United Therapeutics was the first publicly traded biotech in the U.S. to convert to a PBC, and I’ve been inspired by their recent PBC journey from my lenses of impact attorney and life science entrepreneur. This profile describes the legal benefit corporation framework, distinguishes it from the B Corp business certification, and summarizes the journey of United Therapeutics towards and beyond corporate conversion in order to further its sustainability goals.
Who is United Therapeutics?
United Therapeutics (“United”) is a fascinating company in the midst of a sustainability journey complicated by being a publicly traded life science company. United was founded by Martine Rothblatt, a transgender rights advocate with very progressive views on life and the planet. Under Martine’s direction, United has been a leading developer of rare disease and transplant directed therapeutics. Aside from developing medicines, United has pioneered electrical flight technology under the directives of speeding time to transplant delivery in an environmentally sustainable way. United’s 210,000 sq. ft. research facility in Silver Springs, Maryland, is lauded as the world’s largest net-zero site. In terms of corporate culture, United is annually featured as a top employer in global trade publications.
United’s Sustainability Background
In 2021, United took the bold step of becoming the first public biotech to convert from a traditional Delaware corporation, or C Corp, to a Public Benefit Corporation (“PBC”). However, for various reasons explored below, United’s conversion was not quite the defining moment for the biotech industry that it could have been. Essentially, the way United executed and messaged the conversion portrayed a redundancy to the work it was already doing – developing technologies as biotech to save lives.
By becoming a PBC, we have changed our certificate of incorporation to memorialize the way in which we already think about our business — not to change our mission, purpose, or the way we manage United Therapeutics.
The PBC model was introduced by the nonprofit B Lab to limit shareholder primacy and encourage stakeholder inclusion, not for branding; rather, the B Corp certification mark was partially created for branding. Because B Corp certification requirements are much more comprehensive in terms of corporate action and transparency, United was sure in its shareholder communications to emphasize that it was not pursuing B Corp status. Indeed, as noted in its recent 10-Q for the period ending March 31, 2022, United’s status as a recently converted PBC could open it up to derivative litigation and make it a less attractive acquisition target. While United was widely covered and rightfully congratulated for the prior launch of its Corporate Responsibility Report as a public biotech, as discussed below these reports initially fell short of the transparency and reporting requirements of the comprehensive PBC + B Corp business model.
On November 24, 2020, United released its first “Corporate Responsibility Report” concerning ESG priorities. The report categorized key stakeholders as Patients, People, Planet and Communities, and Principles and other Priorities:
- United’s Patients focus includes an emphasis on rare disease research, implementation of “Three R’s (Replacement, Reduction, and Refinement)” ethical principles for animal studies, and various regulatory compliance. UT administers a direct financial assistance program for some patients who need treatments not fully covered by insurance.
- United’s People focus includes financial support of DE&I nonprofits, internal diversity initiatives, and various employment benefits.
- Planet and Communities is further broken down to Environmental Stewardship and Community Programming. United promotes its Net Zero and LEED portfolio of buildings, its use of renewable energy and purchase of renewable energy credits, recycling programs, and EV stations.
Importantly, United did not actually benchmark any goals for any of these categories / stakeholders; it merely discussed past and ongoing efforts. Nevertheless, the report seemed to support the notion that a robust PBC adoption, and possibly even B Corp certification, would be a natural progression for the company.
United’s PBC Conversion
UT’s 2021 Shareholder Report outlined its reasoning for conversion to a Public Benefit Company, introducing thus:
We believe this change will help align our legal form with our longstanding commitment to serve our patients; enhance our ability to recruit and retain top talent; reinforce our standing and credibility with regulators and stakeholders; attract more of the rapidly growing pools of duration, impact, and ESG-screened capital; and therefore enhance our ability to create excellent and sustainable value for our shareholders. source
As United further noted:
As a PBC we will be required to post reports on our progress toward fulfilling our PBC mission, which we believe will further enhance our disclosures and relationships with employees, stakeholders, patients, and shareholders.
Unfortunately, after significant negotiation with shareholders United adopted a rather bland purpose statement, as observed above, reflective of most any biotech’s purpose in developing therapeutic technologies:
United Therapeutics Corporation’s public benefit purpose is to provide a brighter future for patients through [a] development of novel pharmaceutical therapies; and [b] technologies that expand the availability of transplant organs. source
This is actually not what B Lab intended when it first the developed the Model Benefit Corporation Legislation (MBCL) now adopted in various forms by most states. The MBCL’s purpose statement identifies specific social and environmental benefits a company prioritizes alongside profits, and further presents actions that will be taken in furtherance of accomplishing/maintaining the mission. United’s PBC adoption thus messaged as redundant and self-serving, committed only to what the company already was technologically set out to accomplish.
Impact of Delaware Domicile
While nearly all U.S. States have adopted benefit corporation legislation, these States drastically differ in the standards around converting, operating, and reporting corporate activities. As I’ve written elsewhere, in some states the benefit legislation is so watered down that companies can qualify by simply supporting their local high school football teams. Delaware falls in the moderate, middle range of statutory legislation. The Delaware benefit laws do not require commitments to and reporting of both general and specific public benefits, inclusive of environmental and social benefits, like some of its neighboring states, but it is not so devolved as its southern counterparts. Section 362 of the Delaware PBC statute reads:
(a) A “public benefit corporation” is a for-profit corporation organized under and subject to the requirements of this chapter that is intended to produce a public benefit or public benefits and to operate in a responsible and sustainable manner. To that end, a public benefit corporation shall be managed in a manner that balances the stockholders’ pecuniary interests, the best interests of those materially affected by the corporation’s conduct, and the public benefit or public benefits identified in its certificate of incorporation. In the certificate of incorporation, a public benefit corporation shall:
(1) Identify within its statement of business or purpose pursuant to § 102(a)(3) of this title one or more specific public benefits to be promoted by the corporation; and
(2) State within its heading that it is a public benefit corporation.
(b) “Public benefit” means a positive effect (or reduction of negative effects) on 1 or more categories of persons, entities, communities or interests (other than stockholders in their capacities as stockholders) including, but not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature. “Public benefit provisions” means the provisions of a certificate of incorporation contemplated by this subchapter.
In this short but meaty passage we can recognize balancing requirements of corporate decision-making and parameters for what constitutes qualifying stakeholder interests that may be considered. United’s PBC mission statement infers that their public benefit is of a technological nature. In practice, I’ve never had a mission statement that I’ve drafted for an aspiring PBC rejected by the Delaware Division of Corporations; they seem to accept nearly anything submitted as qualifying within § 362(b). In most cases, an innovative or venture-backed company can qualify as a Delaware PBC simply by being innovative and periodically reporting on its innovations, and thus naturally positioned for ROI to its investors who have bet on this innovation in the first place.
The B Corp Line
B Lab shares my view on the watered-down nature of various State PBC statutes, referring to them as social purpose statutes. Consequently, if a company is domiciled within a state that has adopted PBC legislation, but one that B Lab discounts as social purpose legislation, then in order to become a Certified B Corp the domiciled PBC must further amend its governing documents to go beyond even what Delaware requires. Consider the comparison of obligations between the Delaware law and B Lab’s adoption requirements for PBCs domiciled in states such as Georgia, Kentucky, and Tennessee:
| B Lab Adoption Requirements | B Lab | Delaware |
| Purpose Clause | The purpose of the Company shall include creating a material positive impact on society and the environment, taken as a whole, from the business and operations of the Company.
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“Public benefit” means a positive effect (or reduction of negative effects) on 1 or more categories |
| Directors Clause | In discharging the duties of their respective positions and in considering the best interests of the Company, the board of directors, committees of the board, and individual directors shall consider the effects of any action or inaction upon:
(i) the shareholders of the Company;
(ii) the employees and work force of the Company, its subsidiaries, and its suppliers;
(iii) the interests of its customers as beneficiaries of the purpose of the Company to have a material positive impact on society and the environment;
(iv) community and societal factors, including those of each community in which offices or facilities of the Company, its subsidiaries, or its suppliers are located;
(v) the local and global environment;
(vi) the short-term and long-term interests of the Company, including benefits that may accrue to the Company from its long-term plans and the possibility that these interests may be best served by the continued independence of the Company; and
(vii) the ability of the Company to create a material positive impact on society and the environment, taken as a whole.
|
(a) The board of directors shall manage or direct the business and affairs of the public benefit corporation in a manner that balances the pecuniary interests of the stockholders, the best interests of those materially affected by the corporation’s conduct, and the specific public benefit or public benefits identified in its certificate of incorporation. |
Because United converted to a PBC under Delaware law, it would have avoided the additional commitments that many multinationals and technology companies struggle with when considering B Corp certification. B Lab’s purpose clause requires that companies operate to create positive impact on the environment and society, whereas Delaware’s PBC law only requires a positive effect or reduction of negative effects on various categories of interests, including science and technology. Moreover, B Lab’s directors’ clause requires that a company’s directors consider the impact of their decisions upon local communities of societies that they and their suppliers operate in. That would require directors to have access to all of their suppliers’ operating communities, knowledge about the norms of those communities, and how the suppliers are interacting with respective communities related to their relationships with the certifying company. That’s a big ask of directors, to access and consider all of that information, even if at the end of the day they merely need to balance that information with pecuniary goals of the company.
Still, even if United were to pursue B Corp status as a Delaware PBC, it would have to submit to additional reporting and transparency requirements B Lab has issued for the pharmaceutical industry. The B Lab Controversial Issues Statement – Pharmaceutical Companies defers complex issues to a Standards Advisory Council. In recently reviewing this list, I observed that not a single one of the fourteen members has pharmaceutical education, industry, or regulatory experience. They cannot then be expected to fully appreciate some of the reporting limitations that need to be observed by pharmaceutical companies, e.g. in compliance with federal regulations. B Lab considers the several aspects of the pharmaceutical industry’s “business model” to be “potentially controversial because of the potential of making profit-driven decisions that benefit the company while harming public health.” A company in the pharmaceuticals industry, which in my experience B Lab considers broadly to include companies involved in everyday over-the-counter (OTC) solutions as well as regulated therapies, must address a set of industry specific questions to B Lab, which then may be summarized and published on the B Lab site. For many companies, this review and publication by B Lab individuals and advisors who largely do not have industry and/or scientific experience, would be a highly risky undertaking save for a truly concerted effort by corporate financial, legal, and marketing teams.
United’s Corporate Responsibility (and Public Benefit Report)
2021 vs 2024 (2022)
United’s 2021 Corporate Responsibility Report (CRR) introduced frameworks for measuring UT’s sustainability, including those of the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and Task Force on Climate-Related Financial Disclosures (TCFD). Without describing the strategy of integrating the different frameworks, UT stated that it was using “applicable GRI, SASB, and TCFD metrics to measure its performance.” The company’s financial disclosures in EDGAR also failed to cite these frameworks. Despite these newly cited frameworks, United’s publicly accessible 2021 report was nearly identical to its 2020 report. The report highlights board diversity and sustainable building as quantifiable examples of ESG.
United’s adoption of sustainability frameworks was first forecast in the company’s 2020 proxy statement:
We have begun an environmental, social and governance (ESG) transparency effort that we expect will showcase [United’s] significant successes in this area, including its construction of the first site net zero office building of its size, the implementation of a minimum wage for all employees of roughly $75,000 per year, and continued changes [to] our governance program in response to shareholder input. Our ESG transparency effort began with initial disclosures in this year’s proxy statement, and we plan to enhance our website and issue a corporate sustainability report later this year with both GRI and SASB frameworks as our guide. source
Reading between the lines, United primed investors for an ESG push as early as Q1 2020. While they made no mention of ESG or its aspects in their Q1 Earnings Conference Call, they used the word “sustainable” twelve times in the context of corporate viability. This idea was incorporated into a new motto of “stable, stronger and sustainable.” In its 2021 CRR, United noted that it was “considering subscribing to the U.N. Sustainable Development Goals [SDGs]” as part of its evolving corporate responsibility program. (As reviewed below, they would fully articulate these SDGs in their latest report.)
Despite its increasing references to ESG and corporate responsibility, by the end of 2021 United had yet to implement sustainability frameworks with any rigor. For instance, in the SASB metrics section of its CRR, United selectively adopted “some topics we [sic] believe are relevant to our company.” Moreover, its metrics were not reported entirely accurately. For SASB topic Ethical Marketing, United identified no financial loss related to legal proceedings of false marketing claims. However, United entered into a 2017 settlement for over $200M with the U.S. Department of Justice around false marketing claims that carried restrictions to the reporting period. Another weakness of the CRR was that it was housed on the primary United website, where onerous legal boilerplate disclaimed any warranties of representation and obligated readers to indemnification and legal waivers for any use of the information. (Many state laws allow statutory public benefit reports to be published on company websites, but they don’t address common disclaimers of accuracy attached to those websites in standard terms.)
The 2021 CRR was selective and redundant to prior high-level reporting. How does the recently released 2023 CRR stack up? The first thing to note is that the CRR is now entitled the Corporate Responsibility and Public Benefit Report (CRPBR). Released in September 2023, it purports to cover 2022 activities, thus we have a bit of a blind spot as to what the company is doing today.
Early in the CRPBR, United emphasizes its revenue per employee and total shareholder return, which is not necessarily relevant to responsibility and public benefit except to emphasize that a company like United can be impactful and profitable. United styles its report according to Patients, People, and Humankind. In progress from its earlier reports, it specifically connects KPIs in these categories to SDG alignment. Interestingly, United highlights R&D investment and customer (patient) numbers in this report; while it may seem odd for a company to highlight number of customers in this type of report, it works for United because their PBC purpose statement is centered in technology and access. Somewhat non-intuitively, United’s environmental sustainability KPIs fall under Humankind, where the company describes their expansion of net zero facilities, including a net zero cold storage warehouse.
The CRPBR is a colorful and polished highlight reel of United initiatives, many of which are simply good and necessary business practices (e.g., the sections on data privacy and security and GMP compliance). Anticipating rollout of the new California and SEC climate change risk assessment and carbon disclosure requirements, United has introduced a section on Organizational Resilience (OR), deftly articulating, “For many, climate risk is business continuity risk.” While few investment analyses mention United’s ESG initiatives, they nevertheless highlight the importance of supply chain stability for United’s fragile patient populations. United might be well-served to apply a comprehensive financial assessment to its supply chain of pharmaceuticals and the capabilities of its lung transplant infrastructure.
- How are climate events and trends expected to interrupt source materials?
- How can United develop new systems and introduce new technologies in anticipation of these events and trends to better position the company against peers?
- How can United experience reputational benefit from being an industry leader in sustainability?
- How can United differentiate between acute risks and chronic risks in weather related patterns in terms of financial planning and market risk assessment? Will certain regions be more prone to weather disruptions? Will the company need to plan for markets and supplies accordingly?
Similarly, United’s financial reports could begin to address in a more specific way key questions in climate-related accounting:
- What are increased operating costs attributable to climate change?
- What are the additional R&D expenditures necessary to address climate-impacted aspects of the business?
- What are the increased production costs attributable to climate change?
- What are reduced revenue potentials attributable to supply chain disruptions?
- What are increased capital cost potentials due to facility damage?
- What are the financial gains in reduced exposure to fossil fuel fluctuations?
- Is the company increasing diversification of financial assets (e.g. green bonds)?
- What are the Scopes 1, 2, and 3 summaries and associated risks?
Does United’s PBC Commitment Ring True?
In 2021, CEO Rothblatt’s addressed the company’s public benefit purpose in context of saving lives:
From the headline saving of one life to the kind of like prayers granted saving of 100 children’s lives to the now almost routine saving and improving of thousands of lives, I can most confidently report that UT’s first year as a public benefit company has been super true to our public benefit purpose. source
Later, in response to a comment commending United on its “life-saving progress,” Rothblatt construed this as “recognition of us doing our best with our public benefit purpose.” United has built a public benefit narrative around what any investable biotech is supposed to do, namely, innovate to produce goods and services that save lives. Through an axiomatic public benefit statement, United has been able to assuage shareholder concerns about what a conversion would mean, and potential fears of applying for B Corp certification. As one example of the difference in scope, the CRPBR identifies over 600 vendors. A B Corp adopting B Lab’s Directors Clause might be required to materially asses the ESG practices of each of these 600 vendors. By stopping short of B Corp certification, United can reduce its evaluation of vendors to supply chain reliability towards its ultimate mission of saving lives. The tightened PBC focus also allows the company time to develop other holistic interests, such as alignment with SDGs and ongoing commitment to the TCFD framework.
United’s PBC progression is remarkable. The company was able to persuade shareholders towards conversion with clear assurances against B Corp certification and a safe, vanilla purpose statement. United has gradually moved towards SDG alignment and championed many of the stakeholder frameworks of B Corp certification without adhering to some of the more challenging governance and transparency requirements of certification. While the company could have played it safe and greenwashed its PBC conversion, it has over time become a driver for environmental and social initiatives within the biotech industry. I look forward to seeing how United continues its leadership as the first public PBC convert in this space.
About Kevin Christopher
Kevin is the founder and principal of Rockridge®, a 4x B Corp Best For The World and Real Leaders Top 150 global impact company. He is annually recognized as a SuperLawyer, and has received numerous professional awards ranging from Conscious Company Magazine’s Top Business Leader to the Federal Lab Consortium’s technology license Deal of the Year. He has been profiled in B the Change, Forbes, the Los Angeles Times, Sustainable Brands, and many other media outlets highlighting sustainability and technology leaders. He is widely recognized for his thought leadership and initiatives at the nexus of impact and innovation.
Impact + Innovation Credentials
An entrepreneur-attorney, Kevin’s recently founded Quantiscope, a BARDA DRIVe accelerator launched AI company advancing ML enterprise models for drug discovery, as well as climate tech Calliope Bio, a computational synthetic biology company launched from the Nucleate Activator and advanced through the Berkeley Skydeck accelerator. Kevin’s entrepreneurship career began with Resolute Therapeutics, a CARB-X awardee developing a novel class of broad spectrum antibiotics.
As an ESG leader, Kevin is a 2050 Fellow at the Yale Center for Business and Environment (CBEY), and select member of the World Economic Forum’s Crypto Sustainability Coalition. Kevin founded Tennessee’s local B Corp network B Tennessee and served as sponsoring counsel to B Academics.
With a background in public-private partnerships, Kevin is a National Institutes of Health (NIH) RadX faculty member, and National Science Foundation (NSF) program evaluator for the Center for Bioplastics and Biocomposites (CB2) as well as the Carnegie Mellon Center for Quantum Computing and Information Technologies (Q-CIT).
Practice Areas
. Kevin’s practice areas include:
- patent and trademark prosecution, licensing and litigation;
- corporate law, with an emphasis on benefit corporations, socially responsible businesses and high-growth emergent companies;
- government contracts, with an emphasis on innovation funding;
- corporate and investor financing; and,
- technology commercialization.
Contact
To meet with Kevin Christopher, schedule an appointment through Calendly or email him directly at kevin@rockridgelaw.com.
