of the related IPR&D asset, we fully impaired the IPR&D asset, recognizing an impairment charge of $8.8 million for the three months ended June 30, 2019.

7.    Debt

Unsecured Revolving Credit Facility - Credit Agreement

In June 2018, we entered into a credit agreement (the Credit Agreement) with Wells Fargo Bank, National Association (Wells Fargo), as administrative agent and a swingline lender, and various other lender parties, providing for: (1) an unsecured revolving credit facility of up to $1.0 billion; and (2) a second unsecured revolving credit facility of up to $500.0 million (which facilities may, at our request, be increased by up to $300 million in the aggregate subject to obtaining commitments from existing or new lenders for such increase and other conditions). In accordance with the terms of the Credit Agreement, in June 2019, we extended the maturity date of the Credit Agreement by one year, to June 2024. The Credit Agreement provides the lenders the ability to extend the maturity date by one additional year to June 2025 if we request such an extension.

14

At our option, amounts borrowed under the Credit Agreement bear interest at either the LIBOR rate or a fluctuating base rate, in each case, plus an applicable margin determined on a quarterly basis based on our consolidated ratio of total indebtedness to EBITDA (as calculated in accordance with the Credit Agreement). To date, we have elected to calculate interest on the outstanding balance at LIBOR plus an applicable margin. In connection with the Credit Agreement, we incurred debt issuance costs in June 2018 of $13.2 million, $12.6 million of which were capitalized and are being amortized over the term of the Credit Agreement.

On June 27, 2018 we borrowed $250.0 million under the Credit Agreement and used the funds to repay outstanding indebtedness under a prior credit agreement.

On January 24, 2019, we paid an upfront payment of $800.0 million related to our exclusive license agreement with Arena Pharmaceuticals, Inc. (Arena) and funded the payment by borrowing $800.0 million under the Credit Agreement. This brought our aggregate outstanding balance under the Credit Agreement to $1,050.0 million as of June 30, 2019. Although our credit facility matures in 2024, we classified $250.0 million of the outstanding balance as a current liability on our consolidated balance sheet as we intend to repay this amount within one year.

The Credit Agreement contains customary events of default and customary affirmative and negative covenants. As of June 30, 2019, we were in compliance with these covenants. Lung Biotechnology PBC is our only subsidiary that guarantees our obligations under the Credit Agreement though, from time to time, one or more of our other subsidiaries may be required to guarantee our obligations.

During the three and six months ended June 30, 2019, we recorded $12.2 million and $22.5 million of interest expense, respectively, related to the Credit Agreement. During the three and six months ended June 30, 2018, we recorded $2.8 million and $5.4 million of interest expense, respectively, related to a prior credit agreement.

8.    Share-Based Compensation

As of June 30, 2019, we have two shareholder-approved equity incentive plans: the United Therapeutics Corporation Amended and Restated Equity Incentive Plan (the 1999 Plan) and the United Therapeutics Corporation Amended and Restated 2015 Stock Incentive Plan (as amended to date, the 2015 Plan). The 2015 Plan provides for the issuance of up to 9,500,000 shares of our common stock pursuant to awards granted under the 2015 Plan, which includes the 450,000 shares added pursuant to an amendment and restatement of the 2015 Plan approved by our shareholders in June 2019. No further awards will be granted under the 1999 Plan. We also have one equity incentive plan, the United Therapeutics Corporation 2019 Inducement Stock Incentive Plan (the 2019 Inducement Plan), that has not been approved by our shareholders, in accordance with Nasdaq Stock Market rules. The 2019 Inducement Plan was approved by our Board of Directors in February 2019 and provides for the issuance of up to 99,000 shares of our common stock under awards granted to newly-hired employees. Currently, we grant equity-based awards to employees and members of our Board of Directors in the form of stock options and restricted stock units under the 2015 Plan, and we grant restricted stock units to newly-hired employees under the 2019 Inducement Plan. Refer to the sections entitled Stock Options and Restricted Stock Units below.

We previously issued awards under the United Therapeutics Corporation Share Tracking Awards Plan (2008 STAP) and the United Therapeutics Corporation 2011 Share Tracking Awards Plan (2011 STAP). We refer to the 2008 STAP and the 2011 STAP collectively as the “STAP” and awards outstanding under either of these plans as “STAP awards.” Refer to the section entitled Share Tracking Awards Plans below. We discontinued the issuance of STAP awards in June 2015.

In 2012, our shareholders approved the United Therapeutics Corporation Employee Stock Purchase Plan (ESPP), which is structured to comply with Section 423 of the Internal Revenue Code. Refer to the section entitled Employee Stock Purchase Plan below.

15

The following table reflects the components of share-based compensation (benefit) expense recognized in our consolidated statements of operations (in millions):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Stock options	$	18.1	$	15.5	$	33.8	$	28.2
Restricted stock units		3.8		2.0		6.0		2.9
STAP awards		(59.4)		2.7		(48.4)		(112.3)
Employee stock purchase plan		0.3		0.3		0.6		0.6
Total share-based compensation (benefit) expense before tax	$	(37.2)	$	20.5	$	(8.0)	$	(80.6)

Stock Options

We estimate the fair value of stock options using the Black-Scholes-Merton valuation model, which requires us to make certain assumptions that can materially impact the estimation of fair value and related compensation expense. The assumptions used to estimate fair value include the price of our common stock, the expected volatility of our common stock, the risk-free interest rate, the expected term of stock option awards and the expected dividend yield.

The table below includes the weighted-average assumptions used to measure the fair value of all stock options granted during the six-month periods ended June 30, 2019 and June 30, 2018:

	June 30,		June 30,
	2019		2018
Expected volatility	33.8	%	36.2	%
Risk-free interest rate	2.4	%	2.7	%
Expected term of awards (in years)	5.8		6.3
Expected dividend yield	0.0	%	0.0	%

A summary of the activity and status of stock options under our equity incentive plans during the six-month period ended June 30, 2019 is presented below:

				Weighted
		Weighted-		Average	Aggregate
		Average		Remaining	Intrinsic
	Number of	Exercise		Contractual	Value
	Options	Price		Term (Years)	(in millions)
Outstanding at January 1, 2019	6,299,803	$	120.78
Granted	2,081,047		124.87
Exercised	(191,508)		51.53
Forfeited/canceled	(84,847)		130.91
Outstanding at June 30, 2019	8,104,495	$	123.36	6.8	$	7.5
Exercisable at June 30, 2019	3,918,748	$	119.42	5.6	$	7.4
Unvested at June 30, 2019	4,185,747	$	127.05	7.9	$	0.1

The weighted average fair value of a stock option granted during each of the six-month periods ended June 30, 2019 and June 30, 2018, was $39.63 and $45.02, respectively. These stock options have an aggregate grant date fair value of $82.5 million and $44.3 million, respectively. The total grant date fair value of stock options that vested during the six-month periods ended June 30, 2019 and June 30, 2018 was $36.3 million and $33.6 million, respectively.

16

Total share-based compensation expense relating to stock options is recorded as follows (in millions):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Cost of product sales	$	0.2	$	0.2	$	0.4	$	0.5
Research and development		0.9		1.0		1.8		1.9
Selling, general and administrative		17.0		14.3		31.6		25.8
Share-based compensation expense before taxes		18.1		15.5		33.8		28.2
Related income tax benefit		(4.1)		(3.6)		(7.6)		(6.5)
Share-based compensation expense, net of taxes	$	14.0	$	11.9	$	26.2	$	21.7

As of June 30, 2019, unrecognized compensation expense relating to stock options was $126.9 million. Unvested outstanding stock options as of June 30, 2019 had a weighted average remaining vesting period of 2.7 years.

Stock option exercise data is summarized below (dollars in millions):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Number of options exercised		25,000		108,608		191,508		282,903
Cash received	$	1.1	$	5.7	$	9.9	$	14.9
Total intrinsic value of options exercised	$	1.2	$	6.5	$	11.5	$	16.9

Restricted Stock Units

Each restricted stock unit entitles the recipient to one share of our common stock upon vesting. We measure the fair value of restricted stock units using the stock price on the date of grant. Share-based compensation expense for the restricted stock units is recorded ratably over their vesting period. A summary of the activity with respect to, and status of, restricted stock units during the six-month period ended June 30, 2019 is presented below:

				Weighted
		Weighted-		Average	Aggregate
	Number of	Average		Remaining	Intrinsic
	Restricted	Grant		Contractual	Value
	Stock Units	Price		Term (Years)		(in millions)
Unvested at January 1, 2019	186,255	$	112.48
Granted	217,726		113.76
Vested	(64,357)		111.44
Forfeited/canceled	(13,931)		118.75
Unvested at June 30, 2019	325,693	$	113.28	9.4	$	25.4

Total share-based compensation expense relating to restricted stock units is recorded as follows (in millions):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Cost of product sales	$	0.3	$	0.2	$	0.5	$	0.2
Research and development		1.2		0.5		1.9		0.6
Selling, general and administrative		2.3		1.3		3.6		2.1
Share-based compensation expense before taxes		3.8		2.0		6.0		2.9
Related income tax benefit		(0.9)		(0.5)		(1.4)		(0.7)
Share-based compensation expense, net of taxes	$	2.9	$	1.5	$	4.6	$	2.2

17

As of June 30, 2019, unrecognized compensation cost related to the grant of restricted stock units was $32.3 million. Unvested outstanding restricted stock units as of June 30, 2019 had a weighted average remaining vesting period of 2.3 years.

Share Tracking Awards Plans

STAP awards convey the right to receive in cash an amount equal to the appreciation of our common stock, which is measured as the increase in the closing price of our common stock between the dates of grant and exercise. STAP awards expire on the tenth anniversary of the grant date, and in most cases they vest in equal increments on each anniversary of the grant date over a four-year period. The STAP liability includes vested awards and awards that are expected to vest.

The aggregate STAP liability balance was $17.7 million and $72.2 million at June 30, 2019 and December 31, 2018, respectively, all of which was classified as a current liability on our consolidated balance sheets.

Estimating the fair value of STAP awards requires the use of certain inputs that can materially impact the determination of fair value and the amount of compensation expense (benefit) we recognize. Inputs used in estimating fair value include the price of our common stock, the expected volatility of the price of our common stock, the risk-free interest rate, the expected term of STAP awards, and the expected dividend yield. Prior to December 31, 2018, we used historical data to develop the expected term input for our STAP awards. As of December 31, 2018, we no longer believed historical exercise data formed a reasonable basis from which to determine the expected exercise behavior of outstanding STAPs given the prolonged volatility of the price of our common stock. As such, we began determining the expected term assumption as of December 31, 2018 using the weighted average midpoint of the remaining contractual term for outstanding awards and expect to continue to use this methodology until circumstances dictate otherwise.

The fair value of the STAP awards is measured at the end of each financial reporting period because the awards are settled in cash.

The table below includes the weighted-average assumptions used to measure the fair value of outstanding STAP awards:

	June 30,		June 30,
	2019		2018
Expected volatility	28.9	%	33.8	%
Risk-free interest rate	1.7	%	2.3	%
Expected term of awards (in years)	2.3		1.1
Expected dividend yield	—	%	—	%

The closing price of our common stock was $78.06 and $113.15 on June 30, 2019 and June 30, 2018, respectively. The closing price of our common stock was $108.90 on December 31, 2018.

18

A summary of the activity and status of STAP awards during the six-month period ended June 30, 2019 is presented below:

				Weighted
				Average
		Weighted		Remaining	Aggregate
		Average		Contractual	Intrinsic
	Number of	Exercise		Term	Value
	Awards	Price		(in Years)	(in millions)
Outstanding at January 1, 2019	2,867,979	$	107.85
Granted	—		—
Exercised	(110,917)		61.17
Forfeited	(68,013)		162.51
Outstanding at June 30, 2019	2,689,049	$	108.40	4.5	$	21.6
Exercisable at June 30, 2019	2,679,049	$	108.60	4.5	$	21.3
Unvested at June 30, 2019	10,000	$	52.57	3.4	$	0.3

Share-based compensation (benefit) expense recognized in connection with STAP awards is as follows (in millions):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Cost of product sales	$	(2.7)	$	0.2	$	(2.0)	$	(6.0)
Research and development		(12.2)		1.6		(10.3)		(22.0)
Selling, general and administrative		(44.5)		0.9		(36.1)		(84.3)
Share-based compensation (benefit) expense before taxes		(59.4)		2.7		(48.4)		(112.3)
Related income tax expense (benefit)		13.4		(0.6)		10.9		25.7
Share-based compensation (benefit) expense, net of taxes	$	(46.0)	$	2.1	$	(37.5)	$	(86.6)

Cash paid to settle STAP exercises during the six-month periods ended June 30, 2019 and June 30, 2018 was $6.1 million and $57.4 million, respectively.

Employee Stock Purchase Plan

In June 2012, our shareholders approved the ESPP, which is structured to comply with Section 423 of the Internal Revenue Code. The ESPP provides eligible employees with the right to purchase shares of our common stock at a discount through elective accumulated payroll deductions at the end of each offering period. Offering periods, which began in 2012, occur in consecutive six-month periods commencing on September 5th and March 5th of each year. Eligible employees may contribute up to 15 percent of their base salary, subject to certain annual limitations as defined in the ESPP. The purchase price of the shares is equal to the lower of 85 percent of the closing price of our common stock on either the first or last trading day of a given offering period. In addition, the ESPP provides that no eligible employee may purchase more than 4,000 shares during any offering period. The ESPP has a 20-year term and limits the aggregate number of shares that can be issued under the ESPP to 3.0 million.

9.   Earnings Per Common Share

Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common 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 our outstanding stock options, as if such options were exercised.

19

For the six months ended June 30, 2019, we had a net loss, and as such, all outstanding stock options and restricted stock units were excluded from our calculation of diluted earnings (loss) per share. The components of basic and diluted earnings (loss) per common share comprised the following (in millions, except per share amounts):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Numerator:
Net income (loss)	$	205.1	$	172.9	$	(289.5)	$	417.4
Denominator:
Weighted average outstanding shares - basic		43.8		43.1		43.8		43.4
Effect of dilutive securities(1):
Stock options, restricted stock units and employee stock purchase plan		0.2		0.3		—		0.5
Weighted average shares - diluted(2)		44.0		43.4		43.8		43.9
Net income (loss) per common share:
Basic	$	4.68	$	4.01	$	(6.61)	$	9.62
Diluted	$	4.66	$	3.98	$	(6.61)	$	9.51
Stock options and restricted stock units excluded from calculation(2)		7.9		5.5		6.6		4.7

(1) Calculated using the treasury stock method.

(2) The common shares underlying certain stock options and restricted stock units have been excluded from the computation of diluted earnings per share because their impact would be anti-dilutive for the three-and six-month periods ended June 30, 2019 and June 30, 2018.

10.  Income Taxes

Our effective income tax rate (ETR) for the six months ended June 30, 2019 and 2018 was 28 percent and 21 percent, respectively. We recognized a loss before income taxes, and a corresponding income tax benefit, for the six months ended June 30, 2019, as a result of the one-time $800.0 million payment to Arena in January 2019. As a result of this loss, our anticipated tax credits and foreign sales deduction (“FDII”), partially offset by non-deductible compensation expense, increased our tax benefit and resulting ETR for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Deferred tax assets increased by $168.6 million as of June 30, 2019 compared to December 31, 2018 primarily due to the amount of the Arena payment that will not be deductible for tax purposes in 2019.

Our unrecognized tax benefits were $0.9 million and $0.5 million for the six months ended June 30, 2019 and June 30, 2018, and included $0.7 million and $0.3 million, respectively, of tax benefits that, if recognized, would impact our ETR. We record interest and penalties related to uncertain tax positions as a component of income tax expense. As of June 30, 2019 and 2018, we have not accrued any material interest expense related to uncertain tax positions. We are unaware of any material positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

11.   Segment Information

We currently operate as one operating segment with a focus on the development and commercialization of products to address the unmet needs of patients with chronic and life-threatening conditions. Our Chief Executive Officer, as our chief operating decision maker, manages and allocates resources to the operations of our company on a consolidated basis. This enables our Chief Executive Officer to assess our overall level of available resources and determine how best

20

to deploy these resources across functions, therapeutic areas, and research and development projects in line with our long-term company-wide strategic goals.

Net product sales, cost of product sales and gross profit for each of our commercial products were as follows (in millions):

	Three Months Ended June 30,
2019	Remodulin		Tyvaso		Orenitram		Unituxin		Adcirca		Total
Net product sales	$	155.8	$	109.6	$	54.0	$	25.1	$	29.1	$	373.6
Cost of product sales		4.5		3.5		4.0		2.2		12.5		26.7
Gross profit	$	151.3	$	106.1	$	50.0	$	22.9	$	16.6	$	346.9
2018
Net product sales	$	159.5	$	105.9	$	49.5	$	19.8	$	109.8	$	444.5
Cost of product sales		3.4		4.4		3.0		3.4		47.5		61.7
Gross profit	$	156.1	$	101.5	$	46.5	$	16.4	$	62.3	$	382.8
	Six Months Ended June 30,
2019	Remodulin		Tyvaso		Orenitram		Unituxin		Adcirca		Total
Net product sales	$	311.3	$	213.4	$	112.4	$	50.0	$	49.1	$	736.2
Cost of product sales		10.6		7.9		8.8		7.3		21.2		55.8
Gross profit	$	300.7	$	205.5	$	103.6	$	42.7	$	27.9	$	680.4
2018
Net product sales	$	286.3	$	200.5	$	101.7	$	37.8	$	207.4	$	833.7
Cost of product sales		6.4		7.4		6.0		5.7		89.4		114.9
Gross profit	$	279.9	$	193.1	$	95.7	$	32.1	$	118.0	$	718.8

Geographic revenues are determined based on the country in which our customers (distributors) are located. Total revenues from external customers by geographic area are as follows (in millions):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
United States	$	339.5	$	422.3	$	669.0	$	788.1
Rest-of-World(1)		34.1		22.2		67.2		45.6
Total	$	373.6	$	444.5	$	736.2	$	833.7

(1) Primarily Europe.

We recorded revenue from two specialty pharmaceutical distributors in the United States comprising 54 percent and 22 percent, respectively, of total revenues during the three-month period ended June 30, 2019, 48 percent and 17 percent, respectively, of total revenues during the three-month period ended June 30, 2018, 56 percent and 21 percent, respectively, of total revenues during the six-month period ended June 30, 2019, and 48 percent and 17 percent, respectively, of total revenues during the six-month period ended June 30, 2018. All of our revenues for Adcirca are generated by sales made through Lilly’s pharmaceutical wholesaler network.

12.   Litigation

On April 16, 2019, Sandoz Inc. (Sandoz) and its commercialization collaborator, RareGen, LLC, filed a complaint in the U.S. District Court for the District of New Jersey against us and Smiths Medical ASD, Inc. (Smiths Medical), alleging that we and Smiths Medical engaged in anticompetitive conduct in connection with plaintiffs’ efforts to launch their generic version of Remodulin. In particular, the complaint alleges that we and Smiths Medical unlawfully impeded competition by entering into an agreement to produce CADD MS^®3 cartridges specifically for the delivery of subcutaneous Remodulin, without making these cartridges available for the delivery of Sandoz’s generic version of

21

Remodulin. The plaintiffs have filed a motion to expedite discovery in anticipation of a forthcoming motion seeking unspecified preliminary injunctive relief, and we and Smiths Medical have filed a motion to dismiss the complaint. We believe plaintiffs’ claims to be meritless and intend to vigorously defend the litigation. However, due to the uncertainty inherent in any litigation, we cannot guarantee that an adverse outcome will not result. Any litigation of this nature could involve substantial cost, and an adverse outcome could result in substantial monetary damages and/or injunctive relief adverse to our business. We currently are not able to reasonably estimate a range of potential losses due to the early stage of the litigation.

13.   Arena License Agreement

On November 15, 2018, we entered into an exclusive license agreement with Arena related to ralinepag, a next-generation, oral, selective and potent prostacyclin receptor agonist being developed for the treatment of PAH. On January 24, 2019, in connection with the closing of the transactions contemplated by the license agreement: (1) Arena granted to us perpetual, irrevocable and exclusive rights throughout the universe to develop, manufacture and commercialize ralinepag; (2) Arena transferred to us certain other assets related to ralinepag, including, among others, related domain names and trademarks, permits, certain contracts, inventory, regulatory documentation, Investigational New Drug (IND) Application No. 109021 (related to ralinepag) and non-clinical, pre-clinical and clinical trial data; (3) we assumed certain limited liabilities from Arena, including, among others, all obligations arising after the closing under the assumed contracts and the IND described above; and (4) we paid Arena an upfront payment of $800.0 million, which was expensed as acquired in-process research and development and included within research and development expenses on our consolidated statements of operations in the first quarter of 2019. We will also pay Arena: (1) a one-time payment of $250.0 million for the first, if any, marketing approval we receive in the United States for an inhaled version of ralinepag to treat PAH; (2) a one-time payment of $150.0 million for the first, if any, marketing approval we receive in any of Japan, France, Italy, the United Kingdom, Spain or Germany for an oral version of ralinepag to treat any indication; and (3) low double-digit, tiered royalties on net sales of any pharmaceutical product containing ralinepag as an active ingredient, subject to certain adjustments for third party license payments.

22

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, 2018, 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 (the Exchange Act) 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, 2018, 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 our 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 of Marketed Products

We currently market and sell the following commercial products:

● Remodulin, a continuously-infused formulation of the prostacyclin analogue treprostinil, approved by the FDA for subcutaneous and intravenous administration to diminish symptoms associated with exercise in patients with pulmonary arterial hypertension (PAH). Remodulin has also been approved in various countries outside of the United States.

● Tyvaso, an inhaled formulation of treprostinil, approved by the FDA and regulatory authorities in Argentina and Israel to improve exercise ability in PAH patients.

● Orenitram, a tablet dosage form of treprostinil, approved by the FDA to improve exercise capacity in PAH patients.

● Unituxin, a monoclonal antibody approved by the FDA and Health Canada for the treatment of high-risk neuroblastoma.

● Adcirca, an oral PDE-5 inhibitor approved by the FDA to improve exercise ability in PAH patients.

Revenues

Our net product sales consist of sales of the five commercial products noted above. We have entered into separate, non-exclusive distribution agreements with Accredo Health Group, Inc. and its affiliates (Accredo) and Caremark, L.L.C. (CVS Specialty) to distribute Remodulin, Tyvaso and Orenitram in the United States, and we have entered into an exclusive distribution agreement with ASD Specialty Healthcare, Inc. (ASD), an affiliate of AmerisourceBergen Corporation, to distribute Unituxin in the United States. We also sell Remodulin and Tyvaso to distributors internationally. We sell Adcirca through Lilly’s pharmaceutical wholesale network. To the extent we have increased the price of any of these products, increases have typically been in the single-digit percentages per year, except for Adcirca, the price of which is set solely by Lilly. In 2019, we anticipate revenues will decrease as compared to 2018 because generic Adcirca will be available for the full year in 2019, as compared to only the last four months of 2018. We may experience additional pressure on revenues during the second half of 2019 due to the launch of generic versions of Remodulin in the United States and certain countries in Europe. Longer term, we believe our pipeline of new products and potential label expansions for existing products should result in a return to revenue growth potentially as soon as 2020, although the precise timing depends on a number of factors, including factors that we cannot control. Refer to the risks identified in Part II, Item 1A—Risk Factors, included in this Quarterly Report on Form 10-Q.

23

We require our specialty pharmaceutical distributors to maintain reasonable levels of inventory reserves because the interruption of Remodulin, Tyvaso or Orenitram therapy can be life threatening. Our specialty pharmaceutical distributors typically place monthly orders based on current utilization trends and contractual minimum inventory requirements. As a result, sales of Remodulin, Tyvaso and Orenitram can vary depending on the timing and magnitude of these orders and do not precisely reflect changes in patient demand.

Generic Competition

We settled litigation with Sandoz, Inc. (Sandoz) relating to its abbreviated new drug application (ANDA) seeking FDA approval to market a generic version of Remodulin. Under the settlement agreement, Sandoz was permitted to market its generic version of Remodulin as early as June 2018. On March 25, 2019, Sandoz announced the availability of its generic product in the United States, and that it is entitled to six months of marketing exclusivity before other companies are permitted to market their generic versions of Remodulin in the United States. We have also entered into similar settlement agreements with Teva Pharmaceuticals USA, Inc. (Teva), Par Sterile Products, LLC (Par), Dr. Reddy’s Laboratories, Inc. (Dr. Reddy’s) and Alembic Pharmaceuticals Ltd. (Alembic) permitting each of them to market a generic version of Remodulin in the United States. Par has received tentative FDA approval for its ANDA, but to our knowledge the other companies’ ANDAs have not been approved by the FDA. Subject to FDA approval, and assuming that Sandoz does, in fact, have six months of marketing exclusivity, any of Par, Teva, Dr. Reddy’s or Alembic could launch their generic products as early as September 2019.

Internationally, various European countries began approving generic versions of Remodulin in 2018, followed by pricing approvals and launches in certain of these countries in 2019. As a result, we anticipate that our international Remodulin revenues will decline in 2019, due to increased competition and a reduction in our contractual transfer price for Remodulin sold by certain international distributors for sales in countries in which the pricing of Remodulin is impacted by the generic competition. Our non-U.S. net product sales for Remodulin were $64.8 million and $43.7 million for the six months ended June 30, 2019 and 2018, respectively.

We also settled litigation with Actavis Laboratories FL, Inc. (Actavis) relating to its ANDA seeking FDA approval to market a generic version of Orenitram before the expiration of certain of our U.S. patents. Under the settlement agreement, Actavis can market its generic version of Orenitram in the United States beginning in June 2027, although Actavis may be permitted to enter the market earlier under certain circumstances. We also settled litigation with Watson Laboratories, Inc. (Watson) relating to its ANDA seeking FDA approval to market a generic version of Tyvaso before the expiration of certain of our U.S. patents. Under the settlement agreement, Watson can market its generic version of Tyvaso in the United States beginning in January 2026, although Watson may be permitted to enter the market earlier under certain circumstances. As a result of our settlements with Watson and Actavis, we expect to see generic competition for Tyvaso and Orenitram in the United States beginning as early as 2026 and 2027, respectively. Competition from these generic companies could reduce our net product sales and profits. In addition, although we intend to vigorously enforce our intellectual property rights relating to our products, there can be no assurance that we will prevail in defending our patent rights, or that additional challenges from other ANDA filers or other challengers will not surface with respect to our products. Our patents could be invalidated, found unenforceable or found not to cover one or more generic forms of our products. If any ANDA filer were to receive approval to sell a generic version of our products and/or prevail in any patent litigation, the affected product(s) would become subject to increased competition, which could reduce our net product sales and profits.

A U.S. patent for Adcirca for the treatment of pulmonary hypertension expired in November 2017, and FDA-conferred regulatory exclusivity expired in May 2018, leading to the launch of a generic version of Adcirca by Mylan N.V. in August 2018, and by additional companies in February 2019. Generic competition for Adcirca has had a material adverse impact on Adcirca net product sales. In addition, we expect declines in patient demand will increase the amount of Adcirca inventory held by distributors and other downstream customers that expires unsold. Our allowance for product returns was $20.6 million and $22.4 million as of June 30, 2019 and December 31, 2018, respectively.

Patent expiration, patent litigation and generic competition for any of our commercial PAH products could have a significant, adverse impact on our revenues, profits and stock price, and is inherently difficult to predict. For additional discussion, refer to the risk factor entitled, Our intellectual property rights may not effectively deter competitors from

24

developing competing products that, if successful, could have a material adverse effect on our revenues and profits, contained in Part II, Item 1A—Risk Factors included in this Quarterly Report on Form 10-Q.

Operating Expenses

Since our inception, we have devoted substantial resources to our various clinical trials and other research and development efforts, which are conducted both internally and through third parties. From time to time, we also license or acquire additional technologies and compounds to be incorporated into our development pipeline.

Our operating expenses include the following costs:

Cost of Product Sales

Our cost of product sales primarily includes costs to manufacture and acquire products sold to customers, royalty and milestone payments under license agreements granting us rights to sell related products, direct and indirect distribution costs incurred in the sale of products, and the costs of inventory reserves for current and projected obsolescence. These costs also include share-based compensation and salary-related expenses for direct manufacturing and indirect support personnel, quality review and release for commercial distribution, direct materials and supplies, depreciation, facilities-related expenses and other overhead costs.

Research and Development

Our research and development expenses primarily include costs associated with the research and development of products and post-marketing research commitments. These costs also include share-based compensation and salary-related expenses for research and development functions, professional fees for preclinical and clinical studies, costs associated with clinical manufacturing, facilities-related expenses, regulatory costs and costs associated with pre-FDA approval payments to third-party contract manufacturers. Expenses also include costs for third-party arrangements, including upfront fees and milestone payments required under license arrangements for therapies under development. We have incurred, and expect to continue to incur, significant clinical trial-related expenses, driven by the expansion of our pipeline programs.

Selling, General and Administrative

Our selling, general and administrative expenses primarily include costs associated with the commercialization of approved products and general and administrative costs to support our operations. Selling expenses also include share-based compensation, salary-related expenses, product marketing and sales operations costs, and other costs incurred to support our sales efforts. General and administrative expenses also include our core corporate support functions such as human resources, finance and legal, external costs to support our core business such as insurance premiums, legal fees and other professional service fees.

Share-Based Compensation

Historically, we granted stock options under our Amended and Restated Equity Incentive Plan (the 1999 Plan) and awards under our Share Tracking Awards Plans (STAP). Issuance of awards under these plans was discontinued in 2015. Currently, we grant stock options and restricted stock units under the United Therapeutics Corporation Amended and Restated 2015 Stock Incentive Plan (as amended to date, the 2015 Plan), which provides for the issuance of up to 9,500,000 shares of our common stock, which includes the 450,000 shares added pursuant to an amendment and restatement of the 2015 Plan approved by our shareholders in June 2019. In February 2019, our Board of Directors approved the 2019 Inducement Stock Incentive Plan (the 2019 Inducement Plan), which provides for the issuance of up to 99,000 shares of our common stock pursuant to awards granted to newly-hired employees. Currently, we grant equity-based awards to employees and members of our Board of Directors in the form of stock options and restricted stock units under the 2015 Plan, and we grant restricted stock units to newly-hired employees under the 2019 Inducement Plan. The grant date fair values of stock options and restricted stock units are recognized as share-based compensation expense ratably over their vesting periods.

25

The fair values of STAP awards and stock options are measured using inputs and assumptions under the Black-Scholes-Merton model. The fair value of restricted stock units is measured using our stock price on the date of grant.

Although we no longer grant STAP awards, we still had approximately 2.7 million STAP awards outstanding as of June 30, 2019. We account for STAP awards as liabilities because they are settled in cash. As such, we must re-measure the fair value of STAP awards at the end of each financial reporting period until the awards are no longer outstanding. Changes in our STAP liability resulting from such re-measurements are recorded as adjustments to share-based compensation expense (benefit) and can create substantial volatility within our operating expenses from period to period. The following factors, among others, have a significant impact on the amount of share-based compensation expense (benefit) recognized in connection with STAP awards from period to period: (1) volatility in the price of our common stock (specifically, increases in the price of our common stock will generally result in an increase in our STAP liability and related compensation expense, while decreases in our stock price will generally result in a reduction in our STAP liability and related compensation expense); and (2) changes in the number of outstanding awards.

Research and Development

We focus most of our research and development efforts on the following near-term pipeline programs (intended to result in product launches in the 2019-2021 timeframe) and medium-term pipeline programs (intended to result in product launches in the 2022-2025 timeframe). We are also engaged in a variety of additional medium- and long-term research and development efforts, including technologies designed to increase the supply of transplantable organs and tissues and improve outcomes for transplant recipients through regenerative medicine, xenotransplantation, biomechanical lungs, and ex-vivo lung perfusion.

26

Near-Term Pipeline Programs (2019-2021)

Product	Mode of Delivery	Indication	Current Status STUDY NAME	Our Territory
Implantable System for Remodulin	Continuous intravenous via implantable pump	PAH	FDA approval received July 30, 2018; U.S. launch pending satisfaction of further regulatory requirements by Medtronic	United States, United Kingdom, Canada, France, Germany, Italy and Japan
RemUnity™ (treprostinil)	Continuous subcutaneous via pre-filled, semi-disposable system	PAH	Initial 510(k) application cleared by the FDA. Additional pharmacy-fill 510 (k) pending with the FDA	Worldwide
Orenitram (treprostinil) in combination with approved background therapy	Oral	PAH (delayed time to first clinical worsening event)	Phase IV FREEDOM-EV Study completed, primary endpoint met; NDA supplement submitted to the FDA December 2018	Worldwide
Trevyent® (treprostinil)	Continuous subcutaneous via pre-filled, disposable PatchPump® system	PAH	NDA resubmitted to the FDA in June 2019	Worldwide, subject to out-licenses granted in Europe, Canada and the Middle East
RemoPro™ (pain-free subcutaneous Remodulin prodrug)	Continuous subcutaneous	PAH	Phase I	Worldwide
Unituxin (dinutuximab)	Intravenous	Small cell lung cancer	Phase II/III DISTINCT (fully enrolled)	Worldwide
Tyvaso (treprostinil)	Inhaled	Pulmonary hypertension associated with idiopathic pulmonary fibrosis (WHO Group 3)	Phase III INCREASE	Worldwide

27

Medium-Term Pipeline Programs (2022-2025)

Product	Mode of Delivery	Indication	Current Status STUDY NAME	Our Territory
Tyvaso (treprostinil)	Inhaled	Pulmonary hypertension associated with chronic obstructive pulmonary disease (WHO Group 3)	Phase III PERFECT	Worldwide
Treprostinil Technosphere®	Inhaled dry powder	PAH	Phase III BREEZE	Worldwide
Orenitram (treprostinil)	Oral	Pulmonary hypertension associated with left ventricular diastolic dysfunction (WHO Group 2)	Phase III SOUTHPAW	Worldwide
Ralinepag (IP receptor agonist)	Oral	PAH	Phase III ADVANCE studies	Worldwide, subject to out-licenses granted in the People’s Republic of China and certain other Asian territories
Aurora-GT™ (eNOS gene therapy)	Intravenous	PAH	Phase II/III SAPPHIRE	United States
SM04646 (Wnt pathway inhibitor)	Inhaled	Idiopathic pulmonary fibrosis	Phase I	United States and Canada

Implantable System for Remodulin

On July 30, 2018, we obtained FDA approval of the Implantable System for Remodulin in the United States. We developed this system in collaboration with Medtronic, Inc. (Medtronic). The system incorporates a proprietary Medtronic intravascular infusion catheter with Medtronic’s SynchroMed^® II implantable infusion pump and related infusion system components (together referred to as the Implantable System for Remodulin) in order to deliver Remodulin for the treatment of PAH. We believe this technology has the potential to reduce many of the patient burdens and other complications associated with the use of external pumps to administer prostacyclin analogues. The FDA approved Medtronic’s premarket approval application (PMA) for the device in December 2017, and our NDA for the use of Remodulin in the implantable pump in July 2018. Medtronic must satisfy certain conditions to its PMA approval before we can launch the Implantable System for Remodulin. We have no control over when or whether these conditions will be met.

In February 2019, we entered into a commercialization agreement under which Medtronic will manufacture and supply the Implantable System for Remodulin, and we will manufacture and supply Remodulin for use in the system. Each party will perform certain additional activities to support the commercialization of the Implantable System for Remodulin, and we will reimburse Medtronic’s costs to provide such support. We will pay Medtronic a royalty equal to ten percent of our net sales of Remodulin administered via the Implantable System for Remodulin. We have entered into an agreement with CVS Specialty to provide refills of implanted pumps at its infusion centers. Once Medtronic satisfies its remaining PMA conditions, we plan to approach the launch in a careful and deliberate manner to ensure the safety of

28

patients and the long-term success of the program. At this time, we are preparing to launch the Implantable System for Remodulin in 2020 at the ten clinical trial sites that participated in the pivotal DelIVery clinical study of the Implantable System for Remodulin, and up to approximately 100 additional sites. These timelines are subject to a number of factors outside of our control, including Medtronic’s satisfaction of its PMA conditions and the ability of hospitals to complete training and other necessary preparations. We are also working with Medtronic to develop a next-generation system incorporating various enhancements.

Medtronic is entirely responsible for regulatory approvals and all manufacturing and quality systems related to its infusion pump and related components. Medtronic entered into a consent decree with the FDA in April 2015, which required Medtronic to complete certain corrections and enhancements to the SynchroMed II pump and the associated quality system. The consent decree restricted Medtronic’s ability to manufacture and distribute the SynchroMed II infusion system, unless specific conditions were met, including retention of a third-party expert to inspect the affected quality system and certify that the quality system complies with the requirements of the consent decree. Medtronic completed the third-party certification audits in January 2017 and successfully completed an FDA inspection in June 2017. After the inspection, FDA lifted the consent decree restrictions on manufacturing, distribution and design in September 2017. The consent decree remains in effect, with ongoing obligations for annual third-party audits continuing until September 2020. Non-compliance by Medtronic with its consent decree could interrupt the manufacture and sale of the Implantable System for Remodulin.

RemUnity and RemoPro

In December 2014, we entered into an exclusive agreement with DEKA Research & Development Corp. (DEKA) to develop a pre-filled, semi-disposable system for subcutaneous delivery of treprostinil, which we call the RemUnity system. Under the terms of the agreement, we are funding the development costs related to the RemUnity system and will pay product fees and a single-digit royalty to DEKA based on commercial sales of the system and the treprostinil drug product sold for use with the system. The RemUnity system consists of a small, lightweight, durable pump that is intended to have a service life of at least three years. The RemUnity system uses disposable cartridges pre-filled with treprostinil, which can be connected to the pump with less patient manipulation than is typically involved in filling currently-available subcutaneous pumps.

In May 2019, DEKA obtained FDA 510(k) clearance of the RemUnity system and subsequently submitted an additional 510(k) filing to the FDA seeking to enable cartridges to be pre-filled with Remodulin by contracted specialty pharmacy distributors in order to improve convenience for patients. We intend to launch the RemUnity system when this additional FDA clearance is obtained. We also are developing a version of the system that includes disposable components that are pre-filled as part of the manufacturing process.

We are also conducting phase I studies to develop a new prodrug of treprostinil called RemoPro, which is intended to enable subcutaneous delivery of treprostinil therapy without the site pain currently associated with subcutaneous Remodulin. As a prodrug, RemoPro is designed to be inactive in the subcutaneous tissue, which should decrease or eliminate site pain, and to metabolize into treprostinil once it is absorbed into the blood.

Trevyent

In August 2018, we acquired SteadyMed Ltd. (SteadyMed), which is developing Trevyent, a post-phase III development-stage drug-device combination product that combines SteadyMed’s two-day, single use, disposable PatchPump technology with treprostinil, for the subcutaneous treatment of PAH. In August 2017, SteadyMed received a refuse-to-file letter from the FDA with respect to its 505(b)(2) NDA for Trevyent. SteadyMed met with the FDA in November 2017, and the FDA indicated that SteadyMed does not need to conduct any clinical trials to prove the safety or efficacy of Trevyent. We resubmitted the NDA on June 27, 2019.

Orenitram

In 2013, the FDA approved Orenitram for the treatment of PAH patients to improve exercise capacity. The primary study that supported efficacy of Orenitram was a 12-week monotherapy study (FREEDOM-M) in which PAH patients

29

were not on any approved background PAH therapy. In August 2018, we announced that our phase IV study of Orenitram called FREEDOM-EV had met its primary endpoint of delayed time to first clinical worsening event. In particular, the preliminary results showed that Orenitram, when taken with an oral PAH background therapy, decreased the risk of a morbidity/mortality event versus placebo by 26 percent (p=0.0391). In December 2018, we submitted a supplement to our NDA to the FDA seeking approval for a label amendment reflecting the FREEDOM-EV results, and we are evaluating whether the results could support marketing applications for Orenitram outside the United States. Additional FREEDOM-EV data were presented at a medical conference in January 2019, including data showing a 61 percent decrease in the risk of disease progression for patients taking Orenitram, when compared to placebo (p=0.0002). In addition, in participants for which data are available (89 percent), Orenitram was associated with a 37 percent decreased risk of mortality compared with placebo (p=0.0324) at study closure (which includes additional data accrued in the open-label extension study).

We are also enrolling patients in a study of Orenitram (SOUTHPAW) to treat WHO Group 2 pulmonary hypertension (specifically associated with left ventricular diastolic dysfunction). There are presently no FDA approved therapies indicated for treatment of WHO Group 2 pulmonary hypertension.

Unituxin

Under our BLA approval for Unituxin, the FDA has imposed certain post-marketing requirements and post-marketing commitments on us. We are conducting additional clinical and non-clinical studies to satisfy these requirements and commitments. While we believe we will be able to complete these studies, any failure to satisfy these requirements or commitments could result in penalties, including fines or withdrawal of Unituxin from the market, unless we are able to demonstrate good cause for the failure.

In addition, we are conducting a study (DISTINCT) of Unituxin in adult patients with small cell lung cancer, which is another GD2-expressing cancer. During the fourth quarter of 2017, we completed the phase II portion of the study, and commenced the phase III portion of the study following an interim safety review. The phase III portion of the DISTINCT study is now fully enrolled with 472 patients, and we expect to announce the results by the first quarter of 2020. We are also conducting preclinical research to determine Unituxin’s potential activity against other types of GD2-expressing tumors. These research and development efforts into new indications for Unituxin have been substantially outsourced to a contract research organization called Precision Oncology, LLC.

Unituxin therapy is associated with severe side effects, including infections, infusion reactions, hypokalemia, hypotension, pain, fever, and capillary leak syndrome. In post-approval use of Unituxin, the adverse reactions of prolonged urinary retention, transverse myelitis, and reversible posterior leukoencephalopathy syndrome have been observed. Unituxin’s label also includes a boxed warning related to serious infusion reactions and neurotoxicity.

Finally, we are developing a fully humanized (non-chimeric) version of dinutuximab, the active ingredient in Unituxin. We expect this new version to reduce some of the side effects associated with Unituxin, which is a chimeric composed of a combination of mouse and human proteins.

Tyvaso

We are enrolling a phase III registration study called INCREASE, which is a study of Tyvaso in patients with WHO Group 3 pulmonary hypertension associated with interstitial lung disease (specifically associated with idiopathic pulmonary fibrosis or combined pulmonary fibrosis and emphysema). The study is now over 90 percent enrolled. We are also enrolling a phase III registration study called PERFECT, which is a study of Tyvaso in patients with WHO Group 3 pulmonary hypertension associated with chronic obstructive pulmonary disease. There are presently no FDA approved therapies indicated for the treatment of WHO Group 3 pulmonary hypertension.

In addition, we are developing new devices to further optimize the delivery of inhaled treprostinil, including a pro re nata (as needed) device called Spiresta™.

30

Treprostinil Technosphere

In September 2018, we entered into a worldwide, exclusive license and collaboration agreement with MannKind Corporation (MannKind) for the development and commercialization of a dry powder formulation of treprostinil called Treprostinil Technosphere for the treatment of PAH. The agreement became effective on October 15, 2018. Treprostinil Technosphere incorporates the dry powder formulation technology and Dreamboat^® inhalation device technology used in MannKind’s Afrezza^® (insulin human) Inhalation Powder product, which was approved by the FDA in 2014. If the FDA approves Treprostinil Technosphere, we believe this new inhaled treprostinil therapy will provide substantial lifestyle benefits to PAH patients, as compared with Tyvaso therapy, because it will be: (1) less time consuming to administer and easier to maintain as the device and drug will be provided in a pre-filled, single use disposable cassette eliminating the need for cleaning and filling; and (2) mobile and more convenient, as the compact design of the Dreamboat device and drug cassettes used with Treprostinil Technosphere can easily fit into the patient’s pocket and do not require electricity. We also have the right to develop a single-use device based on MannKind’s Cricket^® design. The Cricket device would come pre-loaded with treprostinil and would be discarded immediately after use. In contrast, we envision each Dreamboat device would be re-usable.

Under our agreement with MannKind, we are responsible for global development, regulatory and commercial activities related to Treprostinil Technosphere, and we share manufacturing responsibilities with MannKind. We plan to commence a clinical study (called BREEZE) during 2019 to evaluate the safety and pharmacokinetics of switching PAH patients from Tyvaso to Treprostinil Technosphere, as well as a pharmacokinetic study in healthy volunteers. The FDA has indicated that these two studies, if successful, will be the only clinical studies necessary to support FDA approval. Under the terms of the agreement, we paid MannKind $45.0 million following the effectiveness of the agreement in October 2018, and we are required to make potential milestone payments to MannKind of up to $50.0 million upon the achievement of specific development targets. The first $12.5 million of these milestone payments became due and was paid in March 2019. MannKind is also entitled to receive low double-digit royalties on our net sales of the product. In addition, we have the option, in our sole discretion, to expand the license to include other active ingredients for the treatment of pulmonary hypertension. We will pay MannKind up to $40.0 million in additional option exercise and development milestone payments for each product (if any) added to the license pursuant to this option, as well as a low double-digit royalty on our net sales of any such product.

We also entered into a research agreement with MannKind under which MannKind will conduct research related to products outside the scope of the licensing and collaboration agreement. We paid MannKind $10.0 million in the third quarter of 2018 in consideration for its performance under the research agreement.

Aurora-GT

We are enrolling a phase II/III study (called SAPPHIRE) of a gene therapy product called Aurora-GT, in which a PAH patient’s own endothelial progenitor cells are isolated, transfected with the gene for human endothelial NO-synthase (eNOS), expanded ex-vivo and then delivered to the same patient. This product is intended to rebuild the blood vessels in the lungs that are destroyed by PAH. This study is being conducted in Canada, and is sponsored by Northern Therapeutics, Inc., a Canadian entity in which we have a 49.7 percent voting stake and a 71.8 percent financial stake. We have the exclusive right to pursue this technology in the United States, and plan to seek FDA approval of Aurora-GT if SAPPHIRE is successful.

SM04646

In September 2018, we entered into an exclusive license agreement with Samumed LLC (Samumed) providing us exclusive U.S. and Canadian rights to SM04646, a phase I development-stage Wnt pathway inhibitor being developed for the treatment of idiopathic pulmonary fibrosis (IPF). The Wnt pathway is one of the primary signaling pathways essential for the normal development of all multicellular animals, and for the growth and maintenance of various adult tissues. Recent evidence suggests that aberrant Wnt signaling may be involved in the pathogenesis of chronic lung disease such as IPF. Samumed completed a phase I, multiple dose clinical trial of SM04646 in April 2019. The FDA has granted orphan drug designation for SM04646 for the treatment of IPF. Under our agreement with Samumed, we paid Samumed $10.0 million up-front, and we will pay Samumed additional consideration of up to $340.0 million in

31

developmental milestone payments, plus up to low double-digit royalties on our net sales of the product. Under the terms of the agreement, our subsidiary, Lung Biotechnology PBC, will conduct and fund all development, regulatory and commercialization activities for SM04646 in the United States and Canada. Samumed retains development and commercialization rights for SM04646 for all markets outside of these two countries.

Ralinepag

On November 15, 2018, we entered into an exclusive license agreement with Arena Pharmaceuticals, Inc. (Arena) related to ralinepag, a next-generation, oral, selective and potent prostacyclin receptor agonist being developed for the treatment of PAH. On January 24, 2019, in connection with the closing of the transactions contemplated by the license agreement: (1) Arena granted to us perpetual, irrevocable and exclusive rights throughout the universe to develop, manufacture and commercialize ralinepag; (2) Arena transferred to us certain other assets related to ralinepag, including, among others, related domain names and trademarks, permits, certain contracts, inventory, regulatory documentation, Investigational New Drug (IND) Application No. 109021 (related to ralinepag) and non-clinical, pre-clinical and clinical trial data; (3) we assumed certain limited liabilities from Arena, including, among others, all obligations arising after the closing under the assumed contracts and the IND described above; and (4) we paid Arena an upfront payment of $800.0 million, which we expensed as acquired in-process research and development and included within research and development expenses on our consolidated statements of operations for the three months ended March 31, 2019. We will also pay Arena: (1) a one-time payment of $250.0 million for the first, if any, marketing approval we receive in the United States for an inhaled version of ralinepag to treat PAH; (2) a one-time payment of $150.0 million for the first, if any, marketing approval we receive in any of Japan, France, Italy, the United Kingdom, Spain or Germany for an oral version of ralinepag to treat any indication; and (3) low double-digit, tiered royalties on net sales of any pharmaceutical product containing ralinepag as an active ingredient, subject to certain adjustments for third party license payments.

We are continuing the ongoing phase III ADVANCE OUTCOMES study initiated by Arena, which is an event-driven study of ralinepag in PAH patients, with a primary endpoint of time to first clinical event. We are also planning one additional phase III trial, called ADVANCE CAPACITY, studying the effect of ralinepag on exercise capacity in PAH patients (with a primary endpoint of change in peak oxygen uptake via cardiopulmonary exercise test). Both of these studies are global, multi-center, placebo-controlled trials of patients on approved oral background PAH therapies. In May 2019, we decided not to initiate a third potential phase III study, previously referred to as ADVANCE ENDURANCE, with a primary endpoint of change in six-minute walk distance. We believe this decision will accelerate the timeline for enrollment of the other two studies, which we believe have a greater probability of success.

Organ Manufacturing

Each year, end stage organ failure kills millions of people. A significant number of these patients could have benefited from an organ transplant. Unfortunately, the number of usable, donated organs available for transplantation has not grown significantly over the past half century while the need has soared. Our long-term goals are aimed at addressing this shortage. With advances in technology, we believe that creating an unlimited supply of tolerable manufactured organs is now principally an engineering challenge, and we are dedicated to finding engineering solutions. Since 2011, we have been engaged in research and development of a variety of technologies designed to increase the supply of transplantable organs and tissues and to improve outcomes for transplant recipients. These programs include preclinical research and development of alternative tissue sources through tissue and organ xenotransplantation, regenerative medicine, biomechanical lungs, and other technologies to create engineered organs and organ tissues. Although our primary focus is on engineered lungs, we are also developing technology for other engineered organs, such as kidneys and hearts, and our manufactured lungs, kidneys and hearts have set records for viability in FDA-required animal models. In February 2018, we reached a significant milestone by achieving 30-day survival of our genetically modified porcine lungs in FDA-required animal models. We are also developing technologies to improve outcomes for lung transplant recipients and to increase the supply of donor lungs through ex-vivo lung perfusion. While we continue to develop and commercialize therapies for rare and life-threatening conditions, we view organ manufacturing as the ultimate technology solution for a broad array of diseases, many of which (such as PAH) have proven incurable thus far through more traditional pharmaceutical and biologic therapies. For this reason, in 2015 we created a wholly-owned public benefit corporation called Lung Biotechnology PBC, chartered with the express purpose of “address[ing] the

32

acute national shortage of transplantable lungs and other organs with a variety of technologies that either delay the need for such organs or expand the supply.”

Future Prospects

As noted above, in 2019 we expect revenues will decrease as compared to 2018, largely due to the anticipated impact of a full year of competition from generic versions of Adcirca, the first of which launched in August 2018. We believe we will return to revenue growth by commercializing six key therapeutic platforms in our pipeline, each of which is comprised of multiple enabling technologies:

Platform	Enabling Technologies
Remodulin (parenteral treprostinil)	RemUnity, Implantable System for Remodulin, Trevyent, RemoLife, RemoPro
Tyvaso (inhaled treprostinil)	INCREASE study, PERFECT study, Spiresta, Treprostinil Technosphere
Orenitram (oral treprostinil)	FREEDOM-EV results, SOUTHPAW study
Unituxin (dinutuximab)	DISTINCT study (small cell lung cancer), humanized dinutuximab, additional GD2-expressing tumors
New Chemical Entities and New Biologics	ralinepag, SM04646, SAPPHIRE study (gene therapy), Unexisome™ (exosome product for the treatment of bronchopulmonary dysplasia)
Organ Manufacturing and Transplantation	xenotransplantation, three-dimensional organ printing, regenerative medicine, ex-vivo lung perfusion

We believe this diverse portfolio of six therapeutic platforms, each with multiple enabling technologies, will lead to significant revenue growth over the medium- and longer-term. For further details regarding our research and development initiatives, refer to the section above entitled Research and Development.

Our ability to achieve these objectives, grow our business and maintain profitability will depend on many factors, including among others: (1) the timing and outcome of preclinical research, clinical trials and regulatory approvals for products we develop; (2) the timing and degree of our success in commercially launching new products; (3) the demand for our products; (4) the price of our products and the reimbursement of our products by public and private health insurance organizations; (5) the competition we face within our industry, including competition from generic companies; (6) our ability to effectively manage our business in an increasingly complex legal and regulatory environment; (7) our ability to defend against challenges to our patents; and (8) the risks identified in Part II, Item 1A—Risk Factors, included in this Quarterly Report on Form 10-Q.

We operate in a highly competitive market in which a small number of large pharmaceutical companies control a majority of available PAH therapies. These pharmaceutical companies are well established in the market and possess greater financial, technical and marketing resources than we do. In addition, there are a number of investigational products in late-stage development that, if approved, may erode the market share of our existing commercial therapies and make market acceptance more difficult to achieve for any therapies we attempt to market in the future.

33

Results of Operations

Three and Six Months Ended June 30, 2019 and June 30, 2018

Revenues

The following table presents the components of total revenues (dollars in millions):

	Three Months Ended						Six Months Ended
	June 30,				Percentage		June 30,				Percentage
	2019		2018		Change		2019		2018		Change
Net product sales:
Remodulin	$	155.8	$	159.5	(2)	%	$	311.3	$	286.3	9	%
Tyvaso		109.6		105.9	3	%		213.4		200.5	6	%
Orenitram		54.0		49.5	9	%		112.4		101.7	11	%
Unituxin		25.1		19.8	27	%		50.0		37.8	32	%
Adcirca		29.1		109.8	(73)	%		49.1		207.4	(76)	%
Total revenues	$	373.6	$	444.5	(16)	%	$	736.2	$	833.7	(12)	%

Revenues for the three and six months ended June 30, 2019 decreased by $70.9 million and $97.5 million, respectively, as compared to the same periods in 2018.

Remodulin net product sales decreased by $3.7 million for the three months ended June 30, 2019, as compared to the same period in 2018. $10.3 million of the decrease was due to price reductions, primarily to our international distributors, partially offset by a net increase in total quantities shipped of $9.4 million. The net increase in shipments was due to higher quantities sold to our international distributors, partially offset by lower quantities sold to domestic distributors. Changes in quarterly Remodulin sales do not precisely reflect underlying patient demand or changes in patient census as, during the three months ended June 30, 2019, there was an increase in the number of U.S. patients being treated with Remodulin, as compared to the same period in 2018. Remodulin net product sales increased by $25.0 million for the six months ended June 30, 2019, as compared to the same period in 2018, due to an increase in total quantities shipped of $36.6 million, primarily to our international distributors, partially offset by an increase in gross-to-net revenue reductions of $8.7 million.

Tyvaso net product sales for the three and six months ended June 30, 2019 increased by $3.7 million and $12.9 million, respectively, as compared to the same periods in 2018. These increases were primarily due to a price increase implemented in January 2019 and an increase in the number of patients being treated with Tyvaso, partially offset by higher gross-to-net revenue reductions.

Orenitram net product sales for the three and six months ended June 30, 2019 increased by $4.5 million and $10.7 million, respectively, as compared to the same periods in 2018. These increases were primarily due to an increase in the number of patients being treated with Orenitram and a price increase implemented in January 2019.

Unituxin net product sales for the three and six months ended June 30, 2019 increased by $5.3 million and $12.2 million, respectively, as compared to the same periods in 2018. These increases were due to an increase in the number of vials sold and a price increase implemented in April 2019.

Adcirca net product sales for the three and six months ended June 30, 2019 decreased by $80.7 million and $158.3 million, respectively, as compared to the same periods in 2018. These decreases were primarily due to a decrease in bottles sold following the onset of generic competition for Adcirca beginning in August 2018.

We recognize revenues net of: (1) rebates and chargebacks; (2) prompt pay discounts; (3) allowance for sales returns; and (4) distributor fees. These are referred to as gross-to-net deductions and are primarily based on estimates reflecting historical experiences as well as contractual and statutory requirements. We currently estimate our allowance for sales returns using reports from our distributors and available industry data, including our estimate of inventory

34

remaining in the distribution channel. The tables below include a reconciliation of the liability accounts associated with these deductions (in millions):

	Three Months Ended June 30, 2019
	Rebates and		Prompt Pay		Allowance for		Distributor
	Chargebacks		Discounts		Sales Returns		Fees		Total
Balance, April 1, 2019	$	55.6	$	3.0	$	22.8	$	2.9	$	84.3
Provisions attributed to sales in:
Current period		43.7		8.1		(1.7)		4.2		54.3
Prior periods		3.3		—		—		0.2		3.5
Payments or credits attributed to sales in:
Current period		(5.3)		(5.0)		—		(1.1)		(11.4)
Prior periods		(36.8)		(2.7)		(0.5)		(2.9)		(42.9)
Balance, June 30, 2019	$	60.5	$	3.4	$	20.6	$	3.3	$	87.8

	Three Months Ended June 30, 2018
	Rebates and		Prompt Pay		Allowance for		Distributor
	Chargebacks		Discounts		Sales Returns		Fees		Total
Balance, April 1, 2018	$	83.4	$	4.0	$	7.3	$	5.8	$	100.5
Provisions attributed to sales in:
Current period		67.0		10.8		0.4		5.2		83.4
Prior periods		2.5		—		—		0.1		2.6
Payments or credits attributed to sales in:
Current period		(11.7)		(6.0)		—		(1.1)		(18.8)
Prior periods		(56.0)		(3.7)		(0.8)		(4.0)		(64.5)
Balance, June 30, 2018	$	85.2	$	5.1	$	6.9	$	6.0	$	103.2

	Six Months Ended June 30, 2019
	Rebates and		Prompt Pay		Allowance for		Distributor
	Chargebacks		Discounts		Sales Returns		Fees		Total
Balance, January 1, 2019	$	54.7	$	3.2	$	22.4	$	4.8	$	85.1
Provisions attributed to sales in:
Current period		91.0		15.7		(0.8)		8.2		114.1
Prior periods		1.9		—		—		—		1.9
Payments or credits attributed to sales in:
Current period		(42.6)		(12.5)		—		(5.0)		(60.1)
Prior periods		(44.5)		(3.0)		(1.0)		(4.7)		(53.2)
Balance, June 30, 2019	$	60.5	$	3.4	$	20.6	$	3.3	$	87.8

	Six Months Ended June 30, 2018
	Rebates and		Prompt Pay		Allowance for		Distributor
	Chargebacks		Discounts		Sales Returns		Fees		Total
Balance, January 1, 2018	$	74.0	$	4.7	$	7.2	$	3.4	$	89.3
Provisions attributed to sales in:
Current period		129.3		19.7		1.1		10.0		160.1
Prior periods		3.3		—		—		—		3.3
Payments or credits attributed to sales in:
Current period		(69.1)		(14.7)		—		(4.1)		(87.9)
Prior periods		(52.3)		(4.6)		(1.4)		(3.3)		(61.6)
Balance, June 30, 2018	$	85.2	$	5.1	$	6.9	$	6.0	$	103.2

35

Cost of Product Sales

The table below summarizes cost of product sales by major category (dollars in millions):

	Three Months Ended						Six Months Ended
	June 30,				Percentage		June 30,				Percentage
	2019		2018		Change		2019		2018		Change
Category:
Cost of product sales	$	28.9	$	61.1	(53)	%	$	56.9	$	120.2	(53)	%
Share-based compensation (benefit) expense (1)		(2.2)		0.6	(467)	%		(1.1)		(5.3)	79	%
Total cost of product sales	$	26.7	$	61.7	(57)	%	$	55.8	$	114.9	(51)	%

(1) Refer to Share-Based Compensation section below for discussion.

Cost of product sales, excluding share-based compensation. The decrease in cost of product sales of $32.2 million for the three months ended June 30, 2019, as compared to the same period in 2018, was primarily attributable to a $34.4 million decrease in royalty expense for Adcirca because fewer bottles were sold due to the launch of generic versions of Adcirca beginning in August 2018.

The decrease in cost of product sales of $63.3 million for the six months ended June 30, 2019, as compared to the same period in 2018, was primarily attributable to a $67.2 million decrease in the royalty expense for Adcirca for the reason noted above.

Research and Development

The table below summarizes research and development expense by major category (dollars in millions):

	Three Months Ended						Six Months Ended
	June 30,				Percentage		June 30,				Percentage
	2019		2018		Change		2019		2018		Change
Category:
Research and development projects	$	95.8	$	79.1	21	%	$	989.6	$	137.3	621	%
Share-based compensation (benefit) expense (1)		(9.9)		3.2	(409)	%		(6.3)		(19.3)	67	%
Total research and development expense	$	85.9	$	82.3	4	%	$	983.3	$	118.0	733	%

(1) Refer to Share-Based Compensation section below for discussion.

Research and development, excluding share-based compensation. The increase in research and development expense of $16.7 million for the three months ended June 30, 2019, as compared to the same period in 2018, was driven by continued investment in our product pipeline. Research and development expense for the treatment of cardiopulmonary diseases increased by $19.0 million for the three months ended June 30, 2019, as compared to the same period in 2018, due to: (1) $11.7 million of expenditures associated with the phase III ADVANCE studies of ralinepag during the three months ended June 30, 2019; (2) increased spending of $2.2 million on the development of drug delivery devices; and (3) an $8.8 million in-process research and development (IPR&D) impairment charge related to the termination of a license agreement during the three months ended June 30, 2019. The increase in total research and development expense was partially offset by a $5.4 million decrease in expense for cancer-related projects driven by the decrease in spending on the DISTINCT study, which is now fully-enrolled.

The increase in research and development expense of $852.3 million for the six months ended June 30, 2019, as compared to the same period in 2018, was driven by continued investment in our product pipeline. Research and development expense for the treatment of cardiopulmonary diseases increased by $848.2 million for the six months

36

ended June 30, 2019, as compared to the same period in 2018, due to: (1) an $800.0 million upfront payment to Arena under our license agreement related to ralinepag, and $20.6 million of expenditures associated with the phase III ADVANCE studies of ralinepag during the six months ended June 30, 2019; (2) a $12.5 million payment under our license and collaboration agreement with MannKind; (3) increased spending of $7.8 million on the development of drug delivery devices; and (4) an $8.8 million IPR&D impairment charge related to the termination of a license agreement during the six months ended June 30, 2019.

Selling, General and Administrative

The table below summarizes selling, general and administrative expense by major category (dollars in millions):

	Three Months Ended						Six Months Ended
	June 30,				Percentage		June 30,				Percentage
	2019		2018		Change		2019		2018		Change
Category:
General and administrative	$	51.0	$	50.8	—	%	$	104.9	$	103.7	1	%
Sales and marketing		13.7		15.6	(12)	%		27.3		28.8	(5)	%
Share-based compensation (benefit) expense (1)		(25.1)		16.7	(250)	%		(0.6)		(56.0)	99	%
Total selling, general and administrative expense	$	39.6	$	83.1	(52)	%	$	131.6	$	76.5	72	%

(1) Refer to Share-Based Compensation below for discussion.

Share-Based Compensation

The table below summarizes share-based compensation (benefit) expense by major category (dollars in millions):

	Three Months Ended						Six Months Ended
	June 30,				Percentage		June 30,				Percentage
	2019		2018		Change		2019		2018		Change
Category:
Stock options	$	18.1	$	15.5	17	%	$	33.8	$	28.2	20	%
Restricted stock units		3.8		2.0	90	%		6.0		2.9	107	%
STAP awards		(59.4)		2.7	NM	(1)​		(48.4)		(112.3)	57	%
Employee stock purchase plan		0.3		0.3	—	%		0.6		0.6	—	%
Total share-based compensation (benefit) expense	$	(37.2)	$	20.5	(281)	%	$	(8.0)	$	(80.6)	90	%

(1) Calculation is not meaningful.

The table below summarizes share-based compensation (benefit) expense by line item on our consolidated statements of operations (dollars in millions):

	Three Months Ended						Six Months Ended
	June 30,				Percentage		June 30,				Percentage
	2019		2018		Change		2019		2018		Change
Cost of product sales	$	(2.2)	$	0.6	(467)	%	$	(1.1)	$	(5.3)	79	%
Research and development		(9.9)		3.2	(409)	%		(6.3)		(19.3)	67	%
Selling, general and administrative		(25.1)		16.7	(250)	%		(0.6)		(56.0)	99	%
Total share-based compensation (benefit) expense	$	(37.2)	$	20.5	(281)	%	$	(8.0)	$	(80.6)	90	%

The increase in share-based compensation benefit of $57.7 million for the three months ended June 30, 2019, as compared to the same period in 2018, was primarily due to a $62.1 million increase in STAP benefit driven by a 33

37

percent decrease in our stock price for the three months ended June 30, 2019, as compared to a 1 percent increase in our stock price for the same period in 2018; partially offset by: (1) a $2.6 million increase in stock option expense due to additional awards granted and outstanding in 2019; and (2) a $1.8 million increase in restricted stock unit expense due to additional awards granted and outstanding in 2019. For more information, refer to Note 8—Share-Based Compensation to our consolidated financial statements.

The decrease in share-based compensation benefit of $72.6 million for the six months ended June 30, 2019, as compared to the same period in 2018, was primarily due to: (1) a $63.9 million decrease in STAP benefit driven by a large decrease in our stock price during 2018 and fewer awards outstanding in 2019; (2) a $5.6 million increase in stock option expense due to additional awards granted and outstanding in 2019; and (3) a $3.1 million increase in restricted stock unit expense due to additional awards granted and outstanding in 2019.

Other Income (Expense), Net

The increase in other income (expense), net of $33.7 million and $40.1 million for the three and six months ended June 30, 2019, as compared to the same periods in 2018, was primarily due to the recognition of a net unrealized gain in publicly-traded equity securities, including common stock we own in TransMedics, Inc., which completed its initial public offering during the quarter ended June 30, 2019. During the three and six months ended June 30, 2019, we recognized $29.5 million and $32.5 million of net unrealized gains on these securities, based upon changes in their market prices. Refer to Note 3—Investments to our consolidated financial statements.

Income Tax Expense (Benefit)

The income tax benefit was $110.7 million for the six months ended June 30, 2019, as compared to income tax expense of $109.5 million for the same period in 2018. The effective income tax rate (ETR) for the six months ended June 30, 2019 and 2018 was 28 percent and 21 percent, respectively. We recognized a loss before income taxes, and a corresponding income tax benefit, for the six months ended June 30, 2019, as a result of the one-time $800.0 million payment to Arena in January 2019. As a result of this loss, our anticipated tax credits and foreign sales deduction (“FDII”), partially offset by non-deductible compensation expense, increased our tax benefit and resulting ETR for the six months ended June 30, 2019, compared to the six months ended June 30, 2018.

Financial Condition, Liquidity and Capital Resources

We have funded our operations principally through sales of our commercial products and, from time-to-time, third-party financing arrangements. We believe that our current liquidity is sufficient to fund ongoing operations and future business plans as we expect long-term revenues from our commercial products, excluding Adcirca, to continue to grow due to our work on development of new products and label expansions for existing products. Furthermore, our customer base remains stable and we believe it presents minimal credit risk. However, any projections of future cash flows are inherently subject to uncertainty and we may seek other forms of financing. In June 2018, we entered into a credit agreement (the Credit Agreement), which provides an unsecured, revolving line of credit of up to $1.5 billion, with a current maturity date of June 2024, of which $1,050.0 million was outstanding as of June 30, 2019.

Cash and Cash Equivalents and Marketable Investments

Cash and cash equivalents and marketable investments comprise the following (dollars in millions):

	June 30,		December 31,		Percentage
	2019		2018		Change
Cash and cash equivalents	$	881.3	$	669.2	32	%
Marketable investments—current		904.9		746.7	21	%
Marketable investments—non-current		420.7		442.6	(5)	%
Total cash and cash equivalents and marketable investments	$	2,206.9	$	1,858.5	19	%

38

Cash Flows

Cash flows comprise the following (dollars in millions):

	Six  Months Ended June 30,				Percentage
	2019		2018		Change
Net cash (used in) provided by operating activities	$	(494.5)	$	455.5	(209)	%
Net cash used in investing activities	$	(102.9)	$	(418.5)	75	%
Net cash provided by financing activities	$	809.5	$	3.8	NM	(1)​

(1) Calculation is not meaningful.

Operating Activities

Our operating assets and liabilities consist primarily of accounts receivable, inventories, accounts payable, accrued expenses, liabilities for our STAP awards and tax-related payables and receivables.

The increase of $950.0 million in net cash used in operating activities for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was primarily due to: (1) an $800.0 million upfront payment related to our license agreement with Arena; (2) a $42.9 million decrease in cash flows due to a decrease in accounts payable and accrued expenses; (3) a $31.2 million increase in cash paid for income taxes; and (4) a $16.1 million increase in cash paid for interest. The increase in cash used in operating activities was also driven by a decrease in cash receipts due to a decrease in revenue of $97.5 million. The increase in cash used was partially offset by a decrease of $51.3 million in cash paid to settle STAP awards during the six months ended June 30, 2019, as compared to the same period in 2018.

Investing Activities

The decrease of $315.6 million in net cash used in investing activities for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, was primarily due to: (1) a $271.9 million decrease in cash used for net purchases of marketable investments; and (2) a $45.7 million decrease in cash paid to purchase property, plant and equipment.

Financing Activities

The increase of $805.7 million in net cash provided by financing activities for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was due to $800.0 million that we borrowed under our Credit Agreement, which was used to fund an $800.0 million upfront payment under our license agreement with Arena.

Summary of Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires our management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We continually evaluate our estimates and judgments to determine whether they are reasonable, relevant and appropriate. These assumptions are frequently developed from historical data or experience, currently available information and anticipated developments. By their nature, our estimates are subject to an inherent degree of uncertainty; consequently, actual results may differ. We discuss critical accounting policies and estimates that involve a higher degree of judgment and complexity in Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

39

Recently Issued Accounting Standards

See Note 2—Basis of Presentation, to our consolidated financial statements for information on our adoption during the current period and anticipated adoption of recently issued accounting standards.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk has not materially changed since December 31, 2018.

Item 4.  CONTROLS AND PROCEDURES

Based on their evaluation, as of June 30, 2019, our Chairman and Chief Executive Officer and Chief Financial Officer and Treasurer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, summarized, processed and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chairman and Chief Executive Officer and Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure. There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.

40

Part II.  OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

Please refer to Note 12—Litigation to our consolidated financial statements contained elsewhere in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Item 1A.  RISK FACTORS

Forward-Looking Statements

This Quarterly Report (this Report) on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 (the Exchange Act) and the Private Securities Litigation Reform Act of 1995. These statements, which are based on our beliefs and expectations as to future outcomes, include, among others, statements relating to the following:

● Expectations of revenues, expenses, profitability, and cash flows, including our expectation that revenue growth will recommence over the long term;

● The sufficiency of current and future working capital to support operations;

● Our ability to obtain financing on terms favorable to us or at all;

● The maintenance of domestic and international regulatory approvals;

● Our ability to maintain attractive pricing for our products, in light of increasing competition, including from generic entries and pressure from government and other payers to decrease the costs associated with healthcare;

● The expected volume and timing of sales of Remodulin, Tyvaso, Orenitram and Unituxin, as well as potential future commercial products, including the anticipated effect of various research and development efforts (including the FREEDOM-EV study) on sales of these products;

● The timing and outcome of clinical studies, other research and development efforts, and related regulatory filings and approvals, including (among others) those described in this Report relating to our pending FDA label supplement for Orenitram to reflect the FREEDOM-EV study results, our collaboration with DEKA to develop the RemUnity system, our efforts to obtain FDA approval of Trevyent, our DISTINCT study of dinutuximab in patients with small cell lung cancer, and our plan to develop a pain-free subcutaneous formulation of treprostinil called RemoPro;

● The timing and success of our anticipated launch of the Implantable System for Remodulin;

● The outcome of pending and potential future legal and regulatory actions by the FDA and other regulatory and government enforcement agencies, and the anticipated duration of regulatory exclusivity for our products;

● The timing and outcome of our ongoing litigation matters, including the lawsuit filed against us by Sandoz and RareGen, LLC;

● The impact of competing therapies on sales of our commercial products and the amount of inventory of our products that will expire unsold, including the impact of generic versions of Adcirca and Remodulin; established therapies such as Uptravi; and newly-developed therapies;

41

● The expectation that we will be able to manufacture sufficient quantities and maintain adequate inventories of our commercial products, through both our in-house manufacturing capabilities and third-party manufacturing sites, and our ability to obtain and maintain related approvals by the FDA and other regulatory agencies;

● The adequacy of our intellectual property protection and the validity and expiration dates of the patents we own or license, as well as the regulatory exclusivity periods for our products;

● The expected eligibility of patents for inclusion in the Orange Book;

● Any statements that include the words “believe,” “seek,” “expect,” “anticipate,” “forecast,” “project,” “intend,” “estimate,” “should,” “could,” “may,” “will,” “plan,” or similar expressions; and

● Other statements contained or incorporated by reference in this Report that are not historical facts.

These statements are subject to risks and uncertainties and our actual results may differ materially from anticipated results. Factors that may cause such differences include, but are not limited to, those discussed below. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.

Risks Related to Our Business

We rely heavily on sales of Remodulin, Tyvaso, and Orenitram to generate revenues and support our operations.

Sales of our current treprostinil-based PAH therapies (Remodulin, Tyvaso, and Orenitram) comprise the vast majority of our revenues. Decreased sales of any one of these products could have a material adverse impact on our operations. A wide variety of events, such as withdrawal of regulatory approvals or substantial changes in prescribing practices or dosing patterns, many of which are described in other risk factors below, could cause sales of these products to decline, or to grow more slowly than expected. Generic competition due to the current commercial availability of generic versions of Remodulin, which launched in the United States in March 2019 and in certain countries in Europe in 2019, and which we expect will be launched in certain other countries in Europe during 2019, as well as generic versions of Tyvaso and Orenitram, which could be launched in the United States by Watson and Actavis as early as January 2026 and June 2027, respectively (or earlier under certain circumstances), may decrease our revenues. In addition, the inability of any third party that manufactures, markets, distributes or sells any of our commercial products to perform these functions satisfactorily, or our inability to manage our internal manufacturing processes, could result in an inability to meet patient demand and decrease sales. Finally, our strategy involves the development and successful launch of next-generation delivery systems (such as the Implantable System for Remodulin, RemUnity and Trevyent) and expanded indications for our existing treprostinil-based products. RemUnity and Trevyent may not be approved by the FDA, and the demand for our products following launch of the Implantable System for Remodulin, RemUnity or Trevyent may not meet our expectations. Without this increased demand, the revenue opportunity for our treprostinil products could be significantly lower than we expect.

If our products fail in clinical trials, we will be unable to obtain or maintain FDA and international regulatory approvals and will be unable to sell those products.

To obtain regulatory approvals from the FDA and international regulatory agencies to sell new products, or to expand the product labeling for our existing products to new indications, we must conduct clinical trials demonstrating that our products are safe and effective. These regulators have substantial discretion over the approval process for our products, and may not agree that we have demonstrated the requisite level of product safety and efficacy to grant approval.

The FDA and other regulatory agencies may require us to amend ongoing trials or perform additional trials beyond those we planned, which could result in significant delays and additional costs or may be unsuccessful. For example, approval of an NDA or a BLA could be delayed if the FDA determines that it cannot review or approve the application

42

as submitted. In such a case, the FDA may require substantial additional studies, testing or information in order to complete its review of the application. If our clinical trials are not successful, or we fail to address any identified deficiencies adequately, we will not obtain required approvals to market the new product or new indication.

We cannot predict with certainty the length of time it will take to complete necessary clinical trials or obtain regulatory approvals related to our current or future products. The length of time we need to complete clinical trials and obtain regulatory approvals varies by product, indication and country.

Our clinical trials may be discontinued, delayed, canceled or disqualified for various reasons, including:

● The drug is ineffective, or physicians and/or patients believe that the drug is ineffective, or that other therapies are more effective or convenient;

● We fail to reach agreement with the applicable regulatory agencies regarding the scope or design of our clinical trials;

● Patients do not enroll, patients drop out, or we do not observe worsening events, at the rate we expect;

● Ongoing or new clinical trials conducted by drug companies in addition to our own clinical trials reduce the availability of patients for our trials;

● Our clinical trial sites, contracted clinical trial administrators or clinical studies conducted entirely by third parties do not adhere to trial protocols and required quality controls under good clinical practices (GCP) regulations and similar regulations outside the United States;

● Patients experience severe side effects during treatment or die during our trials because of adverse events related to the trial drug, advanced disease, or other medical complications; and

● The results of our clinical trials conducted in a particular country are not acceptable to regulators in other countries.

We may not compete successfully with established and newly developed drugs or products, or the companies that develop and market them.

We compete with well-established drug companies for market share, as well as, among other things, funding, licenses, expertise, personnel, clinical trial patients and investigators, consultants and third-party collaborators. Most of these competitors have substantially greater financial, marketing, manufacturing, sales, distribution and technical resources, and a larger number of approved products, than we do. These competitors also possess greater experience in areas critical to success such as research and development, clinical trials, sales and marketing and regulatory matters.

Numerous treatments currently compete with our commercial therapies, and others are under development. For example, for the treatment of PAH, we compete with Adempas^®, Flolan^®, Ilomedin^®, Letairis^®, Opsumit^®, Revatio^®, Tracleer^®, Uptravi^®, Veletri^®, Volibris^®, Ventavis^®, generic tadalafil, generic treprostinil injection, generic epoprostenol and generic sildenafil citrate. Our competitors may introduce new products that render all or some of our technologies and products obsolete or noncompetitive. For example, Uptravi was approved by the FDA in December 2015 for the treatment of PAH and competes directly with Orenitram. In addition, we may not compete successfully against generic competitors. Sales of a generic version of Adcirca launched in August 2018 and have already had a material adverse impact on demand for Adcirca. Generic versions of Remodulin were launched in the United States in March 2019 and in certain countries in Europe in 2019 and may also be launched in certain additional countries in Europe in 2019, as described elsewhere in this Report. These launches could materially impact our revenues. Furthermore, we have limited visibility into the level of Adcirca inventory held by wholesale distributors and pharmacies, and rapid generic penetration could cause substantial amounts of Adcirca to expire unsold, causing us to incur increased liabilities for

43

product returns. Any change in our estimated allowance for returns could result in a material impact on our revenues during the quarter in which the change is made.

Legislation such as the 21^st Century Cures Act, which was enacted in December 2016 and designed to encourage innovation and bring pharmaceutical products to market more quickly, may enable our competitors to bring competing products to market on an expedited basis. In addition, alternative approaches to treating chronic diseases, such as gene therapy, cell therapy or transplantation technologies, may make our products obsolete or noncompetitive. Patients and doctors may discontinue use of our products if they perceive competing products as safer, more effective, less invasive, more convenient and/or less expensive than ours. Alternatively, doctors may reduce the prescribed doses of our products if they prescribe them in combination with competing products. In addition, many competing therapies are less invasive or more convenient than Tyvaso and Remodulin, and the use of these products may delay or prevent initiation of Tyvaso or Remodulin therapy. Any of these circumstances could negatively impact our operating results.

Sales of our products are subject to reimbursement from government agencies and other third parties. Pharmaceutical pricing and reimbursement pressures may negatively impact our sales.

The commercial success of our products depends, in part, on the availability of reimbursements by governmental payers such as Medicare and Medicaid, and private insurance companies. A significant portion of our product sales in the United States are reimbursed under the Medicare and Medicaid programs. A reduction in the availability or extent of reimbursement from domestic or foreign government health care programs could have a material adverse effect on our business and results of our operations. In the United States, the European Union and other potentially significant markets for our products, government payers and/or third-party payers are increasingly attempting to limit or regulate the price of medicinal products and frequently challenge the pricing of new and expensive drugs. Financial pressures may cause United States government payers to seek cost containment more aggressively by mandating discounts or rebates on our products, limiting future price increases, capping reimbursement rates for pharmaceuticals to rates paid internationally, requiring the automatic substitution of generic products, demanding more rigorous requirements for initial reimbursement approvals for new products or other similar measures. For example, there have been proposals to reduce reimbursement rates based on international prices, increase pricing transparency, improve the uptake of generic products, and encourage lower patient out-of-pocket costs.

In many markets outside the United States, governments control the prices of prescription pharmaceuticals through the implementation of reference pricing, price cuts, rebates, revenue-related taxes and profit control. The Centers for Medicare and Medicaid Services (CMS) released an advanced notice of proposed rulemaking in October 2018 that discussed the development of an international pricing index model that would cap reimbursement for many drugs paid for under the Medicare Part B program (which applies to Remodulin, Tyvaso and Unituxin) to those paid in 16 other industrialized countries.

Our prostacyclin analogue products (Remodulin, Tyvaso and Orenitram) and our oncology product (Unituxin) are expensive therapies. Consequently, it may be difficult for our specialty pharmacy distributors to obtain adequate reimbursement for our products from commercial and government payers to motivate such distributors to support our products. Alternatively, third-party payers may reduce the amount of reimbursement for our products based on changes in pricing of other therapies for the same disease or the development of new payment methodologies to cover and reimburse for treatment, such as the use of cost-effectiveness research or value-based payment contracts. In addition, third-party payers often encourage the use of less-expensive generic alternative therapies , which has impacted our Adcirca revenues and which may eventually impact our Remodulin revenues. If commercial and/or government payers do not approve our products for reimbursement or limit payment rates, patients and physicians could choose competing products that are approved for reimbursement or provide lower out-of-pocket costs. For example, starting January 1, 2019, Medicare Advantage Plans are now allowed to use step therapy for Part B drugs, which could limit patient access by requiring patients to try other medicines, including generic products, before using certain other therapies.

44

Patient assistance programs for pharmaceutical products have come under increasing scrutiny by governments, legislative bodies and enforcement agencies. These activities may result in actions that have the effect of reducing prices or demand for our products, harming our business or reputation, or subjecting us to fines or penalties.

Recently, there has been enhanced scrutiny of company-sponsored patient assistance programs, including insurance premium and co-pay assistance programs and manufacturers’ donations to third-party charities that provide such assistance. If we, our vendors or donation recipients, are deemed to have failed to comply with relevant laws, regulations or government guidance in any of these areas, we could be subject to criminal and civil sanctions, including significant fines, civil monetary penalties and exclusion from participation in government healthcare programs, including Medicare and Medicaid, and burdensome remediation measures. Actions could also be brought against executives overseeing our business or other employees.

It is possible that any actions taken by the Department of Justice (DOJ) as a result of this industry-wide inquiry could reduce demand for our products and/or reduce coverage of our products, including by federal health care programs such as Medicare and Medicaid and state health care programs. If any or all of these events occur, our business, prospects and stock price could be materially and adversely affected.

Additionally, payers and pharmacy benefit managers (PBMs) have developed several different mechanisms to limit the benefits of co-pay assistance for commercially insured programs through co-pay accumulator programs. Under these programs, a patient using co-pay assistance is not able to count the manufacturer’s co-payment contribution toward their annual out-of-pocket payment maximum. Therefore, patients on expensive therapies utilizing co-pay assistance to help cover the costs of their expensive medications are penalized financially for the use of these programs. Some states have passed legislation to limit the use of co-pay accumulator programs, while the Trump administration and other states have indicated that the use of these programs should be allowed to limit cost of care and encourage patients to use lower cost generics. Growing use of tactics like these could affect patient access to necessary medications and limit product utilization.

Our manufacturing strategy exposes us to significant risks.

We must be able to manufacture sufficient quantities of our commercial products to satisfy growing demand. We manufacture Remodulin, Orenitram, Tyvaso and Unituxin, including the active ingredient in each of these products, at our own facilities and rely on third parties for additional manufacturing capacity for Remodulin, Tyvaso, and finished Unituxin drug product. We rely on Minnetronix, Inc. as the sole manufacturer of the Tyvaso Inhalation System, and on Lilly as the sole manufacturer of Adcirca. If and when we launch the Implantable System for Remodulin, we will rely on Medtronic as the sole manufacturer of the SynchroMed II infusion system and related components used in the Implantable System for Remodulin. We rely on MannKind to perform manufacturing activities related to Treprostinil Technosphere, and we rely on a limited number of sole-source suppliers for manufacturing activities related to ralinepag and Trevyent.

If any of our internal or third-party manufacturing and supply arrangements are interrupted for compliance issues or other reasons, we may not have sufficient inventory to meet future demand. In addition, any change in suppliers and/or service providers could interrupt the manufacturing of our commercial products and impede the progress of our commercial launch plans and clinical trials.

In addition, our internal manufacturing process subjects us to risks as we engage in increasingly complex manufacturing processes. For example, Remodulin, Tyvaso and Unituxin are sterile solutions that must be prepared under highly-controlled environmental conditions, which are challenging to maintain on a commercial scale. In addition, Unituxin is a monoclonal antibody. As with all biologic products, monoclonal antibodies are inherently more difficult to manufacture than our treprostinil-based products and involve increased risk of viral and other contaminants. We manufacture our entire supply of Orenitram and dinutuximab, the active ingredient in Unituxin, without an FDA-approved back-up manufacturing site. We are constructing a new facility to expand our manufacturing capacity for dinutuximab, but we presently have no plans to engage a third-party contract manufacturer to manufacture Orenitram or dinutuximab. Our long-term organ manufacturing programs will involve exceptionally complicated manufacturing

45

processes, many of which have never been attempted on a clinical or commercial scale. It will take substantial time and resources to develop and implement such manufacturing processes, or we may never be able to do so successfully.

Additional risks we face with our manufacturing strategy include the following:

● We and our third-party manufacturers are subject to the FDA’s current good manufacturing practices regulations, current good tissue practices, and similar international regulatory standards. Our ability to exercise control over regulatory compliance by our third-party manufacturers is limited;

● We may experience difficulty designing and implementing processes and procedures to ensure compliance with applicable regulations as we develop manufacturing operations for new products;

● Natural and man-made disasters (such as fires, contamination, power loss, hurricanes, earthquakes, flooding, terrorist attacks and acts of war) impacting our internal and third-party manufacturing sites could cause a supply disruption -- for example, Medtronic manufactures the Implantable System for Remodulin at its facilities in Puerto Rico, which is vulnerable to hurricanes;

● Even if we and our third-party manufacturers comply with applicable drug manufacturing regulations, the sterility and quality of our products could be substandard and such products could not be sold or used or subject to recalls;

● If we had to replace our own manufacturing operations or a third-party manufacturer, the FDA and its international counterparts would require new testing and compliance inspections. Furthermore, a new manufacturer would have to be familiarized with the processes necessary to manufacture and commercially validate our products, as producing our treprostinil-based and biologic products is complex;

● We may be unable to contract with needed manufacturers on satisfactory terms or at all; and

● The supply of materials and components necessary to manufacture and package our products may become scarce or unavailable, which could delay the manufacturing and subsequent sale of such products. Products manufactured with substituted materials or components must be approved by the FDA and applicable international regulatory agencies before they could be sold.

Any of these factors could disrupt sales of our commercial products, delay clinical trials or commercialization of new products, result in product liability claims and product recalls, and entail higher costs. Interruptions in our manufacturing process could be significant given the length of time and complexity involved in obtaining necessary regulatory approvals for alternative arrangements, through either third parties or internal manufacturing processes.

We rely in part on third parties to perform activities that are critical to our business. Our ability to generate commercial sales or conduct clinical trials could suffer if our third-party suppliers and service providers fail to perform.

Third parties assist us in activities critical to our operations, such as: (1) manufacturing our clinical and commercial products; (2) conducting clinical trials, preclinical studies and other research and development activities; (3) obtaining regulatory approvals; (4) conducting pharmacovigilance-related and product complaint activities, including drug safety, reporting adverse events and product complaints; and (5) marketing and distributing our products. For risks related to the involvement of third parties in our manufacturing process, see the risk factor above, entitled Our manufacturing strategy exposes us to significant risks.

We rely on various distributors to market, distribute and sell Remodulin, Tyvaso, Orenitram and Unituxin. From time-to-time, we increase the price of products sold to our U.S.-based and international distributors. Our price increases may not be fully reimbursed by third-party payers. If our distributors do not achieve acceptable profit margins on our products, they may reduce or discontinue the sale of our products. Furthermore, if our distributors devote fewer

46

resources to sell our products or are unsuccessful in their sales efforts, our revenues may decline materially. Outside the United States, we rely substantially on our international distributors to obtain and maintain regulatory approvals for our products and to market and sell our products in compliance with applicable laws and regulations.

We rely on Lilly to manufacture and supply Adcirca for us, and we use Lilly’s pharmaceutical wholesaler network to distribute Adcirca. If Lilly is unable to manufacture or supply Adcirca or its distribution network is disrupted, it could delay, disrupt or prevent us from selling Adcirca. In addition, Lilly has the right to determine the price of Adcirca. Changes in the price of Adcirca set by Lilly could adversely impact demand or reimbursement for Adcirca.

Any change in service providers could interrupt the distribution of our commercial products and our other products and services, and impede the progress of our clinical trials, commercial launch plans and related revenues.

We rely heavily on third-party contract research organizations, contract laboratories, clinical investigative sites and other third-parties to conduct our clinical trials, preclinical studies and other research and development activities. In particular, our research and development efforts into new indications for Unituxin are substantially outsourced to a contract research organization called Precision Oncology, LLC. In addition, the success of certain products we are developing will depend on clinical trials sponsored by third parties. Failure by any third party to conduct or assist us in conducting clinical trials in accordance with study protocols, quality controls and GCP, or other applicable U.S. or international requirements or to submit associated regulatory filings, could limit or prevent our ability to rely on results of those trials in seeking regulatory approvals.

We rely on third parties to supply pumps and other supplies necessary to deliver Remodulin. There are a limited number of pumps available in the market, and the discontinuation of any particular pump could have a material, adverse impact on our Remodulin revenues if a viable supply of an alternate pump is not available.

We rely heavily on Medtronic for the success of our program to develop an implantable pump to deliver intravenous Remodulin (the Implantable System for Remodulin). In particular, Medtronic is entirely responsible for regulatory approvals and all manufacturing and quality systems related to its infusion pump and related components. This includes satisfying FDA-imposed PMA conditions prior to launching the Implantable System for Remodulin. Medtronic entered into a consent decree related to the SynchroMed II implantable infusion pump systems. Medtronic’s failure to comply with the ongoing obligations under the consent decree could adversely impact Medtronic’s ability to manufacture and supply the Implantable System for Remodulin. In the event Medtronic is unwilling or unable to supply the system for any reason, our ability to meet patient demand and generate additional revenues will be materially adversely impacted; any delays in supply could also adversely impact our ability to meet patient demand and generate revenues.

We rely heavily on MannKind for various manufacturing activities related to Treprostinil Technosphere. MannKind has announced that its currently available cash and financing sources are not sufficient to continue to meet its current and anticipated cash requirements, raising substantial doubt about its ability to continue as a going concern. If MannKind is unable to supply us with devices and other components necessary to develop and manufacture Treprostinil Technosphere, the timing and success of this program could be materially adversely impacted.

Finally, we rely heavily on DEKA for the development of RemUnity, our pre-filled, semi-disposable system for subcutaneous treprostinil.

Our operations must comply with extensive laws and regulations in the United States and other countries, including FDA regulations. Failure to obtain approvals on a timely basis or to achieve continued compliance with these requirements could delay, disrupt or prevent the commercialization of our products.

The products we develop must be approved for marketing and sale by regulatory agencies. Our research and development efforts must comply with extensive regulations, including those promulgated by the FDA and the U.S. Department of Agriculture. The process of obtaining and maintaining regulatory approvals for new drugs is lengthy, expensive and uncertain. The regulatory approval process is particularly uncertain for our transplantation programs, which include the development of xenotransplantation, regenerative medicine, biomechanical lungs and cell-based products. Once approved, the manufacture, distribution, advertising and marketing of our products are subject to

47

extensive regulation, including product labeling, strict pharmacovigilance and adverse event and medical device reporting, complaint processing, storage, distribution and record-keeping requirements. Our product candidates may fail to receive regulatory approval on a timely basis, or at all. If granted, product approvals can be conditioned on the completion of post-marketing clinical studies, accompanied by significant restrictions on the use or marketing of a given product and withdrawn for failure to comply with regulatory requirements, such as post-marketing requirements and post-marketing commitments, or upon the occurrence of adverse events subsequent to commercial introduction. If data from post-marketing studies suggest that an approved product presents an unacceptable safety risk, regulatory authorities could withdraw the product’s approval, suspend production or place other marketing restrictions on that product.

In December 2017, we entered into a Corporate Integrity Agreement (the CIA) with the Office of Inspector General of the Department of Health and Human Services (OIG), which requires us to maintain our corporate compliance program and to undertake a set of defined corporate integrity obligations for a period of five years from the date the agreement was signed. We may be required to incur significant future costs to comply with the CIA. The CIA was entered into in connection with a civil Settlement Agreement with the DOJ and the OIG. The Settlement Agreement relates to a May 2016 subpoena from the DOJ requesting documents regarding our support of 501(c)(3) organizations that provide financial assistance to patients. Other companies received similar inquiries as part of a DOJ investigation regarding whether that support may violate the Federal Anti-Kickback Statute and the Federal False Claims Act.

If we fail to comply with applicable regulatory requirements or the CIA, we could be subject to penalties including fines, suspension of regulatory approvals that cause us to suspend production, distribution or marketing activities, product recalls, seizure of our products and/or criminal prosecution. If regulatory sanctions are applied or regulatory approval is delayed or withdrawn, our operating results and the value of our company may be adversely affected. In addition, our reputation could be harmed as a result of any such regulatory restrictions or actions, and patients and physicians may avoid the use of our products even after we have resolved the issues that led to such regulatory action.

Regulatory approval for our currently marketed products is limited by the FDA and other regulators to those specific indications and conditions for which clinical safety and efficacy have been demonstrated.

Any regulatory approval of our products is limited to specific diseases and indications for which our products have been deemed safe and effective by the FDA. FDA approval is also required for new formulations and new indications for an approved product. If we are not able to obtain FDA approval for any desired future indications for our products, our ability to effectively market and sell our products may be reduced.

While physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those approved by regulatory authorities (called “off-label” uses), our ability to promote our products is limited to those indications that are specifically approved by the FDA. If our promotional activities fail to comply with regulations or guidelines related to off-label promotion, we may be subject to warnings from, or enforcement action by, these authorities. In addition, failure to follow FDA rules and guidelines related to promotion and advertising can result in the FDA’s refusal to approve a product, suspension or withdrawal of an approved product from the market, product recalls, fines, disgorgement of money, operating restrictions, civil lawsuits, injunctions or criminal prosecution.

We must comply with various laws in jurisdictions around the world that restrict certain marketing practices in the pharmaceutical and medical device industries. Failure to comply with such laws could result in penalties and have a material adverse effect on our business, financial condition and results of operations.

Our business activities may be subject to challenge under laws in jurisdictions around the world restricting particular marketing practices such as anti-kickback and false claim statutes, the Foreign Corrupt Practices Act and the United Kingdom Bribery Act. Any penalties imposed upon us for failure to comply could have a material adverse effect on our business and financial condition.

In the United States, the Federal Anti-Kickback Statute prohibits, among other activities, knowingly and willfully offering, paying, soliciting, or receiving compensation to induce, or in return for, the purchase, lease, order or arranging the purchase, lease or order of any health care product or service reimbursable under any federally financed health-care program. This statute has been interpreted broadly to apply to arrangements between pharmaceutical manufacturers and

48

prescribers, purchasers, formulary managers, patients, and others. The exemptions and safe harbors under this statute may be narrow, and practices that involve compensation may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices do not always qualify for safe harbor protection.

The Federal False Claims Act, as amended by the Patient Protection and Affordable Care Act of 2010 (PPACA), prohibits any person from presenting or causing to be presented a false or fraudulent claim or making or causing a false statement material to a false or fraudulent claim. Several pharmaceutical and health care companies have been investigated under this law for allegedly providing free product to customers with the expectation that the customers would bill federal health care programs for the free product. Other companies have been prosecuted for causing false claims to be submitted because of these companies’ marketing of a product for unapproved and non-reimbursable uses. Potential liability under the Federal False Claims Act includes mandatory treble damages and significant per-claim penalties. The majority of states also have statutes similar to the Federal Anti-Kickback Statute and the Federal False Claims Act. Sanctions under these federal and state laws may include treble civil monetary penalties, exclusion of a manufacturer’s product from reimbursement under state government programs, debarment, criminal fines, and imprisonment.

Any investigation, inquiry or other legal proceeding under these laws and related to our operations may adversely affect our business, results of operations or reputation.

The PPACA also imposed reporting requirements for pharmaceutical, biologic and device manufacturers regarding payments or other transfers of value made to physicians and teaching hospitals, including investment interests in such manufacturers held by physicians and their immediate family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties, which may increase significantly for “knowing failures.” Compliance with these and similar laws on a state-by-state basis is difficult and time consuming.

Government healthcare reform could adversely affect our revenue, costs and results of operations.

Our industry is highly regulated and changes in law may adversely impact our business, operations or financial results. The PPACA is a broad measure intended to expand health care coverage within the United States, primarily through the imposition of health insurance mandates on employers and individuals and expansion of the Medicaid program. The reforms imposed by the law will significantly impact the pharmaceutical industry; however, the full effects of the PPACA will be unknown until all of these provisions are implemented and CMS and other federal and state agencies issue applicable regulations or guidance. Moreover, in the coming years, additional changes could be made to governmental health care programs that could significantly impact the success of our products or product candidates. We may face uncertainties as a result of federal and administrative efforts to repeal, substantially modify or invalidate some or all of the provisions of the PPACA. There is no assurance that the PPACA, as currently enacted or as amended in the future, will not adversely affect our business and financial results, and we cannot predict how future federal or state legislative or administrative changes related to healthcare reform will affect our business. The future stability of the PPACA and the resulting impact on our business is thus uncertain and could be material.

In addition, many states have proposed legislation that seeks to indirectly or directly regulate pharmaceutical drug pricing by requiring biopharmaceutical manufacturers to publicly report proprietary pricing information or to place a maximum price ceiling on pharmaceutical products purchased by state agencies. As additional legislation is passed, we may experience additional pricing and reporting pressures on our products. For example, in October 2017, California’s governor signed a prescription drug price transparency state bill into law, requiring prescription drug manufacturers to provide advance notice and explanation for price increases of certain drugs that exceed a specified threshold. Since then, similar legislation has also been passed in other states. Similar bills have been previously introduced at the federal level, and the Trump administration has focused attention on proposed efforts to curb prescription drug prices. In May 2018, President Trump and the Health and Human Services (HHS) Secretary released the “American Patients First” blueprint, which included measures to increase generic drug and biosimilar competition, the ability of the Medicare program to negotiate drug prices, public transparency regarding drug prices and information available to beneficiaries regarding ways to lower out-of-pocket costs. The Trump administration has begun implementing many of these measures.

49

The potential effect of health insurance market destabilization during ongoing repeal and replace discussions, as well as the impact of potential changes to the way the drugs are reimbursed and how the Medicaid program is financed through executive orders, legislation, and/or regulation, will likely affect patients’ sources of insurance, PBMs, specialty pharmacy providers, and resultant drug coverage. In addition to the Trump administration’s proposals, discussions continue at the federal level regarding policies that would require manufacturers to pay higher rebates in Medicare Part D, give states more flexibility on drugs that are covered under the Medicaid program, permit the re-importation of prescription medications from Canada or other countries and other policy proposals that could impact reimbursement for our products. It is difficult to predict the impact, if any, of any such legislation, executive actions or Medicaid flexibility on the use and reimbursement of our products in the United States, including the potential for the importation of generic versions of our products.

In addition, rebate policies could allow state Medicaid programs to request additional supplemental rebates on our products as a result of the increase in the federal base Medicaid rebate. Private insurers could also use the enactment of any federal policies to exert pricing pressure on our products, and to the extent that private insurers or managed care programs follow Medicaid coverage and payment developments, the adverse effects may be magnified by private insurers adopting lower payment schedules.

Reports of actual or perceived side effects and adverse events associated with our products, such as sepsis, could cause physicians and patients to avoid or discontinue use of our products in favor of alternative treatments.

Reports of side effects and adverse events associated with our products could have a significant adverse impact on the sale of our products. An example of a known risk associated with intravenous Remodulin is sepsis, which is a serious and potentially life-threatening infection of the bloodstream caused by a wide variety of bacteria. Intravenous Remodulin is infused continuously through a catheter placed in a large vein in the patient’s chest, and sepsis is a known risk associated with this type of delivery. In addition, Unituxin is associated with severe side effects, and its label contains a boxed warning related to potential infusion reactions and neurotoxicity. Development of new products, and new formulations and indications for existing products, could result in new side effects and adverse events which may be serious in nature. Concerns about side effects may affect a physician’s decision to prescribe or a patient’s willingness to use our products.

Negative attention from special interest groups may impair our business.

As is common with pharmaceutical and biotechnology companies, our early-stage research and development involves animal testing required by regulatory authorities, which we conduct both directly and through contracts with third parties. Our xenotransplantation and regenerative medicine programs rely heavily on the use of animals to manufacture and test our products. Certain special interest groups categorically object to the use of animals for research purposes. Any negative attention, threats or acts of vandalism directed against our animal research activities in the future could impede the operation of our business.

If any of the license or other agreements under which intellectual property rights are licensed to, or were acquired by us, are breached or terminated, our right to continue to develop, manufacture and sell the products covered by such agreements could be impaired or lost.

Our business depends upon our continuing ability to exploit our intellectual property rights acquired from third parties under product license and purchase agreements. Under each of our purchase agreements, we have rights to certain intellectual property covering a drug or other product or technology. We may be required to license additional intellectual property owned by third parties to continue to develop and commercialize our products.

This dependence on intellectual property developed by others involves the following risks:

● We may be unable to obtain rights to intellectual property that we determine we need for our business at a reasonable cost or at all;

50

● If any of our product licenses or purchase agreements are terminated, we may lose our rights to develop, make and sell the products to which such licenses or agreements relate;

● Our rights to develop and market products to which the intellectual property relates are frequently limited to specific territories and fields of use (such as treatment of particular diseases); and

● If a licensor of intellectual property fails to maintain the intellectual property licensed, we may lose any ability to prevent others from developing or marketing similar products covered by such intellectual property. In addition, we may be forced to incur substantial costs to maintain the intellectual property ourselves or take legal action seeking to force the licensor to do so.

Our intellectual property rights may not effectively deter competitors from developing competing products that, if successful, could have a material adverse effect on our revenues and profits.

The period under which our commercial and developmental therapies are protected by our patent rights is limited. Three of our U.S. patents covering our current methods of synthesizing and producing treprostinil, the active ingredient in Remodulin, Tyvaso and Orenitram, expired in October 2017, and three more will expire in 2028. Our patents related to our individual treprostinil-based products expire at various times between 2018 and 2031. We have entered into settlement agreements with Sandoz and other generic drug companies permitting them to launch generic versions of Remodulin in the United States. Sandoz commenced marketing of its generic product in the United States in March 2019, and we anticipate additional companies may launch their generic versions of Remodulin in the United States as early as September 2019. We also settled patent litigation with Actavis and Watson, and entered into settlement agreements permitting them to launch generic versions of Orenitram and Tyvaso in the United States in June 2027 and January 2026, respectively, although each may be permitted to enter the market earlier under certain circumstances.

A U.S. patent for Adcirca for the treatment of pulmonary hypertension expired in November 2017, and FDA-conferred regulatory exclusivity expired in May 2018, leading to the launch of a generic version of Adcirca in August 2018. We have no issued patents or pending patent applications covering Unituxin. For further details, please see Part I, Item 2.—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Generic Competition.

We continue to conduct research into new methods to synthesize treprostinil and have pending U.S. and international patent applications and patents related to such methods. We also have additional issued and pending patents covering the use of our existing commercial products in new indications and with new devices. However, we cannot be sure that our existing or any new patents will effectively deter or delay competitors’ efforts to bring new products to market, or that additional patent applications will result in new patents. Upon the expiration of any of our patents, competitors may develop generic versions of our products and may market those generic versions at a lower price to compete with our products. Competitors may also seek to design around our patents or exclude patented methods of treatment, such as patent-protected indications, from the label for generic versions of our products in an effort to develop competing products that do not infringe our patents. In addition, patent laws of foreign jurisdictions may not protect our patent rights to the same extent as the patent laws of the United States.

Third parties have challenged, and may in the future challenge, the validity of our patents, through patent litigation and/or initiating proceedings, including re-examinations, IPRs, post-grant reviews and interference proceedings, before the USPTO or other applicable patent filing office, or other means.

Patent litigation can be time consuming, distracting to our operations, costly and may conclude unfavorably for us. In addition, the outcome of patent infringement litigation often is difficult to predict. If we are unsuccessful with respect to any future legal action in the defense of our patents and our patents are invalidated or determined to be unenforceable, our business could be negatively impacted. Even if our patents are determined to be valid or enforceable, it is possible that a competitor could circumvent our patents by effectively designing around the claims of our patents. Accordingly, our patents may not provide us with any competitive advantage.

51

In addition to patent protection, we also rely on trade secrets to protect our proprietary know-how and other technological advances that we do not disclose to the public. We enter into confidentiality agreements with our employees and others to whom we disclose trade secrets and other confidential information. These agreements may not necessarily prevent our trade secrets from being used or disclosed without our authorization and confidentiality agreements may be difficult, time-consuming and expensive to enforce or may not provide an adequate remedy in the event of unauthorized disclosure. In addition, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our business and competitive position could be harmed.

Third parties may allege that our products or services infringe their patents and other intellectual property rights, which could result in the payment of royalties. Payment of royalties would negatively affect our profits; furthermore, if we chose to contest these allegations, we could be subject to costly and time-consuming litigation or could lose the ability to continue to sell the related products.

To the extent third-party patents to which we currently do not hold licenses are necessary for us to manufacture, use or sell our products, we would need to obtain necessary licenses to prevent infringement. In the case of products or services that utilize intellectual property of strategic collaborators or other suppliers, such suppliers may have an obligation to secure the needed license to these patents at their cost. Otherwise, we would be responsible for the cost of these licenses. Royalty payments and other fees under these licenses would erode our profits from the sale of related products and services. Moreover, we may be unable to obtain these licenses on acceptable terms or at all. If we fail to obtain a required license or are unable to alter the design of the product to avoid infringing a third-party patent, we would be unable to continue to manufacture or sell related products.

If a third party commences legal action against us for infringement, we could be compelled to incur significant costs to defend the action and our management’s attention could be diverted from our day-to-day business operations, whether or not the action were to have any merit. We cannot be certain that we could prevail in the action, and an adverse judgment or settlement resulting from the action could require us to pay substantial amounts in damages for infringement or substantial amounts to obtain a license to continue to use the intellectual property that is the subject of the infringement claim.

We may not maintain adequate insurance coverage to protect us against significant product liability claims.

The testing, manufacturing, marketing, and sale of drugs and diagnostics involve product liability risks. We may not be able to maintain our current product liability insurance at an acceptable cost, if at all. In addition, our insurance coverage may not be adequate for all potential claims. If claims or losses significantly exceed our liability insurance coverage, we may experience financial hardship or potentially be forced out of business. While we historically have had a limited number of product liability claims, the clinical testing and eventual marketing and sale of new products, reformulated versions of existing products, or existing products in new indications, could expose us to new product liability risks. The launch of new products will raise new product liability risks, and in many cases the quality of these products will depend on the performance of third parties that we do not control (such as Medtronic, in the case of the Implantable System for Remodulin).

If we fail to attract and retain key management and qualified scientific and technical personnel, we may not be able to achieve our business objectives.

Members of our management team, including our founder, Chairman and Chief Executive Officer, Dr. Martine Rothblatt, play a critical role in defining our business strategy and maintaining our corporate culture. The loss of the services and leadership of Dr. Rothblatt or any other members of our senior management team could have an adverse effect on our business. We do not maintain key person life insurance on our senior management team members. In addition, effective succession planning is important to our long-term success. Failure to identify, hire and retain suitable successors for members of our senior management team and to transfer knowledge effectively could impede the achievement of our business objectives. Our future success also depends on our ability to attract and retain qualified

52

scientific and technical personnel. Competition for skilled scientific and technical personnel in the biotechnology and pharmaceutical industries is intense. Furthermore, our compensation arrangements may not be sufficient to attract new qualified scientific and technical employees or retain such core employees. If we fail to attract and retain such employees, we may not be successful in developing and commercializing new therapies for PAH and other diseases.

Improper handling of hazardous materials used in our activities could expose us to significant remediation liabilities.

Our research and development and manufacturing activities involve the controlled use of chemicals and hazardous substances and we are expanding these activities in both scale and location. In addition, patients may dispose of our products using means we do not control. Such activities subject us to numerous federal, state, and local environmental and safety laws and regulations that govern the management, storage and disposal of hazardous materials. Compliance with current and future environmental laws and regulations can require significant costs; furthermore, we can be subject to substantial fines and penalties in the event of noncompliance. The risk of accidental contamination or injury from these materials cannot be completely eliminated. Furthermore, once chemical and hazardous materials leave our facilities, we cannot control the manner in which such hazardous waste is disposed of by our contractors. In the event of an accident, we could be liable for substantial civil damages or costs associated with the cleanup of the release of hazardous materials. Any related liability could have a material adverse effect on our business.

We may encounter substantial difficulties managing our growth relative to product demand.

If we experience substantial sales growth, we may have difficulty managing inventory levels as marketing new therapies is complicated and gauging future demand can be difficult and uncertain until we possess sufficient post-launch sales experience. In addition, we have spent considerable resources building and expanding our offices, laboratories and manufacturing facilities. However, our facilities could be insufficient to meet future demand for our products. Conversely, we may have excess capacity at our facilities if future demand falls short of our projections, or if we do not receive regulatory approvals for the products we intend to manufacture at our facilities. Our ability to satisfactorily recover our investments in our facilities will depend on sales of the products manufactured at these facilities in sufficient volume.

If we need additional financing and cannot obtain it, our product development and sales efforts may be limited.

We may be required to seek additional sources of financing to meet unplanned or planned expenditures. Unplanned expenditures could be significant and may result from necessary modifications to product development plans or product offerings in response to difficulties encountered with clinical trials. We may also face unexpected costs in preparing products for commercial sale, or in maintaining sales levels of our currently marketed therapeutic products. In addition, our Credit Agreement contains affirmative and negative covenants that, among other things, limit our ability to incur additional indebtedness. If we are unable to obtain additional funding on commercially reasonable terms or at all, we may be compelled to delay clinical studies, curtail operations or obtain funds through collaborative arrangements that may require us to relinquish rights to certain products or potential markets.

We may require additional financing to meet significant future obligations. For example, our Share Tracking Awards Plan (STAP) awards entitle participants to receive in cash an amount equal to the appreciation in the price 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. Consequently, our STAP may require significant future cash payments to participants to the extent the price of our common stock appreciates and the number of vested STAP awards increases over time. If we do not have sufficient funds to meet such obligations or the ability to secure alternative sources of financing, we could be in default, face litigation and/or lose key employees, which could have a material adverse effect on our business.

53

We may not be able to generate sufficient cash to service our indebtedness, which may have a material adverse effect on our financial position, results of operations and cash flows. In addition, we may be forced to take other actions to satisfy our obligations in connection with our indebtedness, which actions may not be successful.

We may borrow up to $1.5 billion under our Credit Agreement, which matures in June 2024. Currently, our outstanding principal balance is $1.05 billion. Our ability to make payments on or refinance our debt obligations, including any outstanding balance under our Credit Agreement, and any future debt that we may incur, will depend on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. Our inability to generate sufficient cash flows to satisfy our debt obligations would materially and adversely affect our financial position and results of operations.

If we cannot repay or refinance our debt as it becomes due, we could be forced to take disadvantageous actions, including reducing or delaying investments and capital expenditures, disposing of material assets or operations, seeking additional debt or equity capital or restructuring or refinancing our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such actions may not be sufficient for us to meet any such debt service obligations. In addition, our ability to withstand competitive pressures and to react to changes in our industry could be impaired.

Information technology security breaches and other disruptions could compromise our information and expose us to legal responsibility which would cause our business and reputation to suffer.

We are increasingly dependent on information technology systems and infrastructure, much of which is outsourced to third parties including in “cloud” based platforms. In the ordinary course of our business, we collect, store and use sensitive or confidential data, including intellectual property, our proprietary business information and that of our suppliers, customers and business partners, and personally identifiable information. The secure maintenance of this information is critical to our operations and business strategy. We are subject to laws and regulations in the United States and abroad, such as the Health Insurance Portability and Accountability Act of 1996 and European Union regulations related to data privacy, which require us to protect the privacy and security of certain types of information. Our information technology and infrastructure may be vulnerable to attacks by hackers, breached due to employee error, malfeasance or other disruptions, or subject to system failures. We must continuously monitor and enhance our information security controls to prevent, detect, and/or contain unauthorized activity and malicious software. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. Any breaches or failures could compromise sensitive and confidential information stored on our networks or those of third parties and expose such information to public disclosure, loss or theft. Any actual or alleged unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disruption of our operations, and damage to our reputation which could adversely affect our business, financial condition, or results of operations. In addition, remediation, repair and other costs we may incur as a result of any of the foregoing, including increased costs to protect our information technology systems and infrastructure, and increased insurance premiums, could adversely affect our business, financial condition, or results of operations.

The increasing use of social media platforms presents new risks and challenges.

Social media is increasingly being used to communicate information about our products and the diseases that our therapies are designed to treat. Social media practices in our industry continue to evolve and regulations related to such use are not always clear. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business. For example, patients and others may use social media channels to comment on the effectiveness of a product or to report an alleged adverse event. When such disclosures occur, we may fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend against political and market pressures generated by social media due to restrictions on what we may say about our products. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate comments about us on any social networking website. If any of these

54

events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face overly restrictive regulatory actions or incur other harm to our business.

Tax legislation may materially adversely affect us.

Tax laws are dynamic and continually changing as new laws are passed and new interpretations of existing laws are issued or applied. Governmental tax authorities are increasingly scrutinizing the tax positions of companies. If federal, state or foreign tax authorities change applicable tax laws or issue new guidance, our overall taxes could increase, and our business, financial condition or results of operations may be adversely impacted.

If we are not able to successfully identify, finance, consummate and/or integrate acquisitions, our business operations and financial position could be adversely affected.

In August 2018 we acquired SteadyMed. We also entered into several in-licenses related to ongoing development programs in 2018, including our license with Arena related to ralinepag and our license with MannKind related to Treprostinil Technosphere. We may continue to seek to expand in part through acquisitions of complementary businesses, products and technologies, through business combinations or in-licenses. The success of this strategy will depend on our ability to identify, and the availability of, suitable acquisition candidates. We may incur costs in the preliminary stages of an acquisition, but may ultimately be unable or unwilling to consummate the proposed transaction for various reasons. In addition, acquisitions involve numerous risks, including the ability to realize or capitalize on anticipated synergies; managing the integration of personnel, products and acquired infrastructure and controls; potential increases in operating costs; managing geographically remote operations; the diversion of management’s attention from other business concerns and potential disruptions in ongoing operations during integration; the inherent risks in entering markets and sectors in which we have either limited or no direct experience; and the potential loss of key employees, clients or vendors and other business partners of the acquired companies. External factors, such as compliance with laws and regulations, may also impact the successful integration of an acquired business. Acquisitions could result in dilutive issuances of equity securities, the incurrence of debt, one-time write-offs of goodwill and substantial amortization expenses of other intangible assets. We may be unable to obtain financing on favorable terms, or at all, if necessary to finance future acquisitions, which may make acquisitions impossible or more costly. If we are able to obtain financing, the terms may be onerous and restrict our operations. Further, certain acquisitions may be subject to regulatory approval, which can be time consuming and costly to obtain or may be denied, and if obtained, the terms of such regulatory approvals may impose limitations on our ongoing operations or require us to divest assets.

Risks Related to Our Common Stock

The price of our common stock can be highly volatile and may decline.

The price of common stock can be highly volatile within the pharmaceutical and biotechnology sector. Consequently, there can be significant price and volume fluctuations in the market that may not relate to operating performance. The following table sets forth the high and low closing prices of our common stock for the periods indicated:

	High		Low
January 1, 2019—June 30, 2019	$	126.84	$	76.06
January 1, 2018—December 31, 2018	$	151.94	$	101.14
January 1, 2017—December 31, 2017	$	168.42	$	114.60

The price of our common stock could decline sharply due to the following factors, among others:

● Failure to meet our estimates or expectations, or those of securities analysts;

● Quarterly and annual financial results;

55

● Timing of enrollment and results of our clinical trials, including the anticipated announcement of our DISTINCT phase III clinical study;

● Announcements regarding generic or other challenges to the intellectual property relating to our products, the launch of generic versions of our products, and the impact of generic competition on our revenues;

● Announcements regarding litigation matters, including the lawsuit filed against us by Sandoz and RareGen, LLC;

● Announcements regarding our efforts to obtain FDA approval of new products, such as RemUnity and Trevyent, and the timing or success of our launch of new products, such as the Implantable System for Remodulin;

● Physician, patient, investor or public concerns regarding the efficacy and/or safety of products marketed or being developed by us or by others;

● Changes in, or new legislation and regulations affecting reimbursement of, our therapeutic products by Medicare, Medicaid or other government payers, and changes in reimbursement policies of private health insurance companies, and negative publicity surrounding the cost of high-priced therapies;

● Announcements of technological innovations or new products or announcements regarding our existing products, including in particular the development of new, competing PAH therapies;

● Substantial sales of our common stock by us or our existing shareholders, or concerns that such sales may occur;

● Future issuances of common stock by us or any other activity which could be viewed as being dilutive to our shareholders;

● Rumors among, or incorrect statements by, investors and/or analysts concerning our company, our products, or our operations;

● Failures or delays in our efforts to obtain or maintain regulatory approvals from the FDA or international regulatory agencies;

● Discovery of previously unknown problems with our marketed products, or problems with our manufacturing, regulatory, compliance, promotional, marketing or sales activities that result in regulatory penalties or restrictions on our products, up to the withdrawal of our products from the market;

● Accumulation of significant short positions in our common stock by hedge funds or other investors or the significant accumulation of our common stock by hedge funds or other institutional investors with investment strategies that may lead to short-term holdings; and

● General market conditions.

Provisions of Delaware law and our amended and restated certificate of incorporation, seventh amended and restated By-laws and employment and license agreements, among other things, could prevent or delay a change of control or change in management that may be beneficial to our public shareholders.

Certain provisions of Delaware law and our amended and restated certificate of incorporation and seventh amended and restated By-laws may prevent, delay or discourage:

● A merger, tender offer or proxy contest;

56

● The assumption of control by a holder of a large block of our securities; and/or

● The replacement or removal of current management by our shareholders.

For example, our amended and restated certificate of incorporation divides our Board of Directors into three classes. Members of each class are elected for staggered three-year terms. This provision may make it more difficult for shareholders to replace the majority of directors. It may also deter the accumulation of large blocks of our common stock by limiting the voting power of such blocks.

Non-competition and all other restrictive covenants in most of our employment agreements will terminate upon a change of control that is not approved by our Board.

Similarly, a change of control, under certain circumstances, could also result in an acceleration of the vesting of outstanding STAP awards, stock options and restricted stock units. This, together with any increase in our stock price resulting from the announcement of a change of control, could make an acquisition of our company significantly more expensive to the purchaser. We also have a broad-based change of control severance program, under which employees may be entitled to severance benefits in the event they are terminated without cause (or they terminate their employment for good reason) following a change of control. This program could also increase the cost of acquiring our company.

We enter into certain license agreements that generally prohibit our counterparties or their affiliates from taking necessary steps to acquire or merge with us, directly or indirectly throughout the term of these agreements, plus a specified period thereafter. We are also party to certain license agreements that restrict our ability to assign or transfer the rights licensed to us to third parties, including parties with whom we wish to merge, or those attempting to acquire us. These agreements often require that we obtain prior consent of the counterparties to these agreements if we contemplate a change of control. If these counterparties withhold consent, related agreements could be terminated and we would lose related license rights. For example, Lilly, Samumed and MannKind have the right to terminate our license agreements relating to Adcirca, SM04646 and Treprostinil Technosphere, respectively, in the event of certain change of control transactions. These restrictive change of control provisions could impede or prevent mergers or other transactions that could benefit our shareholders.

Because we do not intend to pay cash dividends, our shareholders must rely on stock appreciation for any return on their investment in us.

We have never declared or paid cash dividends on our common stock. Furthermore, we do not intend to pay cash dividends in the future and our Credit Agreement contains covenants that may restrict us from doing so. As a result, the return on an investment in our common stock will depend entirely upon the future appreciation in the price of our common stock. There can be no assurances that our common stock will provide a return to investors.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the six months ended June 30, 2019, we did not (a) repurchase any of our outstanding equity securities or (b) sell any of our equity securities that were not registered under the Securities Act of 1933, as amended.

57

Item 6. EXHIBITS

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-76409).
3.2	Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed June 28, 2010.
3.3	Seventh Amended and Restated By-laws of the Registrant, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed June 28, 2018.
3.4	Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit A to Exhibit 4 to the Registrant’s Current Report on Form 8-K filed December 18, 2000.
4.1	Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
10.1	United Therapeutics Corporation Amended and Restated 2015 Stock Incentive Plan, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June 28, 2019.
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial information from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, filed with the SEC on July 31, 2019, formatted in Inline Extensible Business Reporting Language (iXBRL): (1) the Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018, (2) the Consolidated Statements of Operations for the three- and six-month periods ended June 30, 2019 and 2018, (3) the Consolidated Statements of Comprehensive Income for the three- and six-month periods ended June 30, 2019 and 2018, (4) the Consolidated Statements of Stockholders’ Equity for the three- and six-month periods ended June 30, 2019 and 2018, (5) the Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2019 and 2018, and (6) the Notes to Consolidated Financial Statements.

Note: Except as otherwise noted above, all exhibits incorporated by reference to the Registrant’s previously filed reports with the Securities and Exchange Commission are filed under File No. 000-26301.

58

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
July 31, 2019	/s/ MARTINE A. ROTHBLATT
	By:	Martine A. Rothblatt, Ph.D.
	Title:	Chairman and Chief Executive Officer
		(Principal Executive Officer)
	/s/ JAMES C. EDGEMOND
	By:	James C. Edgemond
	Title:	Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

59