United Therapeutics (UTHR)

Financial Position

Cash, cash equivalents and marketable investments (excluding all restricted amounts) at March 31, 2009, were approximately $319.4 million compared to approximately $336.3 million as of December 31, 2008. The decrease can be attributed principally to customary variances in the timing of sales and related cash collections and cash used for our construction projects in Maryland and North Carolina.

Restricted cash and marketable investments of $45.9 million at March 31, 2009, comprise approximately $40.8 million pledged as security for our financing arrangements related to our Phase I Laboratory and approximately $5.1 million placed in the Rabbi Trust. At December 31, 2008, approximately $40.7 million was pledged as security for our Phase I Laboratory and approximately $5.1 million was placed in the Rabbi Trust.

Accounts receivable was approximately $49.4 million at March 31, 2009, compared to $28.3 million at December 31, 2008. The increase in accounts receivable reflects the overall continued growth in sales of Remodulin in addition to typical variations in the timing and magnitude of sales and associated cash collections.

Property, plant and equipment at March 31, 2009, was approximately $255.6 million, an increase of $32.9 million from $222.7 million at December 31, 2008. The increase in property, plant and equipment corresponded directly to expenditures relating to our construction projects in Maryland and North Carolina. Construction of the North Carolina facility was completed in February 2009 and the Maryland facility is expected to be completed in late 2009.

Accounts payable decreased by approximately $9.8 million from approximately $20.3 million at December 31, 2008, to $10.5 million at March 31, 2009. The decrease in accounts payable can be attributed to the timing of payments based on our semi-monthly payment cycle and the timing and volume of contractor invoices related to our construction projects.

Stockholders’ equity was approximately $577.3 million at March 31, 2009, compared to approximately $554.4 million at December 31, 2008. The increase of $22.9 million in stockholders’ equity was driven in large part by the recognition of approximately $9.7 million in stock-option based compensation and the reduction to the accumulated deficit of approximately $13.2 million, representing net earnings recognized for the three months ended March 31, 2009.

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Financial Position

        Cash, cash equivalents and marketable investments (excluding all restricted amounts) at December 31, 2008, were approximately $336.3 million, compared to approximately $299.8 million as of December 31, 2007. This increase resulted from the continued growth in sales of Remodulin offset, in part, by expenditures related primarily to funding the construction and acquisition of real property.

        Restricted cash and marketable investments of $45.8 million at December 31, 2008, comprise approximately $40.7 million pledged as security for our financing arrangements related to our Silver Spring, Maryland laboratory facility (Phase I Laboratory) and approximately $5.1 million placed in a Rabbi Trust to fund our Supplemental Executive Retirement Plan (SERP). At December 31, 2007, approximately $39.2 million was pledged as security for our Phase I Laboratory and approximately $5.0 million was placed in the Rabbi Trust.

        Property, plant and equipment at December 31, 2008, was approximately $221.1 million, up $151.7 million from approximately $69.4 million at December 31, 2007. Since December 31, 2007, we have funded approximately $88.8 million toward the construction of our facilities in North Carolina and Maryland. Construction of the North Carolina facility was completed in February 2009 and the Maryland facility is expected to be complete in late 2009. Additionally, as of September 30, 2008, we capitalized $29.0 million and recognized a corresponding lease obligation associated with our Phase I Laboratory (see Note 10 to the consolidated financial statements for further details). Lastly, we

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Table of Contents

purchased a building in the United Kingdom for approximately $16.3 million in August 2008 to serve as the new headquarters for our wholly-owned subsidiary, United Therapeutics Europe, Ltd.

        Noncurrent deferred tax assets increased by approximately $82.3 million from approximately $93.7 million at December 31, 2007, to $176.0 million at December 31, 2008, primarily as a result of the deferred tax asset created by expensing the $150.0 million upfront payment to Lilly pursuant to a license agreement and a related manufacturing and supply agreement regarding the rights to commercialize tadalafil for pulmonary hypertension. For tax purposes, the $150.0 million upfront payment is considered to be a tax intangible asset which is expensed for tax purposes over an expected 15 year period.

        Accounts payable increased by approximately $18.3 million from approximately $2.0 million at December 31, 2007 to $20.3 million at December 31, 2008. We attribute this increase to the timing of payments based on our semi-monthly payment cycle and the timing and volume of activity with respect to our construction projects.

        The classification of approximately $250.0 million of our 0.50% Convertible Senior Notes due October 2011 (Convertible Senior Notes) shifted from a current liability at December 31, 2007, to a non-current liability at December 31, 2008, because contingent conversion criteria had not been satisfied at December 31, 2008. Specifically, the closing price of our common stock did not exceed 120% of the initial conversion price for more than 20 days during the 30 consecutive trading day period ending on December 31, 2008. As a result, the Convertible Senior Notes were not convertible at the election of their holders (Note Holders). This conversion determination is measured as of the end of each quarter. Accordingly, classification of the Convertible Senior Notes may change in future quarters.

        Stockholders' equity was approximately $507.7 million at December 31, 2008, compared to approximately $295.8 million at December 31, 2007. The net increase of $211.9 million in stockholders' equity was driven in large part by the following significant transactions during the year ended December 31, 2008:

•

Additional paid-in capital increased by approximately $110.9 million as a result of: (1) the receipt of $41.9 million in proceeds from the exercise of stock options during 2008; (2) the recognition of $28.5 million in stock-option based compensation expense; and (3) the recognition of $40.5 million in tax benefits primarily associated with share-based compensation.



•

Treasury stock decreased by approximately $164.2 million. The decrease represents the cost basis of approximately 3.2 million treasury shares that we issued to Lilly in December 2008 in exchange for $150.0 million pursuant to our November 2008 stock purchase agreement. This transaction was one of several pursuant to agreements entered into with Lilly regarding the license, manufacture and supply of tadalafil for the treatment of pulmonary hypertension.



•

Our accumulated deficit rose by approximately $57.0 million during the year ended December 31, 2008 due to our $42.8 million net loss incurred for the year ended December 31, 2008 and the loss we recognized in connection with the issuance of treasury stock to Lilly. The excess of the cost basis of the treasury shares issued over the purchase price of approximately $14.2 million was included in our accumulated deficit.

Financial Position

Cash, cash equivalents and marketable investments (excluding all restricted amounts) at September 30, 2008, were approximately $341.9 million, compared to approximately $299.8 million as of December 31, 2007. This increase resulted from the continued growth in sales of Remodulin offset, in part, by expenditures related primarily to fund the construction and acquisition of real property.

Restricted cash and marketable investments of $45.4 million at September 30, 2008, comprise approximately $40.3 million pledged as security for our financing arrangements related to the Phase I Laboratory and approximately $5.1 million placed in a Rabbi Trust to fund our Supplemental Executive Retirement Plan.

Property, plant and equipment at September 30, 2008, was approximately $186.8 million, up $117.5 million from approximately $69.4 million at December 31, 2007. Since December 31, 2007, we have funded approximately $60.9 million toward the construction of our facilities in North Carolina and Maryland. Additionally, as of September 30, 2008, we capitalized $29.0 million and recognized a corresponding lease obligation associated with the Phase I Laboratory (see Note 11 to our consolidated financial statements included in this Quarterly Report). Lastly, we purchased a building in the United Kingdom for approximately $16.3 million in August 2008 to serve as the new headquarters for our wholly-owned subsidiary, United Therapeutics Europe, Ltd. 

Accounts payable rose by $14.1 million from approximately $2.0 million at December 31, 2007, to approximately $16.1 million at September 30, 2008. We attribute the increase to the timing of payments based on our semi-monthly payment cycle and the timing and volume of activity with respect to our construction projects.

Accrued expenses were approximately $21.6 million at September 30, 2008, compared to approximately $17.9 million at December 31, 2007. The rise in accrued expenses was driven by increases in Remodulin-related royalties and clinical expenses associated with our oral treprostinil program. These increases were partially offset by a reduction in bonus and payroll-related expenses as a result of the semi-annual bonus payments made during the third quarter of 2008.

Stockholders’ equity was approximately $418.6 million at September 30, 2008, up $122.8 million from approximately $295.8 million at December 31, 2007. During the nine months ended September 30, 2008, we received approximately $37.5 million in proceeds from the exercise of stock options, recognized approximately $27.8 million in equity-based compensation, recognized $23.2 million in tax benefits associated with share-based compensation and recorded approximately $38.4 million in net earnings.

Financial Position

Cash, cash equivalents and marketable investments (excluding all restricted amounts) at June 30, 2008, were $342.7 million, compared to approximately $299.8 million as of December 31, 2007.  This increase resulted from the continued growth in sales of Remodulin.

Restricted cash and marketable investments of $45.0 million at June 30, 2008, comprise roughly $39.9 million pledged as security for our financing arrangements related to our Silver Spring, Maryland, laboratory facility and approximately $5.1 million placed in a Rabbi Trust to fund our Supplemental Executive Retirement Plan.

Property, plant and equipment at June 30, 2008, was approximately $115.7 million, up $46.3 million from approximately $69.4 million at December 31, 2007.  Since December 31, 2007, we have funded approximately $41.5 million toward the construction of our facilities in North Carolina and Maryland.

Accounts payable rose approximately $12.8 million from $2.0 million at December 31, 2007, to $14.8 million at June 30, 2008. This increase reflects the timing of payments to our vendors and increased activity with respect to our construction projects.

Accrued expenses were $24.8 million at June 30, 2008, compared to $17.9 million at December 31, 2007.  The increase in accrued expenses primarily corresponds to (1) increases in bonus and payroll-related expenses, (2) increases in royalties due on sales of Remodulin, and (3) increases in clinical expenses related to our oral treprostinil program.

Stockholders’ equity was approximately $363.4 million at June 30, 2008, up approximately $67.6 million from $295.8 million at December 31, 2007. During the six months ended June 30, 2008, we received approximately $18.0 million in proceeds from the exercise of stock options, recognized approximately $14.2 million in equity-based compensation and recorded approximately $25.7 million in net earnings.

Financial Position

Cash, cash equivalents and marketable investments (excluding all restricted amounts) at March 31, 2008, were approximately $333.3 million, as compared to approximately $299.8 million at December 31, 2007.

Restricted cash and marketable investments at March 31, 2008, totaled approximately $44.8 million, as compared with approximately $44.2 million at December 31, 2007.  The restricted amounts as of March 31, 2008 include approximately $39.8 million pledged to secure our obligations under our financing arrangements for our Silver Spring, Maryland, laboratory facility and approximately $5.0 million placed in a Rabbi Trust to fund our Supplemental Executive Retirement Plan.

Property, plant and equipment at March 31, 2008, was approximately $87.2 million, as compared to approximately $69.4 million at December 31, 2007. The increase was primarily due to the construction cost of our Research Triangle Park, North Carolina and Silver Spring, Maryland facilities of approximately $17.9 million.

Accounts payable at March 31, 2008, were approximately $16.5 million, as compared to approximately $2.0 million at December 31, 2007. This increase was due generally to the timing of payments to vendors.

Total stockholders’ equity at March 31, 2008, was approximately $326.4 million, as compared to approximately $295.8 million at December 31, 2007.  The increase is primarily attributable to net income of approximately $11.4 million, approximately $6.3 million of stock option expense and approximately $8.6 million received from stock option exercises during the three months ended March 31, 2008.

Financial Position

        Cash, cash equivalents and marketable investments (including all amounts classified as current and non-current, but excluding all restricted amounts) at December 31, 2007, were approximately $299.3 million, as compared to approximately $264.2 million at December 31, 2006.

        Restricted marketable investments and cash totaled approximately $44.2 million at December 31, 2007, as compared to approximately $39.0 million at December 31, 2006. The restricted amounts include approximately $39.2 million pledged to secure our obligations under our financing arrangements for our Silver Spring, Maryland, laboratory facility, discussed below under Off Balance Sheet Arrangement, and approximately $5.0 million set aside for our Supplemental Executive Retirement Plan and placed in a Rabbi Trust.

        Prepaid expenses at December 31, 2007, were approximately $5.9 million, as compared to approximately $9.2 million at December 31, 2006. The decrease was primarily due to the expensing of a portion of those assets used in operations during 2007.

        Property, plant and equipment at December 31, 2007, were approximately $69.4 million as compared to approximately $34.7 million at December 31, 2006. The increase was primarily due to the acquisition for $5.7 million of an office building adjacent to our leased legal and governmental affairs office in Washington, D.C., and construction expenditures for our Research Triangle Park, North Carolina, and Silver Spring, Maryland, facilities projects of approximately $21.8 million.

        Accrued expenses at December 31, 2007, were approximately $17.9 million, as compared to approximately $15.3 million at December 31, 2006. The increase was due primarily to an increase in Remodulin-related royalty expense of approximately $1.3 million and an increase in accrued bonuses of approximately $1.1 million.

        Common stock subject to repurchase at December 31, 2007, was approximately $10.9 million, as compared to none at December 31, 2006. The common stock subject to repurchase represents the issuance of 200,000 shares of our common stock to Toray, which are subject to repurchase under our amended license agreement. See the Toray Amended License Agreement for further details.

        Total stockholders' equity at December 31, 2007, was approximately $295.8 million, as compared to approximately $204.6 million at December 31, 2006. The increase in stockholder's equity is highlighted as follows (in thousands):

55

Financial Position

        Cash, cash equivalents and marketable investments (including all amounts classified as current and non-current, but excluding all restricted amounts)
at December 31, 2007, were approximately $299.3 million, as compared to approximately $264.2 million at December 31, 2006.

        Restricted
marketable investments and cash totaled approximately $44.2 million at December 31, 2007, as compared to approximately $39.0 million at
December 31, 2006. The restricted amounts include approximately $39.2 million pledged to secure our obligations under our financing arrangements for our Silver Spring, Maryland,
laboratory facility, discussed below under Off Balance Sheet Arrangement, and approximately $5.0 million set aside for our Supplemental Executive
Retirement Plan and placed in a Rabbi Trust.

        Prepaid
expenses at December 31, 2007, were approximately $5.9 million, as compared to approximately $9.2 million at December 31, 2006. The decrease was
primarily due to the expensing of a portion of those assets used in operations during 2007.

        Property,
plant and equipment at December 31, 2007, were approximately $69.4 million as compared to approximately $34.7 million at December 31, 2006. The
increase was primarily due to the acquisition for $5.7 million of an office building adjacent to our leased legal and governmental affairs office in Washington, D.C., and construction
expenditures for our Research Triangle Park, North Carolina, and Silver Spring, Maryland, facilities projects of approximately $21.8 million.

        Accrued
expenses at December 31, 2007, were approximately $17.9 million, as compared to approximately $15.3 million at December 31, 2006. The increase was due
primarily to an increase in
Remodulin-related royalty expense of approximately $1.3 million and an increase in accrued bonuses of approximately $1.1 million.

        Common
stock subject to repurchase at December 31, 2007, was approximately $10.9 million, as compared to none at December 31, 2006. The common stock subject to
repurchase represents the issuance of 200,000 shares of our common stock to Toray, which are subject to repurchase under our amended license agreement. See the Toray Amended
License Agreement for further details.

        Total
stockholders' equity at December 31, 2007, was approximately $295.8 million, as compared to approximately $204.6 million at December 31, 2006. The
increase in stockholder's equity is highlighted as follows (in thousands):

55

Financial Position

        Cash, cash equivalents and marketable investments (including all amounts classified as current and non-current, but excluding all restricted amounts) at September 30, 2007, were approximately $271.0 million, as compared to approximately $264.2 million at December 31, 2006. Restricted marketable investments and cash pledged to secure our obligations under the synthetic operating lease discussed below under "Off Balance Sheet Arrangement" totaled approximately $39.0 million at September 30, 2007 and at December 31, 2006.

        Prepaid expenses at September 30, 2007, were approximately $6.3 million, as compared to approximately $9.2 million at December 31, 2006. The decrease was primarily due to the expensing of a portion of those assets used in operations during 2007.

        Property, plant and equipment at September 30, 2007, were approximately $56.1 million as compared to $34.7 million at December 31, 2006. The increase was primarily due to the acquisition for $5.7 million of an office building adjacent to our leased legal and governmental affairs office in Washington, DC and expenditures for our Research Triangle Park, North Carolina, and Silver Spring, Maryland, facilities projects of approximately $14.1 million.

        Accounts payable at September 30, 2007, were approximately $14.0 million, as compared to approximately $2.8 million at December 31, 2006. The increase was due to the timing of payments to vendors.

        Accrued expenses at September 30, 2007, were approximately $17.8 million, as compared to approximately $15.3 million at December 31, 2006. The increase was due to an increase in Remodulin-related royalty expense of approximately $2.0 million.

        Total stockholders' equity at September 30, 2007, was approximately $210.5 million, as compared to approximately $204.6 million at December 31, 2006. For the nine-month period ended September 30, 2007, we repurchased approximately 1.2 million shares of our common stock for $67.1 million which was offset by approximately $21.8 million from the proceeds from stock option exercises, approximately $22.2 million from the recognition of stock option expense, approximately $11.7 million in tax benefits recognized from stock option exercises and original issue discount amortization, approximately $10.9 million from the issuance of our common stock under a license agreement, and net income generated for the nine months ended September 30, 2007.

Financial Position

Cash, cash equivalents and marketable investments (including all unrestricted and restricted amounts and all amounts classified as current and non-current) at June 30, 2007, were approximately $280.3 million, as compared to approximately $303.2 million at December 31, 2006. The decrease of approximately $22.9 million was due primarily to the repurchase of approximately $67.1 million worth of our common stock which was offset by cash provided by operating activities of approximately $33.3 million. Restricted marketable investments and cash pledged to secure our obligations under the synthetic operating lease discussed below under “Off Balance Sheet Arrangement” at June 30, 2007, totaled approximately $38.5 million, as compared to approximately $39.0 million at December 31, 2006.

Prepaid expenses at June 30, 2007, were approximately $5.6 million, as compared to approximately $9.2 million at December 31, 2006. The decrease was primarily due to the expensing of a portion of those assets used in operations during 2007.

Property, plant and equipment at June 30, 2007, were approximately $45.9 million as compared to $34.7 million at December 31, 2006. The increase was primarily due the acquisition of an office building adjacent to our legal and governmental affairs office that we lease in Washington, DC for $5.7 million and expenditures for our Research Triangle Park, North Carolina, and Silver Spring, Maryland, facilities projects of approximately $4.4 million.

Investments in affiliates at June 30, 2007, were approximately $5.2 million, as compared to approximately $4.7 million at December 31, 2006. The increase was due primarily to an increase in the fair value of our investment in ViRexx Medical Corp., based on quoted market prices.

Accounts payable at June 30, 2007, were approximately $5.1 million, as compared to approximately $2.8 million at December 31, 2006. The increase was due generally to the timing of payments to vendors.

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Financial Position

Cash, cash equivalents and marketable investments (including all unrestricted and restricted amounts) at March 31, 2007, were approximately $252.4 million, as compared to approximately $303.2 million at December 31, 2006. The decrease of approximately $50.8 million is due primarily to the repurchase of

18

approximately $67.1 million worth of our common stock which was offset by cash provided by operating activities and investing activities of approximately $13.1 million and $20.4 million, respectively. Restricted cash and marketable investments pledged to secure our obligations under the synthetic operating lease discussed in the section entitled “Off Balance Sheet Arrangement” at March 31, 2007, totaled approximately $38.2 million, as compared with approximately $39.0 million at December 31, 2006.

Property, plant and equipment at March 31, 2007, were approximately $42.1 million, as compared to approximately $34.7 million at December 31, 2006. The increase was primarily due the acquisition of an office building adjacent to our legal and governmental affairs office that we lease in Washington, DC for $5.7 million.

Investments in affiliates at March 31, 2007, were approximately $5.1 million, as compared to approximately $4.7 million at December 31, 2006. The increase was due primarily to an increase in the fair value of our investment in ViRexx Medical Corp., based on quoted market prices.

Accounts payable at March 31, 2007, were approximately $5.0 million, as compared to approximately $2.8 million at December 31, 2006. The increase was due generally to the timing of payments to vendors.

Accrued expenses at March 31, 2007, was approximately $13.8 million, as compared to approximately $15.3 million at December 31, 2006. The decrease was due primarily to the payout of employee year-end bonuses in March of 2007.

Total stockholders’ equity at March 31, 2007, were approximately $162.4 million, as compared to approximately $204.6 million at December 31, 2006. For the three-month period ended March 31, 2007, we repurchased approximately 1.2 million shares of our common stock for $67.1 million which was offset by $8.0 million from the proceeds from stock option exercises, $5.5 million from the recognition of stock option expense and $3.4 million in tax benefits recognized.

Financial Position

Cash, cash equivalents and marketable investments (including all unrestricted and restricted amounts and all amounts classified as current and non-current) at December 31, 2006, were approximately $303.2 million, as compared to approximately $191.0 million at December 31, 2005. The increase of approximately $112.2 million was due primarily to the net proceeds after repurchase of our common stock from the issuance of Convertible Senior Notes of approximately $94.6 million. Restricted marketable investments and cash pledged to secure our obligations under the synthetic operating lease (discussed below under Off Balance Sheet Arrangement) at December 31, 2006, totaled approximately $39.0 million, as compared with approximately $20.7 million at December 31, 2005.

Accounts receivable, net of allowances at December 31, 2006, were approximately $22.5 million, as compared to approximately $13.9 million at December 31, 2005. The increase was due primarily to increased sales of Remodulin.

Prepaid expenses and other current assets at December 31, 2006, were approximately $9.2 million, as compared to approximately $6.4 million at December 31, 2005. The increase was primarily due to the prepayment of assets to be used in operations during 2007.

Property, plant and equipment at December 31, 2006, were approximately $34.7 million as compared to $21.8 million at December 31, 2005. The increase was due to the purchase of land and a building adjacent to our Silver Spring, Maryland, headquarters in May 2006 for approximately $1.8 million, the purchase of land in Research Triangle Park, North Carolina, in June 2006 for approximately $3.2 million, pre-construction costs on our facility projects in Maryland and North Carolina of approximately $3.9 million, and the purchase of laboratory equipment for the new laboratory facility in Silver Spring, Maryland, of approximately $4.1 million.

49

Other intangible assets, net, at December 31, 2006 were approximately $3.1 million, as compared to approximately $5.5 million at December 31, 2005. The decrease was due primarily to the $2.0 million impairment write-down of the HeartBar trade name, as commercial activities for that product were discontinued in January 2006.

Investments in affiliates at December 31, 2006, were approximately $4.7 million, as compared to approximately $8.3 million at December 31, 2005. The decrease was due primarily to a decline in the fair market value of our investment in ViRexx Medical Corp. (formerly AltaRex Medical Corp.), which we mark to market, based on quoted market prices since the investment is classified as an available-for-sale security..

Other assets at December 31, 2006, were approximately $8.9 million as compared to $988,000 at December 31, 2005. The increase was primarily due to capitalizing of offering costs and fees of approximately $7.7 million related to the issuance of our offering of $250.0 million aggregate principal amount of Convertible Senior Notes, net of amortization during the year.

Deferred tax assets (including amounts classified as current and non-current) at December 31, 2006, were approximately $69.6 million, as compared to approximately $19.7 million at December 31, 2005. The increase was due to the reduction of approximately $45.7 million of the valuation allowance on most of our deferred tax assets in 2006.

Accrued expenses at December 31, 2006, were approximately $15.3 million, as compared to approximately $10.4 million at December 31, 2005. The increase was due primarily to an increase in accrued expenses for royalty fees of approximately $1.6 million, and an increase in accrued bonuses of approximately $2.2 million. Prior to 2006, employee bonuses were paid in June and December of each year. In 2006, we changed the payment dates to September for the mid-year bonuses and March for the year-end bonuses.

Other current liabilities at December 31, 2006, were approximately $882,000, as compared to none at December 31, 2005. The amount represents the remaining balance of a final draw received in May 2006 from Wachovia Development Corporation under the synthetic operating lease agreements to fund the remaining cost of constructing the laboratory facility in Silver Spring, Maryland.

Notes payable increased approximately $250.0 million during 2006 due to the issuance of $250.0 million aggregate principal amount of Convertible Senior Notes.

Total stockholders’ equity at December 31, 2006, was approximately $204.6 million, as compared to $275.1 million at December 31, 2005. For the twelve-month period, we repurchased approximately 2.6 million shares of our stock for $157.7 million and paid a net cost of $35.4 million for the derivative note hedge and warrant transactions entered into in connection with the issuance of the Convertible Senior Notes. These costs were offset by approximately $74.0 million of net income, $14.4 million of proceeds from stock option exercises, $11.3 million from the recognition of a tax benefit related to the use of net operating losses attributable to stock option deductions, and $24.1 million from the recognition of stock option expense.

Financial Position

Cash, cash equivalents and marketable investments (including all unrestricted and restricted amounts and all amounts classified as current and non-current) at September 30, 2006, were approximately $204.5 million, as compared to approximately $191.0 million at December 31, 2005. The increase of approximately $13.5 million was due primarily to cash provided by operating activities and proceeds from the exercise of stock options: $56.4 million and $11.2 million, respectively, reduced by cash paid to repurchase our common stock from Toray and to purchase property and equipment of approximately $42.2 million and $13.1 million, respectively. Restricted marketable investments and cash pledged to secure our obligations under the synthetic operating lease (discussed below under Off Balance Sheet Arrangement) at September 30, 2006, totaled approximately $38.8 million, as compared with approximately $20.7 million at December 31, 2005.

Accounts receivable, net of allowances at September 30, 2006 were approximately $17.8 million, as compared to approximately $13.9 million at December 31, 2005. The increase was due primarily to increased sales of Remodulin.

Prepaid expenses and other current assets at September 30, 2006, were approximately $3.4 million, as compared to approximately $6.4 million at December 31, 2005. The decrease was primarily due to the expensing of a portion of those assets used in operations during 2006.

Property, plant and equipment at September 30, 2006, were approximately $33.1 million as compared to $21.8 million at December 31, 2005. The increase was due to the purchase of land and a building adjacent to our Silver Spring, Maryland headquarters in May 2006 for approximately $1.8 million, the purchase of land in the Research Triangle Park, North Carolina in June 2006 for approximately $3.2 million, pre-construction costs on our facility projects in Maryland and North Carolina of approximately $2.8 million, and the purchase of laboratory equipment for the new laboratory facility in Silver Spring, Maryland of approximately $3.1 million.

Other intangible assets, net, at September 30, 2006, were approximately $3.2 million, as compared to approximately $5.5 million at December 31, 2005. The decrease was due primarily to the impairment of the HeartBar trade name, as commercial activities for that product were discontinued in January 2006.

Investments in affiliates at September 30, 2006, were approximately $4.9 million, as compared to approximately $8.3 million at December 31, 2005. The decrease was due primarily to a decrease in the fair market value of our investment in ViRexx Medical Corp. (formerly AltaRex Medical Corp.), based on quoted market prices.

Deferred tax assets (including amounts classified as current and non-current) at September 30, 2006, were approximately $7.8 million, as compared to approximately $19.7 million at December 31, 2005. The decrease was due to the recognition of deferred tax expense during the nine-month period ended September 30, 2006.

Accrued expenses at September 30, 2006, were approximately $14.5 million, as compared to approximately $10.4 million at December 31, 2005. The increase was due primarily to accrued expenses for royalty fees, Medicaid rebates, and bonuses.

Other current liability at September 30, 2006, was approximately $1.8 million, as compared to none at December 31, 2005. The amount represents the remaining balance of a final draw received in May 2006 from Wachovia Development Corporation under the synthetic operating lease agreements to fund the remaining cost of constructing the laboratory facility in Silver Spring, Maryland.

21

Financial Position

Cash, cash equivalents and marketable investments (including all unrestricted and restricted amounts and all amounts classified as current and non-current) at June 30, 2006 were approximately $226.3 million, as compared to approximately $191.0 million at December 31, 2005. The increase of approximately $35.3 million was due primarily to cash provided by operating activities and proceeds from the exercise of stock options. Restricted marketable investments and cash pledged to secure our obligations under the synthetic operating lease discussed below under Off Balance Sheet Arrangement at June 30, 2006 totaled approximately $38.3 million, as compared with approximately $20.7 million at December 31, 2005.

Accounts receivable, net of allowances at June 30, 2006 were approximately $17.9 million, as compared to approximately $13.9 million at December 31, 2005. The increase was due primarily to increased sales of Remodulin.

Prepaid expenses at June 30, 2006 were approximately $5.3 million, as compared to approximately $6.4 million at December 31, 2005. The decrease was primarily due to the expensing of a portion of those assets used in operations during 2006.

Property, plant and equipment at June 30, 2006 were approximately $29.6 million as compared to $21.8 million at December 31, 2005. The increase was due to the purchase of land and a building adjacent to our Silver Spring, Maryland headquarters in May 2006 for approximately $1.8 million, the purchase of land in the Research Triangle Park, North Carolina in June 2006 for approximately $3.2 million, and the purchase of laboratory equipment for the new laboratory facility in Silver Spring, Maryland of approximately $2.3 million.

18

Financial Position

Cash, cash equivalents and marketable investments (including all unrestricted and restricted amounts) at March 31, 2006 were approximately $210.0 million, as compared to approximately $191.0 million at December 31, 2005. The increase of approximately $19.0 million is due primarily to cash provided by operating activities and proceeds from the exercise of stock options. Restricted cash and marketable investments pledged to secure our obligations under the synthetic operating lease discussed below under Off Balance Sheet Arrangement at March 31, 2006 totaled approximately $31.1 million, as compared with approximately $20.7 million at December 31, 2005.

Prepaid expenses at March 31, 2006 were approximately $4.5 million, as compared to approximately $6.4 million at December 31, 2005. The decrease was primarily due to the expensing of a portion of those assets used in operations during 2006.

Other intangibles, net, at March 31, 2006 were approximately $3.4 million, as compared to approximately $5.5 million at December 31, 2005. The decrease was due primarily to the write down of the HeartBar tradename, as that product was discontinued in January 2006.

Investments in affiliates at March 31, 2006 were approximately $7.7 million, as compared to approximately $8.3 million at December 31, 2005. The decrease was due primarily to a decrease in the fair value of our investment in ViRexx Medical Corp., based on quoted market prices.

Accounts payable at March 31, 2006 were approximately $4.6 million, as compared to approximately $4.0 million at December 31, 2005. The increase was due generally to the timing of payments to vendors.

Accrued expenses at March 31, 2006 were approximately $13.0 million, as compared to approximately $10.4 million at December 31, 2005. The increase was due primarily to accrued expenses for personnel and for tax withholdings related to stock option exercises.

Total stockholders’ equity at March 31, 2006 was approximately $285.3 million, as compared to $275.1 million at December 31, 2005. The increase in stockholders’ equity of approximately $10.2 million was due primarily to net income earned and the proceeds collected from exercises of stock options during the three months ended March 31, 2006.

Cash, cash equivalents and marketable investments (including all unrestricted and restricted amounts) at December 31, 2005 were approximately $191.0 million, as compared to approximately $139.1 million at December 31, 2004. The increase of approximately $51.9 million is due primarily to cash provided by operating activities and proceeds from the exercise of stock options. Restricted cash and marketable investments pledged to secure our obligations under the synthetic operating lease discussed below under Off Balance Sheet Arrangement at December 31, 2005 totaled approximately $20.7 million, as compared with approximately $10.1 million at December 31, 2004. The increase in restricted cash and marketable investments was due to additional funds placed in these accounts to provide adequate collateral under the lease.

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Inventories, net of reserves for obsolescence, at December 31, 2005 were approximately $11.3 million, as compared to approximately $8.0 million at December 31, 2004. The increase was due primarily to increased levels of Remodulin finished goods and work-in-process, to meet anticipated needs for future sales and clinical trials.

Other receivables at December 31, 2005 were approximately $4.2 million, as compared to approximately $1.0 million at December 31, 2004. The increase was due primarily to an increase in recoverable import duties on shipments of Remodulin to foreign countries of approximately $1.1 million and in construction draws receivable from Wachovia Development Corporation of approximately $2.0 million.

Investments in affiliates at December 31, 2005 were approximately $8.3 million, as compared to approximately $7.4 million at December 31, 2004. The increase was due primarily to an increase in the fair value of our investment in ViRexx Medical Corp., based on quoted market prices.

Property, plant and equipment at December 31, 2005 were approximately $21.8 million, as compared to $17.8 million at December 31, 2004. The increase was due primarily to the purchase of building and land adjacent to the Lung Rx, Inc. office located in Satellite Beach, Florida for approximately $2.8 million.

Accounts payable at December 31, 2005 were approximately $4.0 million, as compared to approximately $6.1 million at December 31, 2004. The decrease was due generally to the timing of payments to vendors.

Accrued expenses at December 31, 2005 were approximately $10.4 million, as compared to approximately $7.7 million at December 31, 2004. The increase was due primarily to accrued expenses for royalties and clinical trial related expenses and tax withholdings related to December 2005 payroll and stock option exercises.

Total stockholders’ equity at December 31, 2005 was approximately $275.1 million, as compared to $191.6 million at December 31, 2004. The increase in stockholders’ equity of approximately $83.5 million was due primarily to net income earned and the proceeds collected from exercises of stock options during the twelve months ended December 30, 2005.

Cash, cash equivalents and marketable investments (including all unrestricted and restricted amounts) at September 30, 2005 were approximately $181.6 million, as compared to approximately $139.1 million at December 31, 2004. The increase of approximately $42.5 million is due primarily to cash provided by operating activities and proceeds from the exercise of stock options. Restricted cash and marketable investments pledged to secure our obligations under the synthetic operating lease discussed below under Off Balance Sheet Arrangement at September 30, 2005 totaled approximately $20.6 million, as compared with approximately $10.1 million at December 31, 2004. The increase in restricted cash and marketable investments was due to additional funds placed in these accounts to provide adequate collateral under the lease.

Accounts receivable, net of allowances, at September 30, 2005 were approximately $16.0 million, as compared to approximately $13.7 million at December 31, 2004. The increase was due to increased sales of Remodulin.

Inventories, net of reserves for obsolescence, at September 30, 2005 were approximately $10.3 million, as compared to approximately $8.0 million at December 31, 2004. The increase was due primarily to increased levels of Remodulin finished goods and work-in-process.

Other receivables at September 30, 2005 were approximately $3.7 million, as compared to approximately $467,000 at December 31, 2004. The increase was due primarily to an increase in recoverable import duties on shipments of Remodulin to foreign countries of approximately $1.4 million

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and construction draws receivable from Wachovia Development Corporation of approximately $1.8 million.

Investments in affiliates at September 30, 2005 were approximately $6.3 million, as compared to approximately $7.4 million at December 31, 2004. The decrease was due primarily to a decrease in the fair value of our investment in ViRexx Medical Corp., based on quoted market prices.

Property, plant and equipment at September 30, 2005 were approximately $20.4 million, as compared to $17.8 million at December 31, 2004. The increase was due primarily to the purchase of building and land adjacent to the Lung Rx, Inc. office located in Satellite Beach, Florida for approximately $2.8 million.

Accounts payable at September 30, 2005 were approximately $4.1 million, as compared to approximately $6.1 million at December 31, 2004. The decrease was due generally to the timing of payments to vendors.

Accrued expenses at September 30, 2005 were approximately $12.4 million, as compared to approximately $7.7 million at December 31, 2004. The increase was due primarily to accrued expenses for royalties and clinical trial related expenses.

Total stockholders’ equity at September 30, 2005 was approximately $238.4 million, as compared to $191.6 million at December 31, 2004. The increase in stockholders’ equity of approximately $46.8 million was due primarily to net income earned and the proceeds collected from exercises of stock options during the nine months ended September 30, 2005.

Cash, cash equivalents and marketable investments (including all unrestricted and restricted amounts) at June 30, 2005 were approximately $161.8 million, as compared to approximately $139.1 million at December 31, 2004. The increase of approximately $22.7 million is due primarily to cash provided by operating activities of approximately $20.4 million and proceeds from the exercise of stock options totaling approximately $5.8 million. Restricted cash and marketable investments pledged to secure United Therapeutics’ obligations under the synthetic operating lease discussed below under Off Balance Sheet Arrangement at June 30, 2005 totaled approximately $10.3 million, as compared with approximately $10.1 million at December 31, 2004.

Accounts receivable, net of allowances, at June 30, 2005 were approximately $15.4 million, as compared to approximately $13.7 million at December 31, 2004. The increase was due to increased sales of Remodulin.

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Inventories, net of reserves for obsolescence, at June 30, 2005 were approximately $9.8 million, as compared to approximately $8.0 million at December 31, 2004. The increase was due primarily to increased levels of Remodulin finished goods and work-in-process.

Investments in affiliates at June 30, 2005 were approximately $6.3 million, as compared to approximately $7.4 million at December 31, 2004. The decrease was due primarily to a decrease in the fair value of United Therapeutics’ investment in ViRexx Medical Corporation, based on quoted market prices.

Property, plant and equipment at June 30, 2005 were approximately $20.4 million, as compared to $17.8 million at December 31, 2005. The increase was due primarily to the purchase of building and land adjacent to the Lung Rx office for approximately $2.8 million.

Accounts payable at June 30, 2005 were approximately $3.8 million, as compared to approximately $6.1 million at December 31, 2004. The decrease was due generally to the timing of payments to vendors.

Accrued expenses at June 30, 2005 were approximately $11.0 million, as compared to approximately $7.7 million at December 31, 2004. The increase was due primarily to accrued expenses for royalties, government rebates and clinical trial related expenses.

Total stockholders’ equity at June 30, 2005 was approximately $216.8 million, as compared to $191.6 million at December 31, 2004. The increase in stockholders’ equity of approximately $25.2 million was due primarily to net income earned and the proceeds collected from exercises of stock options during the six months ended June 30, 2005.

Cash, cash equivalents and marketable investments (including all unrestricted and restricted amounts) at March 31, 2005 were approximately $146.4 million, as compared to approximately $139.1 million at December 31, 2004. The increase of approximately $7.3 million is due primarily to cash provided by operating activities of approximately $5.2 million and proceeds from the exercise of stock options totaling approximately $2.5 million. Restricted cash and marketable investments pledged to secure United Therapeutics’ obligations under the synthetic operating lease discussed below under Off Balance Sheet Arrangement at March 31, 2005 totaled approximately $10.3 million, as compared with approximately $10.1 million at December 31, 2004.

Prepaid expenses at March 31, 2005 were approximately $3.8 million, as compared to approximately $3.2 million at December 31, 2004. The increase of approximately $600,000 was due primarily to a greater level of prepayments to vendors and service providers at March 31, 2005.

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Inventories, net of reserves for obsolescence, at March 31, 2005 were approximately $9.1 million, as compared to approximately $8.0 million at December 31, 2004. The increase was due primarily to increased levels of Remodulin finished goods and work in process.

Investments in affiliates at March 31, 2005 were approximately $8.6 million, as compared to approximately $7.4 million at December 31, 2004. The increase was due primarily to an increase in the fair value of United Therapeutics’ investment in ViRexx Medical Corporation, based on quoted market prices.

Accounts payable at March 31, 2005 were approximately $3.0 million, as compared to approximately $6.1 million at December 31, 2004. The decrease was due generally to the timing of payments to vendors.

Accrued expenses at March 31, 2005 were approximately $8.9 million, as compared to approximately $7.7 million at December 31, 2004. The increase was due primarily to accrued expenses for personnel and clinical trial expenses.

Total stockholders’ equity at March 31, 2005 was approximately $203.3 million, as compared to $191.6 million at December 31, 2004. The increase in stockholders’ equity of approximately $11.7 million was due primarily to net income earned during the three months ended March 31, 2005 and the proceeds from exercises of stock options of approximately $2.5 million.