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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 September 30, 2022
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)
Delaware52-1984749
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification No.)
1040 Spring Street, Silver Spring, MD
20910
(Address of Principal Executive Offices)(Zip Code)
(301) 608-9292
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, par value $0.01 per shareUTHRNasdaq 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 filerAccelerated filer
Non-accelerated filerSmaller 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 October 26, 2022 was 45,576,954.


TABLE OF CONTENTS
INDEX

2
United Therapeutics, a public benefit corporation

PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
(In millions, except share data)
 September 30, 2022December 31, 2021
 (Unaudited) 
Assets  
Current assets:  
Cash and cash equivalents$966.8 $894.8 
Marketable investments1,648.8 1,035.9 
Accounts receivable, no allowance for 2022 and 2021
231.7 198.7 
Inventories, net91.0 93.8 
Other current assets118.1 100.4 
Total current assets3,056.4 2,323.6 
Marketable investments1,443.8 1,649.9 
Goodwill and other intangible assets, net44.5 44.6 
Property, plant, and equipment, net840.8 780.9 
Deferred tax assets, net281.3 261.9 
Other non-current assets114.8 108.2 
Total assets$5,781.6 $5,169.1 
Liabilities and Stockholders’ Equity 
Current liabilities:  
Accounts payable and accrued expenses$220.1 $174.6 
Share tracking awards plan60.1 102.4 
Other current liabilities35.7 28.4 
Total current liabilities315.9 305.4 
Line of credit800.0 800.0 
Other non-current liabilities103.5 104.8 
Total liabilities1,219.4 1,210.2 
Commitments and contingencies  
Stockholders’ equity:  
Preferred stock, par value $.01, 10,000,000 shares authorized, no shares issued
  
Common stock, par value $.01, 245,000,000 shares authorized, 72,182,311 and
71,727,021 shares issued, and 45,563,095 and 45,107,805 shares outstanding
at September 30, 2022 and December 31, 2021, respectively
0.7 0.7 
Additional paid-in capital2,314.6 2,245.4 
Accumulated other comprehensive loss(84.1)(23.0)
Treasury stock, 26,619,216 shares at September 30, 2022 and December 31, 2021
(2,579.2)(2,579.2)
Retained earnings4,910.2 4,315.0 
Total stockholders’ equity4,562.2 3,958.9 
Total liabilities and stockholders’ equity$5,781.6 $5,169.1 

See accompanying notes to consolidated financial statements.
Quarterly Report
3

Part I. Financial Information
Consolidated Statements of Operations
(In millions, except per share data)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2022202120222021
 (Unaudited)(Unaudited)
Revenues:    
Net product sales$516.0 $444.7 $1,434.8 $1,270.3 
Other  10.0  
Total revenues516.0 444.7 1,444.8 1,270.3 
Operating expenses:   
Cost of product sales37.2 27.7 92.8 87.9 
Research and development66.1 79.2 229.0 457.2 
Selling, general, and administrative98.4 109.1 318.9 339.1 
Total operating expenses201.7 216.0 640.7 884.2 
Operating income314.3 228.7 804.1 386.1 
Interest income13.3 3.8 24.4 12.5 
Interest expense(9.2)(4.6)(20.1)(13.9)
Other (expense) income, net(5.9)(23.5)(34.9)71.0 
Impairments of investments in privately-held companies  (1.7)(2.3)
Total other (expense) income, net(1.8)(24.3)(32.3)67.3 
Income before income taxes312.5 204.4 771.8 453.4 
Income tax expense(73.2)(41.7)(176.6)(89.8)
Net income$239.3 $162.7 $595.2 $363.6 
Net income per common share:    
Basic$5.26 $3.62 $13.14 $8.12 
Diluted$4.91 $3.42 $12.35 $7.72 
Weighted average number of common shares outstanding:    
Basic45.5 44.9 45.3 44.8 
Diluted48.7 47.6 48.2 47.1 

See accompanying notes to consolidated financial statements.
4
United Therapeutics, a public benefit corporation

Part I. Financial Information
Consolidated Statements of Comprehensive Income
(In millions)
                       Three Months Ended
September 30,
Nine Months Ended
September 30,
 2022202120222021
(Unaudited)(Unaudited)
Net income$239.3 $162.7 $595.2 $363.6 
Other comprehensive loss:  
Defined benefit pension plan:
Actuarial gain arising during period, net of tax  0.2 0.2 
Amortization of prior service cost included in net periodic pension cost, net of tax0.2 0.1 0.5 0.4 
Total defined benefit pension plan, net of tax0.2 0.1 0.7 0.6 
Unrealized loss on available-for-sale securities, net of tax(18.8)(1.6)(61.8)(6.5)
Other comprehensive loss, net of tax(18.6)(1.5)(61.1)(5.9)
Comprehensive income$220.7 $161.2 $534.1 $357.7 

See accompanying notes to consolidated financial statements.
Quarterly Report
5

Part I. Financial Information
Consolidated Statements of Stockholders’ Equity
(In millions)
Three Months Ended September 30, 2022
(Unaudited)
 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Retained EarningsStockholders’ Equity
 SharesAmount
Balance, July 1, 202272.1 $0.7 $2,291.5 $(65.5)$(2,579.2)$4,670.9 $4,318.4 
Net income— — — — — 239.3 239.3 
Unrealized losses on available-for-sale securities— — — (18.8)— — (18.8)
Defined benefit pension plan— — — 0.2 — — 0.2 
Shares issued under employee stock
purchase plan (ESPP)
0.1 — 2.6 — — — 2.6 
Restricted stock units (RSUs) withheld for taxes
— — (0.3)— — — (0.3)
Exercise of stock options— — 4.7 — — — 4.7 
Share-based compensation— — 16.1 — — — 16.1 
Balance, September 30, 202272.2 $0.7 $2,314.6 $(84.1)$(2,579.2)$4,910.2 $4,562.2 
Three Months Ended September 30, 2021
(Unaudited)
 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Retained EarningsStockholders’ Equity
 SharesAmount
Balance, July 1, 202171.5 $0.7 $2,196.5 $(18.6)$(2,579.2)$4,040.1 $3,639.5 
Net income— — — — — 162.7 162.7 
Unrealized losses on available-for-sale securities— — — (1.6)— — (1.6)
Defined benefit pension plan— — — 0.1 — — 0.1 
Shares issued under ESPP— — 2.8 — — — 2.8 
RSUs withheld for taxes— — (0.2)— — — (0.2)
Exercise of stock options0.1 — 14.0 — — — 14.0 
Share-based compensation— — 12.4 — — — 12.4 
Balance, September 30, 202171.6 $0.7 $2,225.5 $(20.1)$(2,579.2)$4,202.8 $3,829.7 
Nine Months Ended September 30, 2022
(Unaudited)
 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Retained EarningsStockholders’ Equity
 SharesAmount
Balance, January 1, 202271.7 $0.7 $2,245.4 $(23.0)$(2,579.2)$4,315.0 $3,958.9 
Net income— — — — — 595.2 595.2 
Unrealized losses on available-for-sale securities— — — (61.8)— — (61.8)
Defined benefit pension plan— — — 0.7 — — 0.7 
Shares issued under ESPP0.1 — 5.9 — — — 5.9 
RSUs withheld for taxes— — (11.4)— — — (11.4)
Common stock issued for RSUs vested0.1 — — — — — — 
Exercise of stock options0.3 — 32.9 — — — 32.9 
Share-based compensation— — 41.8 — — — 41.8 
Balance, September 30, 202272.2 $0.7 $2,314.6 $(84.1)$(2,579.2)$4,910.2 $4,562.2 
6
United Therapeutics, a public benefit corporation

Part I. Financial Information
Nine Months Ended September 30, 2021
(Unaudited)
 Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Retained EarningsStockholders’ Equity
 SharesAmount
Balance, January 1, 202171.1 $0.7 $2,148.7 $(14.2)$(2,579.2)$3,839.2 $3,395.2 
Net income— — — — — 363.6 363.6 
Unrealized losses on available-for-sale securities— — — (6.5)— — (6.5)
Defined benefit pension plan— — — 0.6 — — 0.6 
Shares issued under ESPP0.1 — 5.6 — — — 5.6 
RSUs withheld for taxes— — (10.6)— — — (10.6)
Common stock issued for RSUs vested0.1 — — — — — — 
Exercise of stock options0.3 — 42.3 — — — 42.3 
Share-based compensation— — 39.5 — — — 39.5 
Balance, September 30, 202171.6 $0.7 $2,225.5 $(20.1)$(2,579.2)$4,202.8 $3,829.7 

See accompanying notes to consolidated financial statements.
Quarterly Report
7

Part I. Financial Information
Consolidated Statements of Cash Flows
(In millions)
 Nine Months Ended September 30,
 20222021
 (Unaudited)
Cash flows from operating activities:  
Net income$595.2 $363.6 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization38.1 37.3 
Share-based compensation expense42.0 93.8 
Impairments of investments in privately-held companies1.7 2.3 
Intangible asset impairment charges 113.4 
Impairments of property, plant, and equipment7.0 18.2 
Realized gain on sale of equity securities(0.9)(91.9)
Other44.6 28.0 
Changes in operating assets and liabilities:
Accounts receivable(33.0)(55.4)
Inventories0.5 (7.4)
Accounts payable and accrued expenses35.4 22.0 
Other assets and liabilities(56.3)(100.3)
Net cash provided by operating activities674.3 423.6 
Cash flows from investing activities:  
Purchases of property, plant, and equipment(99.3)(50.2)
Purchases of available-for-sale investments(1,278.1)(1,398.4)
Maturities of available-for-sale investments752.9 1,003.5 
Sales of available-for-sale investments 45.1 
Sales of investments in equity securities3.8 108.9 
Purchase of investment in privately-held company(1.5) 
Net cash used in investing activities(622.2)(291.1)
Cash flows from financing activities:  
Proceeds from line of credit800.0  
Repayment of line of credit(800.0) 
Payments of debt issuance costs(7.5) 
Proceeds from the exercise of stock options32.9 42.3 
Proceeds from the issuance of stock under ESPP5.9 5.6 
RSUs withheld for taxes(11.4)(10.6)
Net cash provided by financing activities19.9 37.3 
Net increase in cash and cash equivalents$72.0 $169.8 
Cash and cash equivalents, beginning of period894.8 738.7 
Cash and cash equivalents, end of period$966.8 $908.5 
Supplemental cash flow information:  
Cash paid for interest$17.8 $12.1 
Cash paid for income taxes$189.1 $130.1 
Non-cash investing and financing activities:
Non-cash additions to property, plant, and equipment$13.8 $4.0 

See accompanying notes to consolidated financial statements.
8
United Therapeutics, a public benefit corporation

Part I. Financial Information
Notes to Consolidated Financial Statements
September 30, 2022 (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. On September 30, 2021, we converted to a Delaware public benefit corporation, with the express public benefit purpose to provide a brighter future for patients through (a) the development of novel pharmaceutical therapies; and (b) technologies that expand the availability of transplantable organs.
We have approval from the U.S. Food and Drug Administration (FDA) to market the following therapies: Tyvaso® (treprostinil) Inhalation Solution (Tyvaso), Tyvaso DPI® (treprostinil) Inhalation Powder (Tyvaso DPI), Remodulin® (treprostinil) Injection (Remodulin), Orenitram® (treprostinil) Extended-Release Tablets (Orenitram), Unituxin® (dinutuximab) Injection (Unituxin), and Adcirca® (tadalafil) Tablets (Adcirca). We also derive revenues outside the United States from sales of Tyvaso, Remodulin, and Unituxin.
As used in these notes to our 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 for complete financial statements. These consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the accompanying notes to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 24, 2022.
In our management’s opinion, the accompanying consolidated financial statements contain all adjustments, including normal, recurring adjustments, necessary to fairly present our financial position as of September 30, 2022 and December 31, 2021, our statements of operations, comprehensive income, and stockholders’ equity for the three- and nine-month periods ended September 30, 2022 and 2021, and our statements of cash flows for the nine-month periods ended September 30, 2022 and 2021. Interim results are not necessarily indicative of results for an entire year.
Recently Issued Accounting Standards
Accounting Standards Adopted During the Period
None.
Accounting Standards Not Yet Adopted
None.
Quarterly Report
9

Part I. Financial Information
3. Investments
Marketable Investments
Available-for-Sale Debt Securities
Available-for-sale debt securities are recorded at fair value, with the portion of the unrealized gains and losses that are not credit-related included as a component of accumulated other comprehensive loss in stockholders’ equity, until realized. Available-for-sale debt securities consisted of the following (in millions):
As of September 30, 2022Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
U.S. government and agency securities$2,665.8 $0.1 $(68.7)$2,597.2 
Corporate debt securities555.9  (19.3)536.6 
Total$3,221.7 $0.1 $(88.0)$3,133.8 
Reported under the following captions in our consolidated balance sheets:
Cash and cash equivalents$77.9 
Current marketable investments  1,612.1 
Non-current marketable investments  1,443.8 
Total  $3,133.8 
As of December 31, 2021Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
U.S. government and agency securities$2,178.9 $2.0 $(7.3)$2,173.6 
Corporate debt securities482.5 0.6 (2.0)481.1 
Total$2,661.4 $2.6 $(9.3)$2,654.7 
Reported under the following captions in our consolidated balance sheets:
Cash and cash equivalents$39.3 
Current marketable investments  965.5 
Non-current marketable investments  1,649.9 
Total  $2,654.7 

The following tables present gross unrealized losses and fair value for those available-for-sale debt securities that were in an unrealized loss position as of September 30, 2022 and December 31, 2021, aggregated by investment category and length of time that the individual securities have been in a continuous loss position (in millions):

Less than 12 months12 months or longerTotal
As of September 30, 2022Fair ValueGross
Unrealized
Losses
Fair ValueGross
Unrealized
Losses
Fair ValueGross
Unrealized
Losses
U.S. government and agency securities$1,969.6 $(44.9)$570.3 $(23.8)$2,539.9 $(68.7)
Corporate debt securities442.9 (15.1)93.7 (4.2)536.6 (19.3)
Total$2,412.5 $(60.0)$664.0 $(28.0)$3,076.5 $(88.0)

Less than 12 months12 months or longerTotal
As of December 31, 2021Fair ValueGross
Unrealized
Losses
Fair ValueGross
Unrealized
Losses
Fair ValueGross
Unrealized
Losses
U.S. government and agency securities$1,729.9 $(7.3)$ $ $1,729.9 $(7.3)
Corporate debt securities352.3 (2.0)  352.3 (2.0)
Total$2,082.2 $(9.3)$ $ $2,082.2 $(9.3)

10
United Therapeutics, a public benefit corporation

Part I. Financial Information
At September 30, 2022 and December 31, 2021, we held 403 and 251 available-for-sale debt securities, respectively, that were in an unrealized loss position. In assessing whether the decline in fair value at September 30, 2022 of any of these securities resulted from a credit loss, we consulted with our investment managers and reviewed the credit ratings for each security. We believe that these unrealized losses are a direct result of the current interest rate environment and do not represent an indication of credit loss. We do not intend to sell the investments in unrealized loss positions prior to their maturity and it is not more likely than not that we will be required to sell these investments before recovery of their amortized cost basis. There were no impairments due to credit loss on our available-for-sale debt securities during the three and nine months ended September 30, 2022 and 2021.

The following table summarizes the contractual maturities of available-for-sale debt securities (in millions). Actual maturities may differ from contractual maturities because the issuers of certain of these debt securities have the right to call the securities or prepay their obligations under the securities with or without penalties.
 As of September 30, 2022
 Amortized CostFair Value
Due within one year$1,718.1 $1,690.0 
Due in one to three years1,503.6 1,443.8 
Total$3,221.7 $3,133.8 
Investments in Equity Securities with Readily Determinable Fair Values
We held investments in equity securities with readily determinable fair values of $36.7 million and $70.4 million as of September 30, 2022 and December 31, 2021, respectively, which are included in current marketable investments in our consolidated balance sheets. Changes in the fair value of publicly-traded equity securities are recorded in our consolidated statements of operations within other (expense) income, net. Refer to Note 4—Fair Value Measurements.
During the first quarter of 2021, we sold our investment in a publicly-traded company. We received $108.9 million in cash from the sale of the investment and realized a gain of $91.9 million. The gain was recorded within other (expense) income, net in our consolidated statements of operations for the nine months ended September 30, 2021.
Investments in Privately-Held Companies
As of September 30, 2022 and December 31, 2021, we maintained non-controlling equity investments in privately-held companies of $28.5 million and $31.1 million, respectively, 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, and adjusted for any observable price changes. We include our investments in privately-held companies within other non-current assets in 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 (VIE)
Consolidation of a VIE
In July 2022, we entered into an operating agreement and trust agreement related to the expected contribution of an asset to a newly created trust of which we are the beneficiary. The trust was created for legal and administrative purposes and is not expected to make future purchases. As the operator of the asset, we are required to incur all future expenses related to the operation and maintenance of the asset. Accordingly, the trust is deemed a VIE because it relies on our capital to sustain future operating expenses. We are deemed the primary beneficiary of the VIE because we are the sole provider of financial support and can unilaterally remove the trustee without cause. Accordingly, we consolidate the VIE’s balance sheet and results of operations.
As of September 30, 2022, our consolidated balance sheets included a $27.9 million asset due to the consolidation of this VIE included within property, plant, and equipment, net. Upon consolidating the VIE, which was not deemed a “business” as defined in ASC 805, Business Combinations, no gain or loss was recognized. This VIE has no recourse against our assets and general credit, and the VIE assets cannot be used to settle the VIE liabilities. Our total risk of loss is $27.9 million, the value of the asset we contributed.
4. Fair Value Measurements
We account for certain assets and liabilities at fair value and classify these assets and liabilities within the 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.
Quarterly Report
11

Part I. Financial Information
Assets and liabilities subject to fair value measurements are as follows (in millions):
 As of September 30, 2022
 Level 1Level 2Level 3Balance
Assets    
Money market funds(1)
$309.4 $ $ $309.4 
Time deposits(1)
201.1   201.1 
U.S. government and agency securities(2)
 2,597.2  2,597.2 
Corporate debt securities(2)
 536.6  536.6 
Equity securities(3)
36.7   36.7 
Contingent consideration(4)
  0.7 0.7 
Total assets$547.2 $3,133.8 $0.7 $3,681.7 
Liabilities    
Contingent consideration(5)
  18.9 18.9 
Total liabilities$ $ $18.9 $18.9 
 As of December 31, 2021
 Level 1Level 2Level 3Balance
Assets    
Money market funds(1)
$516.7 $ $ $516.7 
U.S. government and agency securities(2)
 2,173.6  2,173.6 
Corporate debt securities(2)
 481.1  481.1 
Equity securities(3)
70.4   70.4 
Contingent consideration(4)
  1.2 1.2 
Total assets$587.1 $2,654.7 $1.2 $3,243.0 
Liabilities    
Contingent consideration(5)
  20.8 20.8 
Total liabilities$ $ $20.8 $20.8 
(1)Included in cash and cash equivalents in our consolidated balance sheets.
(2)Included in cash and cash equivalents and current and non-current marketable investments in our consolidated balance sheets. Refer to Note 3—InvestmentsMarketable InvestmentsAvailable-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.
(3)Included in current marketable investments in our 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 nine months ended September 30, 2022, we recognized $8.5 million and $29.9 million, respectively, of net unrealized and realized losses on these securities. During the three and nine months ended September 30, 2021, we recognized $18.3 million of net unrealized losses and $77.2 million of net unrealized and realized gains in the aggregate, respectively, on these securities. We recorded these gains and losses in our consolidated statements of operations within other (expense) income, net. Refer to Note 3—Investments—Marketable Investments—Investments in Equity Securities with Readily Determinable Fair Values.
(4)Included in other non-current assets in our consolidated balance sheets. We estimated the fair value of contingent consideration using a Monte Carlo simulation. The Monte Carlo simulation incorporates Level 3 inputs including price volatility of peer company stocks and the probability of completing certain milestones during a specified period of time. The fair value of our contingent consideration assets decreased by $0.5 million from December 31, 2021 to September 30, 2022. The loss was recorded within other (expense) income, net in our consolidated statements of operations.
(5)Included in other current and other non-current liabilities in our consolidated balance sheets. The fair value of our contingent consideration obligations 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 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 fair value of our contingent consideration liabilities decreased by $1.9 million from December 31, 2021 to September 30, 2022. The gain was recorded within research and development in our consolidated statements of operations.
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 and contingent consideration are reported
12
United Therapeutics, a public benefit corporation

Part I. Financial Information
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):
 September 30, 2022December 31, 2021
Raw materials$18.6 $