2018 Annual Report
measured
by
moments
Our Promise
Rare diseases, real strides to treat them—this is why
we’re here. No matter how uncommon the disorder, the
life-limiting effects are a daily reality for those affected.
When Stu Peltz founded PTC 20 years ago, he had this
unique insight. That’s why we’re creating life-changing
treatments every day.
The Family Approach
We are not simply there for you on the rare disease journey, but we
are with you, because we know that family gets its strength from
one another. We’re in this together.
In Our DNA
With every setback and advance, we continue to push forward every
day because this is not simply a job to us: it’s a calling.
Rare Resolve for Rare Disease
Our people choose to work here because they believe in the
moments that we build—in the labs and in the home.
The Science of Progress
We use data and groundbreaking science in our search for progress
—progress in rare-disease treatments, of course, but also in the
day-to-day lives of those affected.
measured
by
moments
Everyone has a different definition of progress.
For the last 20 years, we’ve measured our progress
researching rare disease in moments. Smiling
ones and crying ones. Moments spent with our
boys’ families and ones with their friends. We know
that every step forward comes after several steps
backward, because we’ve lived it—whether spending
time with families in their homes or with our
scientists researching in our labs.
It can be easy to lose yourself as you progress
further. Although we’ve grown, our heart remains
in the same place, because we’ve never measured
ourselves like larger companies do. Our biggest
accomplishment has always been the time we can
give to all of our families. Whether it’s hours, days,
months, or years, every small moment is a big win.
A Message to Our
Shareholders
2018
Revenue guidance met
a transformational year
2 to 5-year-old DMD
label expansion
PTC299 & PTC596
in clinical trials
Today, we are stronger than ever and have
multiple technology platforms that hold the
promise of a brighter future for patients suffering
from rare disorders.
–Stuart W. Peltz, Ph.D., Chief Executive Officer
For more than 21 years, PTC has
been relentlessly pursuing innovative
technologies and therapies to help to
address some of the world’s greatest
medical challenges for patients with
rare disorders. Today, we are stronger
than ever and have multiple technology
platforms that hold the promise of a
brighter future for patients suffering
from rare disorders. Our team is deter-
mined and moving with great urgency
to bring the best of PTC to patients
around the world so that they will have
new treatments.
2018 was a transformative year for
PTC. We have expanded our talent base
and increased our global footprint in key
markets. We strengthened our devel-
opment and commercial pipeline with
two significant business development
transactions. We now have a
gene therapy platform that includes
an advanced development program
for central nervous system (CNS)
gene therapy that we plan to submit
to FDA this year, and we in-licensed
two products from Akcea Therapeutics,
an affiliate of Ionis Pharmaceuticals,
that we will commercialize in
Latin America.
I’m proud to say that our global
teams are working hard to deliver on
our five-year plan to bring to patients
innovative products that make a
significant difference in their lives and
enable us to achieve a potential $1.5
billion in revenue by 2023.
Due to our team’s continued focus on
execution, we’re steadily advancing
toward our goals. We met our
Duchenne revenue guidance, increased
the commercial reach of Emflaza™
(deflazacort), achieved a label expan-
sion for Translarna™ (ataluren), and
advanced our oncology pipeline with
two potential products now in the clinic.
PTC is recognized as a leader in
Duchenne muscular dystrophy, and
we remain committed to finding new
and better solutions for the global
Duchenne community. In 2018, the
European Medicines Agency (EMA)
approved a label expansion for
Translarna in 2 to 5-year-old nonsense
mutation Duchenne patients. This label
expansion allows patients in countries
that recognize the EMA approval to
gain access to this important therapy
at a younger age, which we believe
maximizes the benefit to patients.
We believe Translarna has the potential
to benefit all patients regardless
of where they are in their disease
SMA trials enrolled;
set up to file in 2019
FD program advanced
to development candidate
Completed
transformational BD
and acquisition deals
PTC 2018 Annual Report | 3
Shareholder Letter (Continued)
progression. We recognize the urgent
need to treat non-ambulatory patients,
and with that in mind, we submitted for
a label expansion for the treatment of
non-ambulatory patients to the EMA
and expect to finalize the regulatory
process in 2019.
Our Duchenne franchise also includes
Emflaza, which is commercially
available in the U.S. for patients 5
years and older. We are working hard
to establish Emflaza as the standard
of care in the U.S. We received a
request from the FDA to file for a
pediatric label expansion for Emflaza
and were informed that we have
sufficient data to file an sNDA instead.
We submitted that application at the
end of last year, and our commercial
team is now preparing for the potential
launch of this expanded indication
in 2019.
Now, I’d like to focus on the two
business development deals that have
changed our company’s trajectory.
A very exciting area of focus for PTC
this year is gene therapy – a technology
that holds tremendous promise for
some of the most debilitating and
intractable rare genetic diseases.
We are developing a robust pipeline of
gene therapy candidates and intend
to declare new candidates and secure
access to a dedicated gene therapy
manufacturing facility in 2019.
Our strategy in pursuing CNS-specific
gene therapy includes key advantages.
The first is the ability to target the
specific area where the disease
process is occurring, maximizing
benefit/risk. Secondly, because cell
turnover in the brain is low, there is the
potential for durable effect and the use
of small amounts of the compound
(micro dosing) in the brain, which
reduces the manufacturing burden.
Finally, the combination of a target
approach with a small dose reduces
immunogenicity risk.
Our most advanced gene therapy to
address AADC deficiency is expected
to be submitted to the FDA in 2019.
We have started pre-commercial
efforts ahead of the BLA filing and
have identified patients through early
KOL interactions.
We plan to submit an IND in 2019 for
our next gene therapy program, which
is the most advanced program for the
underlying cause of Friedreich ataxia.
The next most-advanced discovery
program is our gene therapy candidate
for Angelman syndrome and we are
planning to file an IND with the FDA
for that program in 2020.
Looking Forward: Our Growth Vision for the Next Five Years
2018
COMMERCIAL
2023
Translarna™ and Emflaza®
$263M
$~1.5B
Translarna™, Emflaza®,
Tegsedi™, AADC, risdiplam, FA
AADC, SMA, Translarna™,
Emflaza®, DIPG, AML
FA, AS, FD, HD, Reelin
CLINICAL PROGRAMS
6
10
RESEARCH PROGRAMS
5
20
BUSINESS DEVELOPMENT
Emflaza® and Agilis acquisitions,
Akcea in-licensing
3
See glossary for all PTC definitions
AS, DIPG, AML, LMS,
HD, FD, +4
Small molecules, splicing,
gene therapy and others
Opportunistic collaborations
and business development
in/out-licensing
While the progress we have made across our research, clinical and
commercial fronts is impressive, we will continue to strive to identify
the best therapies for patients. We know that every moment counts
for rare disease patients and we are driven every day to bring
meaningful improvements to the lives of patients around the world.
–Stuart W. Peltz, Ph.D., Chief Executive Officer
$1.5B Potential Revenue by 2023 ($Millions*)
Translarna™ ex-US
~$300
Emflaza®
~$300
risdiplam
(royalties to PTC)
~$200
Tegsedi™
~$150
Gene Therapy
~$400
Translarna™ ex-US
~$170
Translarna™ US
~$200
2023
Emflaza®
~$90
2018
*Revenue based on PTC current assumptions and estimates
PTC 2018 Annual Report | 5
Shareholder Letter (Continued)
We have also built a strong commercial
team in rare disorders with a global
footprint. We wanted to leverage
our commercial platform to bring
rare disease therapies to patients
in all parts of the world. We recently
completed our first in-licensed deal
and have Latin American commercial
rights to two products from Akcea;
Tegsedi™ and Waylivra™. We have
positioned ourselves for success in
the region and have established the
necessary processes to support
patients, including an exclusive
partnership with a nursing
support team.
We’re advancing our oncology programs
in our DIPG trial with PTC596 and
making great progress in our AML trial
with PTC299. We expect both trials to
complete enrollment by the end of 2019.
I am especially proud of the progress
we’ve made on our splicing programs,
an area of innovation in which we are
both the pioneers and leading the field.
An emerging area of therapeutic focus
is the ability to modulate splicing with
a small molecule, in which our
technology produced the most
advanced compound, risdiplam. This
compound, which we are pursuing in
collaboration with Roche and the SMA
Foundation, is planned for an NDA
submission to the FDA in the second
half of 2019 for spinal muscular
atrophy- or SMA- Types 1, 2, and 3.
This is great news for patients with
SMA and it is a powerful validation of
our splicing platform technology. We
are applying our splicing platform to
other diseases with high unmet needs,
including Familial Dysautonomia (FD)
and Huntington’s disease. At the end
of 2018, we declared the development
candidate for FD and we expect to enter
the clinic in 2019.
While the progress we have made
across our research, clinical and
commercial fronts is impressive, we will
continue to strive to identify the best
therapies for patients. We know that
every moment counts for rare disease
patients and we are driven every day to
bring meaningful improvements to the
lives of patients around the world.
Sincerely,
Stuart W. Peltz, Ph. D.
Chief Executive Officer
Pipeline Evolution: January 2019
Commercial
AADC
Deficiency
DMD
*DMD
Late
Development
Friedreich
Ataxia
LGMD2i
Aniridia
Dravet/
CDKL5
Early
Development
Angelman
Preclinical
Cognitive
Disorder
Gene Therapy
& CNS
Programs
hATTR
Amyloidosis
Cardiometabolic
FCS + FPL
SMA
PTC596 DIPG
PTC299 AML
PTC596 LMS
FD
Emflaza®
(deflazacort)
Translarna™
(ataluren)
Tegsedi™
(inotersen)1
Waylivra™
(volanesorsen)1
HD
Alternative
Splicing
Oncology
Key 2018 Additions
*MA requires annual renewal following reassessment by the European Medicines Agency (EMA)
1In-licensed Latin American rights from Akcea Therapeutics, an affiliate of Ionis Pharmaceutics.
Leveraging PTC’s Commercial Footprint in Latin America
When Akcea wanted to collaborate in
Latin America, finding the right partner
was a critical component. It had to be a
partner with a well-established footprint
and strong infrastructure in the region,
as well as a documented track record
of success.
It had to be PTC.
Ever since we opened our first office in
the region less than five years ago, PTC
in Brazil has experienced an incredible
trajectory of growth and success that
has made it a leader in the region.
“There was hardly any awareness of
Duchenne before PTC started working
in Brazil: very few physicians knew
about Duchenne muscular dystrophy
and there were few advocacy organiza-
tions focused on it,” said Rogério Silva,
Vice President and General Manager of
PTC’s Brazil office. “Now, all that has
changed: physician awareness is high
and there are more than two dozen
advocacy organizations supporting
patients. I’m very proud of what we
have done.”
This success was a key factor
for Akcea, an affiliate of Ionis
Pharmaceticals, with the in-licensing
deal it signed with PTC in August
2018 that gave PTC two of Akcea’s
rare disease drugs in Latin America:
TEGSEDI™ (inotersen) and
WAYLIVRA™ (volanesorsen).
At the time the deal was announced,
Akcea leadership noted several factors
that sealed the deal, including PTC’s
commitment to patients and its estab-
lished foothold in the region. Also, PTC
had a proven record of success with
patient identification, strong physician
and patient education and support
programs and success obtaining
market access.
“To be successful, it’s essential to have
the right process and the right team
in place. Leveraging our Latin Ameri-
can infrastructure, we completed all
necessary steps to support TEGSEDI
and WAYLIVRA,” said Marcio Souza,
Chief Operating Officer at PTC.
“In addition, we added an exclusive
partnership with a nursing support
team to complement our efforts in
the region.”
Patient finding, diagnosis, and market
access were the three priorities for PTC
when it opened its first Latin American
regional office in Brazil in 2015.
“We had to focus on disease
awareness and build the market
access team because there wasn’t
anyone to do it,” said Eric Pauwels,
Senior Vice President and General
Manager of the Americas at
PTC. “Now, we have more than 30
employees, supply chain infrastructure,
and no indication that things are
slowing down.”
Potential Addressable Market in Excess of $5B
AADC: Aromatic L-amino acid decarboxylase
FA: Friedreich ataxia
AS: Angelman syndrome
AADC, FA, & AS:
~100,000 patients
l
e
c
n
e
a
v
e
r
P
l
a
b
o
G
l
AADC deficiency:
~5,000 patients
AADC & FA:
~30,000 patients
Launch Sequence
PTC 2018 Annual Report | 7
PTC THERAPEUTICS IN GENE THERAPY
Gene therapy holds tremendous promise for some of the most debilitating and intractable rare,
genetic diseases. PTC is at the forefront of this exciting and transformative area.
PROMISE OF GENE THERAPY
PTC AT THE FOREFRONT
Genetic diseases arise when
a defective or missing gene stops
the body producing a critical
protein properly.1
Genes provide instructions for the
body to make proteins. These are
essential for the body to develop
and function normally.1
80%
of rare diseases
are based on
genetic mutations.2
Gene therapy works by replacing or correcting a
defective gene. In-vivo gene therapy involves
administering the corrective gene in the body.
Vectors are the vehicle used to carry the
therapeutic gene to the correct cells in
the body. Vectors are delivered to the
body by local injection or intravenously.
This is in-vivo gene therapy.
Modified viruses or AAV are not
harmful and make excellent vectors.1
One-time therapy potential for a single dose
to confer lifelong improvement instead of a
lifetime of ongoing treatment.
01
02
03
04
05
1989
First human gene
therapy trial.3
2012
First EU approval of
a gene therapy.4
2017
First US appproval of
a gene therapy.5
01
PTC has an advanced gene therapy pipeline
for central nervous system (CNS) disorders.
GENE
THERAPY
DISEASE
PRE-
CLINICAL
CLINICAL DEVELOPMENT /
PRE-REGISTRATION
PTC-AADC
PTC-FA
PTC-AS
AADC
Deficiency
Friedreich
ataxia
Angelman
syndrome
02
Targeted micro-dosing directly to specific areas
of the central nervous system means:
• Greater efficacy
• Durability of effect
• Lower risk of immunogenicity & off-target effects
• Efficient, scalable manufacturing
03
Enhancing internal research and in-house manufacturing
capabilities with fully dedicated resources to maximize
current and future programs:
• End-to-end in-house capabilities
• Maximum control over quality, capacity and supply
• Seamless transition from clinical to commercial development
These devastating, rare disorders have limited or no treatment
options. Gene therapy targets the genetic cause of disease.
Aromatic L-Amino Acid Decarboxylase (AADC)
Deficiency causes profound neurological
and developmental failure at a very young age. Most
children never hold up their head, sit, stand or speak.6
A defect in the DDC gene causes insufficient AADC
protein, critical for dopamine production.6 The body
needs dopamine to develop/function normally.7,8
Friedreich ataxia (FA) can progressively rob patients
of their ability to walk, speak, see and hear.9
A defect in the FXN gene causes loss of frataxin
protein, critical for cell function.10,11
Angelman syndrome (AS) is characterized by profound
intellectual and developmental delays.12
A missing maternal copy of the UBE3A gene causes
insufficient ubiquitin protein ligase E3A, critical for
normal development and function of the CNS.13
REFERENCES: 1. U.S. Food & Drug Administration website. What is Gene Therapy? How Does it Work? Available at: https://www.fda.gov/ForConsumers/ConsumerUpdates/ucm589197.htm. Last accessed April 2019. 2. EURORDIS website.
About Rare Diseases. Available at: https://www.eurordis.org/about-rare-diseases. Last accessed April 2019. 3. Edelstein ML et al. Gene therapy clinical trials worldwide 1989-2004-an overview. J Gene Med. 2004 Jun;6(6):597-602. 4. European
Medicines Agency Press Release (2012). European Medicines Agency recommends first gene therapy for approval. Available at: https://www.ema.europa.eu/en/news/european-medicines-agency-recommends-first-gene-therapy-approval. Last
accessed April 2019. 5. U.S Food & Drug Administration. News Release (2017). FDA approves novel gene therapy to treat patients with a rare form of inherited vision loss. Available at: https://www.fda.gov/newsevents/newsroom/pressannounce-
ments/ucm589467.htm. Last accessed April 2019. 6. Hwu et al. Natural History of Aromatic L-Amino Acid Decarboxylase Deficiency in Taiwan. JIMD Rep. 2018; 40: 1-6. 7. The Genetic and Rare Diseases Information Center (GARD) website.
Available at: https://rarediseases.info.nih.gov/diseases/770/aromatic-l-amino-acid-decarboxylase-deficiency#ref_10801. Last accessed April 2019. 8. U.S National Library of Medicine Genetics Home Reference. Aromactic l-amino acid decarboxy-
lase deficiency. Available at: https://ghr.nlm.nih.gov/condition/aromatic-l-amino-acid-decarboxylase-deficiency#genes. Last accessed April 2019. 9. National Institute of Neurological Disorders and Stroke. Friedreich Ataxia Fact Sheet. Available at:
https://www.ninds.nih.gov/Disorders/Patient-Caregiver-Education/Fact-Sheets/Friedreichs-Ataxia-Fact-Sheet. Last accessed April 2019. 10. Koeppen AH. Friedreich’s ataxia: Pathology, pathogenesis, and molecular genetics. J Neurol Sci. 2011;
303 (1-2): 1-12. Doi: doi:10.1016/j.jns.2011.01.010. 11. Cook A and Giunti P. Friedreich’s ataxia: clinical features, pathogenesis and management. British Medical Bulletin. 2017; 124:19-30. Doi: 10.1093/bmb/ldx034. 12. Wheeler AC, et
al. Unmet clinical needs and burden in Angelman syndrome: a review of the literature. Orphanet Journal of Rare Diseases. 2017;12:164. Doi 10.1186/s13023-017-1716-z. 13. U.S National Library of Medicine Genetics Home Reference.
UBE3A gene. Available at: https://ghr.nlm.nih.gov/gene/UBE3A. Last accessed April 2019.
Big Efforts for a Small Island
Ever since Hurricane Maria devastated
Puerto Rico, it’s been hard for most to
see past the devastation, an ensuing
chaos inflicted upon the Caribbean
island, but a small team at PTC
defied the odds to provide help to
the Duchenne community.
Beyond the abandoned buildings and
broken trees that are still visible more
than a year after the hurricane, there
are families who continue to cope with
the storm’s aftereffects while caring
for boys with Duchenne.
“My husband’s family is from Puerto
Rico and I was aware of the island’s
struggles before the hurricane, so it
was difficult for me to imagine how
things would be after,” said Christie
Castaneda, Regional Account Manager
for New York and Puerto Rico. “The
only thing I did feel certain about was
PTC’s commitment to the Duchenne
community. I knew the company would
give us whatever we needed to provide
physicians and patients the resources
they needed.”
Puerto Rico always was an under-
served community where families
lack financial resources and support
navigating a complicated insurance
process. The hurricane amplified
those challenges with the extensive
damaged caused to the island’s
infrastructure, wiping out the few
resources that were available to
families and physicians before the
storm hit in September 2017.
PTC went beyond just providing
medicine, one employee worked
with the Puerto Rico chapter of the
Muscular Dystrophy Association to
get medical equipment and other
resources donated to the Duchenne
community in Puerto Rico, including
solar panel chargers for electric
wheelchairs. They also provided
medicine and educational support
to a San Juan physician who wanted
to prescribe EMFLAZA to eight boys
but struggled to do so because the
island’s infrastructure was crippled
after the hurricane.
“PTC mobilized its patient engage-
ment, patient services, and sales
teams to help physicians and families
cope with these unique challenges,”
said Joe Mansfield, Vice President
of Sales, U.S. “We knew we had kids
who needed help and the prevailing
message we sent to our teams was to
do whatever we could to help.”
STRIVE for
Duchenne Awards
Celebrating five years of helping patient
advocacy groups make a positive differ-
ence to patients and their communities.
In 2015, we launched the STRIVE
grant award program for Duchenne.
The program recognizes the vital role
that patient advocacy groups play
in meeting the needs of their local
Duchenne communities by providing
funding for some of the best community
support projects around the world.
Over the past five years, STRIVE has
supported more than 20 programs that
have addressed a specific need and
made a positive difference to Duchenne
communities in 15 countries across
Europe, Australasia, North America,
South American and Asia.
2018 Program Highlights
“ Among other achievements for the
Duchenne community, the programs
funded by STRIVE have improved
access to diagnostic testing,
supported independent living and
personal empowerment, provided
education for families and healthcare
professionals and psychological
support via a range of online platforms.”
— Mary Frances Harmon, Senior Vice President,
Corporate Relations
Recognizing that boys with Duchenne
often miss out on the social life and
activities that other children and
adolescents take for granted, the
Muscular Dystrophy Association of Slove-
nia, planned a ‘No Parents Fun Week’, giv-
ing boys with Duchenne the opportunity
to take part in activities and workshops
at a residential center near the coast of
Slovenia. While the boys enjoyed a week
of no-parent fun, their familes experi-
enced a much-needed week of respite.
Depression and isolation can be
common among those affected by
Duchenne. To help address this, DMD
TURKİYE, Fight Against Duchenne and
KASDER, Neuromuscular Disorders Asso-
ciation of Turkey have applied STRIVE
funds to provide a free online video
conferencing service with a psychologist
accessbile on the boys’ smartphones.
Because Duchenne is rare, healthcare
professionals often have limited
understanding of its impact. Rare
Diseases Croatia has applied funding
from their STRIVE award toward their
Little Big Signs of Diagnosis project,
which uses video content from families
affected by Duchenne in educational
online training modules for medical
students, and hosts screenings of the
movies at local colleges.
“ Patients and their communities are at
the heart of everything we do and I love
that STRIVE is encouraging patient
communities to think outside-the-box
with their solutions and plant seeds
of change across the world. We look
forward to continuing our quest for
innovation in the area of rare diseases,
as well as ongoing partnerships with the
advocacy community.”
— Stuart W. Peltz, Ph.D., Chief Executive Officer
PTC 2018 Annual Report | 9
PTC 2018 Annual Report | 9
Glossary
AADC: AADC Deficiency is a rare central
nervous system disorder arising from
reductions in the enzyme aromatic L-amino
acid decarboxylase (AADC) that result from
mutations in the dopa decarboxylase (DDC)
gene. This reduction leads to deficits in the
neurotransmitters dopamine, norepinephrine,
epinephrine, serotonin and melatonin. AADC
Deficiency causes severe developmental
delays, the inability to develop any motor
strength and control (global muscular
hypotonia/dystonia) resulting in breathing,
feeding, and swallowing problems, frequent
hospitalizations, and the need for life-long
care. Patients with severe forms often die in
the first decade of life due to profound motor
dysfunction, autonomic abnormalities, and
secondary complications such as choking,
hypoxia, and pneumonia. No treatment options
other than palliative care currently exist for
many AADC patients.
AML: Acute myeloid leukemia (AML) is a
cancer characterized by the rapid growth
of abnormal cells that build up in the bone
marrow and blood and interfere with normal
blood cells. Symptoms may include feeling
tired, shortness of breath, easy bruising and
bleeding and increased risk of infection.
Occasionally, spread may occur to the brain,
skin or gums. AML progresses rapidly
and is typically fatal within weeks or months
if left untreated.
AS: Angelman syndrome (AS) is a severe
neurological development disorder
characterized by profound developmental
delays, problems with motor coordination
(ataxia) and balance, and epilepsy. Individuals
with AS do not develop functional speech,
have seizures and sleeping difficulties. AS
is caused by a problem with UBE3a gene
and affects all races and both genders
equally. It is estimated that there are up
to 15,000 people in the U.S. living with AS.
People living with AS require life-long care,
intense therapies to help develop functional
skills and improve their quality of life, and
close medical supervision involving multiple
interventions. AS may be misdiagnosed since
other syndromes have similar characteristics.
There are currently no approved treatments
for AS.
DIPG: Diffuse interstitial pontine glioma
(DIPG) is a rare, rapidly fatal pediatric brain
tumor. There are less than 1,000 cases per
year reported in the U.S. and Canada. Patients
are usually diagnosed between 5-6 years of
age. 98% of patients die within two years of
diagnosis.
DMD: Duchenne muscular dystrophy (DMD)
is the most common and one of the most
severe types of muscular dystrophy. DMD
occurs when a mutation in the dystrophin
gene prevents the cell from making a
functional dystrophin protein. Dystrophin is
a muscle membrane associated protein and
is critical to the structural and membrane
stability of muscle fibers in the skeletal,
diaphragm and heart muscle. The absence
of normally functioning dystrophin results
in muscle fragility, such that muscle injury
occurs when muscles contract or stretch
during normal use. As muscle damage
progresses, connective tissue and fat replace
muscle fibers, resulting in inexorable muscle
weakness. Patients with DMD typically lose
walking ability by their early teens, require
ventilation support in their late teens and,
eventually, die due to heart and lung failure.
The average age of death for DMD patients is
in their mid-twenties.
FA: Friedreich ataxia (FA) is an inherited
neuromuscular disorder most commonly
caused by a single genetic defect in the
FXN gene that leads to reduced production
of frataxin, a mitochondrial protein that
is important for cellular metabolism and
energy production. FA results in a physically
debilitating, life-shortening condition and is
the most common hereditary ataxia, with an
estimated 5,000 to 10,000 patients in the U.S.
Symptoms of FA include progressive loss of
coordination and muscle strength, which lead
to the full-time use of a wheelchair; scoliosis
(which often requires surgical intervention);
diabetes mellitus; hearing and vision impair-
ment; serious heart conditions; and premature
death. Current FA therapies are primarily
focused on symptom relief, and there are no
FDA-approved drugs to treat the cause of FA.
FCS: Familial Chylomicronemia Syndrome
(FCS) is an ultra-rare disease caused by
impaired function of the enzyme lipoprotein
lipase (LPL) and characterized by severe
hypertriglyceridemia (>880mg/dL) and a risk
of unpredictable and potentially fatal acute
pancreatitis. Because of limited LPL function,
people with FCS cannot breakdown chylo-
microns, lipoprotein particles that are 90%
triglycerides. FCS patients are also at risk of
chronic complications due to permanent organ
damage. They can experience daily symptoms
including abdominal pain, generalized fatigue
and impaired cognitions that affect their
ability to work. People with FCS report major
emotional and psychosocial effects including
anxiety, social withdrawal, depression and
brain fog. There is no effective therapy for FCS
currently available.
FD: Familial Dysautonomia (FD) is a rare
genetic disorder affecting the sensory
and autonomic neurons. It is caused by a
splicing altering mutation in the IKBKAP
gene resulting in low levels of IKAP protein,
which is critical in neuronal development.
Decreased expression of IKAP in certain cell
types is the molecular basis for the severe,
neurodevelopmental disorder.
hATTR: hereditary transthyretin (hATTR)
amyloidosis is a progressive, systemic
and fatal inherited disease caused by the
abnormal formation of the TTR protein and
aggregation of TTR amyloid deposits in
various tissues and organs throughout the
body, including in peripheral nerves, heart,
intestinal tract, eyes, kidneys, central nervous
system, thyroid and bone marrow. The
progressive accumulation of TTR amyloid
deposits in these tissues and organs leads to
sensory, motor and autonomic dysfunction
often having debilitating effects on multiple
aspects of a patient’s life. Ultimately, hATTR
amyloidosis results in death within three
to 15 years of symptom onset. There are
an estimated 50,000 patients with hATTR
amyloidosis worldwide. Therapeutic options
for the treatment of patients with hATTR
amyloidosis are limited.
HD: Huntington’s disease (HD) is a rare
genetic disorder that is caused by a CAG
repeat expansion in the HTT gene. The
mutated HTT protein leads to severe neuron
degeneration predominately in the striatum
and the cerebral cortex. Currently, there are
no approved disease-modifying treatments.
LMS: Leiomyosarcomas (LMS) are malignant
tumors of muscle tissue. They are rare
tumors with approximately 3,000 new cases
in the U.S. There is a high rate of relapse with
a median overall survival of 14 months.
Reelin: Reelin is a large protein that helps
regulate processes of neuronal migration
and positioning in the developing brain
by controlling cell-cell interactions. It is
important in early brain development and
continues to work in the adult brain. It is
found not only in the brain, but also in the
liver, thyroid gland, adrenal gland, Fallopian
tube, breast and in comparatively lower levels
across different areas of the body. Reelin has
been suggested to be implicated in several
brain diseases.
SMA: Spinal Muscular Atrophy (SMA) is
a genetic disease caused by mutation or
deletion of the SMN1 (survival of motor
neuron) gene. It affects one in approximately
10,000 live births and, in its most severe
forms, is associated with a high rate of
childhood mortality. SMA is characterized by
progressive loss of α motor neurons, muscle
weakness, and atrophy. The disease affects
mainly proximal muscles including intercostal
muscles (chest muscles), and patients often
die due to respiratory complications.
Form 10-k
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TABLE OF CONTENTS PTC Therapeutics, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 2018
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 001-35969
PTC THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
100 Corporate Court
South Plainfield, New Jersey
(Address of principal executive offices)
04-3416587
(I.R.S. Employer
Identification No.)
07080
(Zip Code)
(908) 222-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
Name of each exchange on which registered
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
No
Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
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 and posted 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Use these links to rapidly review the document
TABLE OF CONTENTS PTC Therapeutics, Inc.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
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 aggregate market value of the Common Stock held by non-affiliates of the registrant, based upon the last sale price
of the Common Stock reported on the Nasdaq Global Select Market on June 29, 2018, the last business day of the registrant’s
most recently completed second fiscal quarter, was $1,521,120,427. For purposes of this calculation, shares of Common Stock
held by directors and officers have been treated as shares held by affiliates.
As of February 25, 2019, the registrant had 58,401,698 shares of Common Stock, $0.001 par value per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report incorporates by reference information from the definitive Proxy Statement for the
registrant’s 2019 Annual Meeting of Shareholders which is expected to be filed with the Securities and Exchange Commission
not later than 120 days after the registrant’s fiscal year ended December 31, 2018.
Table of Contents
TABLE OF CONTENTS
PTC Therapeutics, Inc.
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuers Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
SIGNATURES
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form10-K contains forward-looking statements that involve substantial risks and uncertainties. All
statements, other than statements of historical facts, contained in this Annual Report on Form 10-K, including statements regarding
our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of
management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,”
“plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are
intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Annual Report on Form 10-K include, among other things, statements about:
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our ability to realize the anticipated benefits of our acquisition of Agilis Biotherapeutics, Inc., or Agilis, including the
possibility that the expected impact of benefits from the acquisition, including with respect to the business of Agilis
and our expectations with respect to the potential achievement of development, regulatory and sales milestones and
our contingent payments to the former Agilis equityholders with respect thereto, will not be realized or will not be
realized within the expected time period, significant transaction costs, the integration of Agilis's operations and
employees into our business, our ability to obtain marketing approval of our gene therapy for the treatment of Aromatic
L-Amino Acid Decarboxylase, or AADC, deficiency, or PTC-AADC, and other product candidates we acquired from
Agilis, unknown liabilities, the risk of litigation and/or regulatory actions related to the acquisition, and other business
effects, including the effects of industry, market, economic, political or regulatory conditions;
our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms and processes on a
timely basis, or at all, with third-party payors for Emflaza™ (deflazacort) for the treatment of Duchenne muscular
dystrophy, or DMD, in the United States and for Translarna™ (ataluren) for the treatment of nonsense mutation DMD,
or nmDMD, in the European Economic Area, or EEA, and other countries in which we have or may obtain regulatory
approval, or in which there exist significant reimbursed early access programs, or EAP programs;
our ability to maintain our marketing authorization of Translarna for the treatment of nmDMD in the EEA (which is
subject to the specific obligation to conduct and submit the results of Study 041 to the EMA and annual review and
renewal by the European Commission following reassessment of the benefit-risk balance of the authorization by the
European Medicines Agency, or EMA);
our ability to enroll, fund, and complete Study 041, a multicenter, randomized, double-blind, 18-month, placebo-
controlled clinical trial of Translarna for the treatment of nmDMD followed by an 18-month open label extension,
according to the protocol agreed with the EMA, and by the EMA’s deadline;
the anticipated period of market exclusivity for Emflaza for the treatment of DMD in the United States under the Orphan
Drug Act of 1983, or Orphan Drug Act, the Drug Price Competition and Patent Term Restoration Act of 1984, or the
Hatch-Waxman Act;
our ability to complete the United States Food and Drug Administration, or FDA, post-marketing requirements to the
marketing authorization of Emflaza;
our ability to complete any dystrophin study necessary in order to resolve the matters set forth in the FDA's denial of
our appeal to the Complete Response Letter we received from the FDA in connection with our New Drug Application,
or NDA, for Translarna for the treatment of nmDMD, and our ability to perform additional clinical trials, non-clinical
studies or CMC assessments or analyses at significant cost;
the timing and scope of our continued commercialization of Translarna as a treatment for nmDMD in the EEA or other
territories outside of the United States;
our ability to obtain additional and maintain existing reimbursed named patient and cohort EAP programs for Translarna
for the treatment of nmDMD on adequate terms, or at all;
our expectations and the potential financial impact and benefits related to our Collaboration and Licensing Agreement
with Akcea Therapeutics, Inc., or Akcea, including with respect to the timing of regulatory approval of
TegsediTM (inotersen) and WaylivraTM (volanesorsen) in countries in which we are licensed to commercialize them,
the potential commercialization of Tegsedi and Waylivra, and our expectations with respect to contingent payments to
Akcea based on the potential achievement of certain regulatory milestones and royalty payments by us to Akcea based
on our potential achievement of certain net sales thresholds;
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our estimates regarding the potential market opportunity for Translarna, Emflaza, PTC-AADC, Tegsedi, Waylivra,
risdiplam or any other product candidate, including the size of eligible patient populations and our ability to identify
such patients;
our estimates regarding expenses, future revenues, third-party discounts and rebates, capital requirements and needs
for additional financing, including our ability to maintain the level of our expenses consistent with our internal budgets
and forecasts and to secure additional funds on favorable terms or at all;
our expectations with respect to future revenue generation from Emflaza and contingent payments to Marathon
Pharmaceuticals, LLC (now known as Complete Pharma Holdings, LLC), or Marathon, based on annual net sales;
the timing and conduct of our ongoing, planned and potential future clinical trials and studies of Translarna for the
treatment of nmDMD, aniridia, and Dravet syndrome/CDKL5, each caused by nonsense mutations, and Emflaza for
the treatment of limb-girdle 2I, as well as studies in our gene therapy, splicing and oncology programs, including the
timing of initiation, enrollment and completion of the trials and the period during which the results of the trials will
become available;
the rate and degree of market acceptance and clinical utility of Translarna, Emflaza, PTC-AADC, Tegsedi, Waylivra
and risdiplam;
the ability and willingness of patients and healthcare professionals to access Translarna through alternative means if
pricing and reimbursement negotiations in the applicable territory do not have a positive outcome;
the timing of, and our ability to obtain additional marketing authorizations for, Translarna, Tegsedi and our other product
candidates;
the ability of Translarna, Emflaza, PTC-AADC, Tegsedi, Waylivra and risdiplam and our other product candidates to
meet existing or future regulatory standards;
our ability to maintain the current labeling under the marketing authorization in the EEA or expand the approved product
label of Translarna for the treatment of nmDMD in non-ambulatory patients or otherwise;
the potential receipt of revenues from future sales of Translarna, Emflaza and other product candidates, including our
ability to earn a profit from sales or licenses of Translarna for the treatment of nmDMD in the countries in which we
have or may obtain regulatory approval and of Emflaza for the treatment of DMD in the United States;
the potential impact that enrollment, funding and completion of Study 041 may have on our revenue growth;
our sales, marketing and distribution capabilities and strategy, including the ability of our third-party manufacturers to
manufacture and deliver Translarna and Emflaza in clinically and commercially sufficient quantities and the ability of
distributors to process orders in a timely manner and satisfy their other obligations to us;
our ability to establish and maintain arrangements for the manufacture of Translarna, Emflaza and our other product
candidates that are sufficient to meet clinical trial and commercial launch requirements;
our ability to increase our manufacturing capabilities for our gene therapy platform;
our ability to satisfy our obligations under the terms of the credit and security agreement with MidCap Financial Trust,
or MidCap Financial, as administrative agent and MidCap Financial and certain other financial institutions as lenders
thereunder;
our other regulatory submissions, including with respect to timing and outcome of regulatory review;
our plans to pursue development of Translarna and Emflaza for additional indications;
our plans to advance our earlier stage programs and pursue research and development of other product candidates,
including our splicing, gene therapy and oncology programs;
• whether we may pursue business development opportunities, including potential collaborations, alliances, and
acquisition or licensing of assets and our ability to successfully develop or commercialize any assets to which we may
gain rights pursuant to such business development opportunities;
•
the potential advantages of Translarna, Emflaza, PTC-AADC, Tegsedi, Waylivra and risdiplam and any other product
candidate;
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our intellectual property position;
the impact of government laws and regulations;
the impact of litigation that has been or may be brought against us or of litigation that we are pursuing against others;
our competitive position; and
our expectations with respect to the development and regulatory status of our product candidates, including risdiplam,
and program directed against spinal muscular atrophy in collaboration with F. Hoffmann La Roche Ltd and Hoffmann
La Roche Inc., which we refer to collectively as Roche, and the Spinal Muscular Atrophy Foundation, or the SMA
Foundation, and our estimates regarding future revenues from achievement of milestones in that program.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you
should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans,
intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the
cautionary statements included in this Annual Report on Form 10-K, particularly in Part I, Item 1A. Risk Factors that we believe
could cause actual results or events to differ materially from the forward-looking statements that we make.
Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint
ventures or investments we may make.
You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to this Annual Report
on Form 10-K completely and with the understanding that our actual future results may be materially different from what we
expect. We do not assume any obligation to update any forward-looking statements whether as a result of new information, future
events or otherwise, except as required by applicable law.
In this Annual Report on Form 10-K, unless otherwise stated or the context otherwise requires, references to “PTC,” “PTC
Therapeutics,” “we,” “us,” “our,” “the Company,” and similar references refer to PTC Therapeutics, Inc. and, where appropriate,
its subsidiaries. The trademarks, trade names and service marks appearing in this Annual Report on Form 10-K are the property
of their respective owners.
All website addresses given in this Annual Report on Form 10-K are for information only and are not intended to be an
active link or to incorporate any website information into this document.
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Item 1. Business
Overview
PART I
We are a science-led global biopharmaceutical company focused on the discovery, development and commercialization of clinically-
differentiated medicines that provide benefits to patients with rare disorders. Our ability to globally commercialize products is the
foundation that drives our continued investment in a robust pipeline of transformative medicines and our mission to provide access
to best-in-class treatments for patients who have an unmet medical need.
Our Strategy
Our strategy is to bring best-in-class therapies with differentiated clinical benefit to patients affected by rare disorders and to
leverage our global commercial infrastructure to maximize value for our patients and other stakeholders.
• Global DMD Franchise - We have two products, Translarna™ (ataluren) and Emflaza™ (deflazacort), for the
treatment of Duchenne muscular dystrophy, or DMD, a rare, life threatening disorder. Translarna received marketing
authorization from the European Commission in August 2014 for the treatment of nonsense mutation Duchenne
muscular dystrophy, or nmDMD, in ambulatory patients aged five years and older in the 31 member states of the
European Economic Area, or EEA. In July 2018, the European Commission renewed our marketing authorization,
which is subject to annual renewal and other conditions, and approved a label-extension to our marketing authorization
to include patients from two to five years of age. During fiscal year 2018, Translarna achieved net sales of $171.0
million and is currently available for the treatment of nmDMD in over 40 countries. Emflaza is approved in the
United States for the treatment of DMD in patients five years and older. During fiscal year 2018, Emflaza achieved
net sales of $92.0 million.
• Gene Therapy Platform - We have a pipeline of gene therapy product candidates for rare monogenic diseases that
affect the central nervous system, or CNS, including PTC-AADC for the treatment of Aromatic L-Amino Acid
Decarboxylase, or AADC, deficiency, a rare CNS disorder arising from reductions in the enzyme AADC that result
from mutations in the dopa decarboxylase gene. We are preparing a biologics license application, or BLA, for PTC-
AADC for the treatment of AADC deficiency in the United States, which we anticipate submitting to the U.S. Food
and Drug Administration, or FDA, in late 2019, with an anticipated commercial launch in the United States in 2020.
We are also preparing a marketing authorization application, or MAA, for PTC-AADC for the treatment of AADC
deficiency in the European Union, or EU, for submission to the European Medicines Agency, or EMA, which will
follow our BLA submission to the FDA.
• Akcea Partnership - We hold the rights for the commercialization of Tegsedi™ (inotersen) and Waylivra™
(volanesorsen) for the treatment of rare diseases in countries in Latin America and the Caribbean pursuant to our
Collaboration and License Agreement with Akcea Therapeutics, Inc., or Akcea. Tegsedi has received marketing
authorization in the United States, EU and Canada for the treatment of stage 1 or stage 2 polyneuropathy in adult
patients with hereditary transthyretin amyloidosis, or hATTR amyloidosis, and was recently granted priority review
by Agência Nacional de Vigilância Sanitária, or ANVISA, the Brazilian health regulatory authority. Waylivra is
currently under regulatory review in the EU for the treatment of familial chylomicronemia syndrome, or FCS.
Splicing Platform - We also have a spinal muscular atrophy, or SMA, collaboration with F. Hoffman-La Roche Ltd.
and Hoffman-La Roche Inc., which we refer to collectively as Roche, and the Spinal Muscular Atrophy Foundation,
or SMA Foundation. Currently, our collaboration has two pivotal clinical trials ongoing to evaluate the safety and
effectiveness of risdiplam (RG7916, RO7034067), the lead compound in the SMA program. Roche is preparing an
NDA and a MAA for risdiplam for the treatment of SMA in the United States and the EU, respectively, which Roche
anticipates submitting to the FDA and the EMA in the second half of 2019.
•
• Pursuing Value-Creation Opportunities - In April 2017, we acquired all rights to Emflaza from Marathon
Pharmaceuticals, LLC (now known as Complete Pharma Holdings, LLC), or Marathon. In August 2018, we acquired
our gene therapy platform for rare monogenic diseases that affect the CNS through our acquisition of Agilis
Biotherapeutics, Inc., or Agilis. Also in August 2018, we entered into a Collaboration and License Agreement with
Akcea for the commercialization of TegsediTM (inotersen), WaylivraTM (volanesorsen) and products containing those
compounds in countries in Latin America and the Caribbean. As part of our business strategy, we may engage in
further strategic transactions to expand and diversify our product pipeline, including through the acquisition of assets,
businesses, or rights to products, product candidates or technologies or through strategic alliances or collaborations.
Our Pipeline
In addition to our commercial products, we have a pipeline of product candidates and discovery programs at various stages of
development, including clinical, pre-clinical and research and discovery stages, focused on the development of new treatments
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for multiple therapeutic areas, including rare diseases and oncology. The chart below summarizes the status of our more advanced
programs as of the date of this report, including those with our strategic partners:
Gene Therapy Platform
Our gene therapy platform focuses on the development of innovative therapies for rare, debilitating diseases of the CNS. Our lead
gene therapy product candidate is PTC-AADC for the treatment of AADC deficiency. AADC deficiency is a rare CNS disorder
arising from reductions in the enzyme AADC that result from mutations in the dopa decarboxylase gene. AADC is the enzyme
responsible for the conversion of L-dopa to dopamine. Dopamine is a key neurotransmitter that acts within the striatum (caudate
and putamen), a component of the brain’s deep grey matter, to modulate output of neurons that project to the motor and premotor
cortices of the brain that plan and execute normal motor function. Dopamine is required in the brain for humans to develop and
maintain proper motor function.
AADC deficiency is a monogenic disorder of neurotransmitter synthesis that manifests in young children and most commonly
results in profound developmental delay, often seen as complete arrest of motor development. AADC deficiency generally causes
the inability to develop motor control, resulting in breathing, feeding, and swallowing problems, frequent hospitalizations, and
the need for life-long care. On average, patients with AADC deficiency die in the first decade of life due to profound motor
dysfunction and secondary complications such as choking, hypoxia, and pneumonia. Currently, no treatment options are available
for the underlying cause of the disorder, and care is limited to palliative options with significant burden on caregivers.
The prevalence of AADC deficiency has been estimated to be approximately 5,000 patients worldwide, with a live-birth incidence
of approximately 1 in 40,000 worldwide. While several diagnostic tests for AADC deficiency are available, the condition remains
largely misdiagnosed or undiagnosed.
PTC-AADC is an adeno-associated virus, or AAV, gene therapy, which has been assessed in two completed clinical trials, and one
trial in which enrollment and dosing is ongoing. The two completed trials include a total of 18 children with severe AADC deficiency
who were treated with a one-time total dose of 1.8 x 1011 vg of PTC-AADC during a single procedure in which the gene therapy
was administered directly to the region of the brain where dopamine is made and released, called the putamen. The targeted micro-
dosing approach administering small amounts of gene therapy directly to focal regions of affected cells in the putamen has the
benefit of keeping the supply requirements for materials low, improving access of the therapeutic gene to key cells, potentially
limiting immune and complement-mediated responses and reducing the risk of off-target uptake and excretion of the gene therapy
by the liver and kidneys. To date, results from these trials suggest that patients may have a gain of motor functions and improvement
in cognitive scales following gene therapy administration and have shown significant increases in motor function, which contrasts
with the published natural history.
The two completed clinical trials, AADC-1601, a trial in which patients were enrolled under individual compassionate use consents,
and AADC-010, were both single-arm, open-label, interventional trials that enrolled a total of 18 patients. The primary and
secondary objectives of these trials were to assess the safety and efficacy of PTC-AADC administered via bilateral
putaminal infusions in patients with severe AADC deficiency at a total one-time dose of 1.8 x 1011 vg. Study enrollment required
a diagnosis of AADC deficiency, defined as decreased homovanilic acid, or HVA, and 5-hydroxyindoleacetic acid, or 5 HIAA,
and elevated L-Dopa cerebrospinal fluid, or CSF, levels, presence of more than one DDC gene mutation, and presence of clinical
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symptoms of AADC deficiency (including developmental delay, hypotonia, dystonia, and oculogyric crisis), and patient age of
older than 2 years.
Patients were evaluated monthly for safety assessments and every three months for efficacy assessments that included tests of
motor developmental testing (Peabody Developmental Motor Scale, Second Edition, or PDMS-2, and Alberta Infant Motor Scale,
or AIMS) through the first year after treatment with PTC-AADC and at periodic intervals thereafter through five years following
treatment. The PDMS-2 and AIMS are validated scales used to assess motor skills in young children. Pharmacodynamic testing
of CNS AADC activity over time included analyses of CSF neurotransmitter metabolites and FDOPA PET imaging intervals, also
through five years.
8 patients were enrolled in the AADC-1601 study. 10 patients were enrolled in the AADC-010 study. In both studies, the average
age of patients was less than 5 years of age.
At baseline, patients had no functional movement and failed to achieve any motor milestones, including head control, sitting or
standing capabilities, consistent with the published natural history of severe AADC deficiency. Compared to baseline, at one-year
and at five-years after PTC-AADC administration, patients had objective evidence of de novo dopamine production as visualized
by F-DOPA PET imaging of the brain, consistent with successful and stable gene expression and enzyme activity over time.
Based on preliminary analysis, following administration of PTC-AADC, the combined group of patients showed significant
improvements from baseline capabilities at one-year post-treatment in functional motor skills assessed with the PDMS-2 total
score, as well as on the locomotion, grasping, visual-motor integration and stationary subscales. Significant improvements from
baseline at one-year post-treatment were also observed for the combined group of patients on the AIMS total score and on the
prone, supine, sit and stand subscales.
Compared to published natural history data, patients in these trials showed statistically significant improvements at both two- and
five-year post-treatment in achievement of motor milestones of full head control (at 2 and 5 years), sitting unassisted (at 2 and 5
years) and standing with support (at 5 years), reinforcing the clinical benefit and sustainability of functional motor improvements.
Surgical injection of PTC-AADC in both completed trials was well tolerated, with no adverse events occurring during the surgical
procedure. Adverse events were generally associated with the disease state. The most frequent adverse event associated with PTC-
AADC was dyskinesia and these events completely resolved over time. No serious adverse events have been attributed to PTC-
AADC.
The ongoing clinical trial, AADC-011, is a single-center, open-label trial to assess the efficacy and safety of PTC-AADC in patients
with AADC deficiency. The primary outcomes for this trial include assessing a change in the PDMS-2 score and measuring the
change in the neurotransmitter metabolite HVA or 5-HIAA in the cerebrospinal fluid. A total of 10 patients is planned for recruitment,
of which 8 have been enrolled and treated to date. With these 8 patients, we now have 26 patients from our three trials being
evaluated in safety and efficacy studies.
An end-of-phase 2 meeting was held with the FDA in July 2017, and the clinical, non-clinical and chemistry, manufacturing and
control, or CMC, data available to date from the two completed clinical trials were reviewed. The FDA provided feedback indicating
that the clinical and non-clinical data available to date were sufficient to support the submission of a BLA without undertaking
additional trials or studies at this time. Based on the FDA input, including with respect to manufacturing, we are preparing a BLA
for PTC-AADC for the treatment of AADC deficiency in the United States, which we anticipate submitting to the FDA in late
2019, with an anticipated commercial launch in the United States in 2020. PTC-AADC for the treatment of AADC deficiency has
orphan drug designation in the United States and EU, and rare pediatric disease designation in the United States, and upon BLA
approval the FDA may grant us a priority review voucher.
In April 2018, a protocol assistance meeting was held with the Scientific Advice Working Party of the EMA in anticipation of the
expected submission of a MAA in the EU and received feedback indicating the clinical and non-clinical data available to date
were sufficient to support the submission of an MAA without undertaking additional trials or studies at this time. We are preparing
an MAA for the treatment of AADC deficiency with PTC-AADC in the EU, which we plan to submit to the EMA following our
BLA submission to the FDA. Based on the FDA’s input and feedback from the EMA, we do not deem necessary and do not plan
to conduct a Phase 3 trial for PTC-AADC for the treatment of AADC deficiency.
There is no guarantee that we will be able to make the BLA or MAA submissions within our expected timelines or that following
such submissions, the FDA or EMA would not have additional comments or requirements with respect to the respective submissions
that we would be required to address before obtaining regulatory submission and approval, or that the FDA, the EMA or any other
regulatory authority will approve PTC-AADC for treatment of AADC deficiency at all.
If PTC-AADC for the treatment of AADC deficiency receives FDA approval, we expect that PTC-AADC would have a twelve-
year exclusive marketing period in the United States for the approved indication, commencing on the date of FDA approval, under
the provisions of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as well as a concurrent seven-year
exclusive marketing period, which would commence on the date of FDA approval, under the provisions of the Orphan Drug Act of
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1983, or Orphan Drug Act. We are pursuing patent protection for PTC-AADC, and, in the meantime, we expect to rely on the
twelve-year BPCIA regulatory exclusivity and concurrent seven-year Orphan Drug Act exclusivity to commercialize PTC-AADC
in the United States, if it is approved. Due to its orphan designation in the EMA, we anticipate that PTC-AADC would have similar
market exclusivities in the EU, if it is approved.
See “Item 1. Business-Government Regulation-The new drug and biologic approval process” below for further discussion with
respect to the BLA and MAA process. See “Item 1A. Risk Factors-Risks Related to our Gene Therapy Platform” and “-Risks
Related to Regulatory Approval of our Product and our Product Candidates” for further detail regarding the related risks to the
development, regulatory process and commercialization of gene therapy products.
Our gene therapy platform also includes a gene therapy asset targeting Friedreich ataxia, a rare and life-shortening neurodegenerative
disease caused by a single defect in the FXN gene which causes reduced production of the frataxin protein. We expect to submit
an investigational new drug application, or IND, to the FDA for this program in late 2019. Additionally, the gene therapy platform
includes two other gene therapy programs targeting CNS disorders, including Angelman syndrome, a rare, genetic, neurological
disorder characterized by severe developmental delays. We expect to submit an IND to the FDA for this program in 2020.
Global DMD Franchise
Duchenne muscular dystrophy (DMD)
Muscular dystrophies are genetic disorders involving progressive muscle wasting and weakness. DMD is the most common and
one of the most severe types of muscular dystrophy. DMD occurs when a mutation in the dystrophin gene prevents the cell from
making a functional dystrophin protein. Dystrophin is a muscle membrane associated protein and is critical to the structural and
membrane stability of muscle fibers in skeletal, diaphragm and heart muscle. The absence of normally functioning dystrophin
results in muscle fragility, such that muscle injury occurs when muscles contract or stretch during normal use. As muscle damage
progresses, connective tissue and fat replace muscle fibers, resulting in inexorable muscle weakness.
Because the dystrophin gene is located on the X chromosome, DMD occurs primarily in young boys, although approximately
10% of female carriers show some disease symptoms. DMD is rare, and estimates of occurrence include approximately 1 in every
3,500 live male births, according to Parent Project Muscular Dystrophy and approximately 1 in every 5,000 live male births
according to Ryder (2017) in the European Journal of Human Genetics. We estimate that there are between approximately 10,000
and 15,000 DMD patients in the United States. Several different types of mutation in the dystrophin gene can result in DMD,
including deletion, duplication and nonsense mutations. A test known as multiplex ligation-dependent probe amplification (MLPA)
can detect large deletions and duplications, which account for approximately 75% of all mutations. However, gene sequencing is
required to identify small mutations such as nonsense mutations. We estimate that nonsense mutations account for approximately
13% of cases of DMD. Without treatment, patients with DMD typically lose walking ability by their early teens, require ventilation
support in their late teens, and eventually experience premature death due to heart and lung failure. Even with medical care, most
people with DMD die from cardiac or respiratory failure before or during their 30s.
Marketing authorization matters
Translarna for the treatment of nonsense mutation Duchenne muscular dystrophy
European Economic Area
We received marketing authorization from the European Commission in August 2014 for Translarna for the treatment of nmDMD
in ambulatory patients aged five years and older in the 31 member states of the EEA, subject to annual renewal and other conditions.
In July 2018, the European Commission approved a label-extension request to our marketing authorization for Translarna in the
EEA to include patients from two to up to five years of age. In September 2018, we submitted to the EMA a label-extension request
to our marketing authorization in the EEA to include patients who are non-ambulatory. However, there can be no assurances that
we will successfully obtain such label extension. In July 2018, the European Commission renewed our marketing authorization,
making it effective, unless extended, through August 5, 2019. In February 2019, we submitted a marketing authorization renewal
request to the EMA.
The conditional marketing authorization is subject to annual review and renewal by the European Commission following
reassessment by the EMA of the benefit-risk balance of continued authorization, which we refer to as the annual EMA reassessment,
as well as our satisfaction of any specific obligation or other requirement placed upon the marketing authorization, including Study
041, a three-year clinical trial to confirm the efficacy and safety of Translarna.
In January 2016, we submitted the final clinical study report from our Phase 3 clinical trial in nmDMD (referred to as ACT DMD) to
the EMA in fulfillment of the initial specific obligation placed on our marketing authorization. The primary efficacy endpoint of
ACT DMD was not achieved with statistical significance. We made our submission to the EMA as a type II variation request that
sought to have this initial specific obligation to our marketing authorization removed and a full marketing authorization granted.
In February 2016, we also submitted a marketing authorization renewal request with the EMA.
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The European Commission’s renewal of our marketing authorization in January 2017 was based on the totality of the clinical data
available from our trials and studies of Translarna for the treatment of nmDMD, including the safety and efficacy results of our
Phase 2b and Phase 3 clinical trials, and our commitment to conduct and submit the results of Study 041 to the EMA by the end
of the third quarter of 2021. Due to enrollment at a slower pace in certain countries than initially expected, in our February 2019
marketing authorization renewal request, we asked the EMA to extend the timeframe for submission of the results of Study 041
to the EMA to the end of the third quarter of 2022. The trial is comprised of two stages: an 18-month randomized, double-blind,
placebo controlled clinical trial followed by an 18-month open label extension period. See “Item 1. Business-Planned and ongoing
clinical development of Translarna in nonsense mutation Duchenne muscular dystrophy-Study 041” for further information
regarding the specific obligation to the marketing authorization in the EEA. The authorization remains subject to the annual EMA
reassessment, as the EMA did not grant our request for full marketing authorization.
Marketing authorization is required in order for us to engage in any commercialization of Translarna in the EEA, including through
participation in the market access process and related pricing and reimbursement negotiations, on a country-by-country basis with
each country in the EEA, and is also required to make Translarna available under early access programs, or EAP programs. There
is substantial risk that if we are unable to renew our EEA marketing authorization during any annual renewal cycle, if our product
label is materially restricted, or if Study 041 does not provide the data necessary to maintain our marketing authorization, we
would lose all, or a significant portion of, our ability to generate revenue from sales of Translarna in the EEA and other territories.
See “Item 1. Business-Commercial Matters-Market Access Considerations” and “Item 1A. Risk Factors-Risks Related to the
Development and Commercialization of our Product and our Product Candidates” and “-Risks Related to Regulatory Approval
of our Product and our Product Candidates” for further information regarding the marketing authorization in the EEA, the market
access process and related risks.
As the marketing authorization holder, we are obligated to monitor the use of Translarna for nmDMD to detect, assess and take
required action with respect to information that could impact the safety profile of Translarna and to report this information, through
pharmacovigilance submissions, to the EMA. Following its assessment of these submissions, the EMA can recommend to the
European Commission actions ranging from the continued maintenance of the marketing authorization to its withdrawal.
United States
Translarna is an investigational new drug in the U.S. During the first quarter of 2017, we filed a New Drug Application, or NDA,
for Translarna for the treatment of nmDMD over protest with the FDA. In October 2017, the Office of Drug Evaluation I of the
FDA issued a Complete Response Letter for the NDA, stating that it was unable to approve the application in its current form. In
response, we filed a formal dispute resolution request with the Office of New Drugs of the FDA. In February 2018, the Office of
New Drugs of the FDA denied our appeal of the Complete Response Letter. In its response, the Office of New Drugs recommended
a possible path forward for our ataluren NDA submission based on the accelerated approval pathway. This would involve a re-
submission of an NDA containing the current data on effectiveness and safety of ataluren with new data to be generated on
dystrophin production in nmDMD patients’ muscles. We intend to follow the FDA’s recommendation and will collect, using newer
technologies via procedures and methods that we designed, such dystrophin data in a new study, Study 045, which we initiated in
the fourth quarter of 2018. We expect that a potential re-submission of an NDA could occur in 2020. Additionally, should a re-
submission of an NDA receive accelerated approval, the Office of New Drugs stated that Study 041, which is currently enrolling,
could serve as the confirmatory post-approval trial required in connection with the accelerated approval pathway.
There is substantial risk that Study 045, or any other studies we may use to collect the dystrophin data, will not provide the necessary
data to support a marketing approval for Translarna for the treatment of nmDMD in the U.S.
See “Item 1. Business-Government Regulation-The new drug and biologic approval process” below for further discussion with
respect to the NDA process. See “Item 1. Business-Translarna™ (ataluren)” and “Item 1A. Risk Factors-Risks Related to the
Development and Commercialization of our Product and our Product Candidates” and “-Risks Related to Regulatory Approval
of our Product and our Product Candidates” for further detail regarding the results of our completed trials and studies of Translarna
for the treatment of nmDMD, our regulatory strategy in the United States, our history with submissions to the FDA and the related
risks to our business.
Other Territories
Translarna received marketing authorization for the treatment of nmDMD in Israel and South Korea in 2015 and Chile in 2018
and these licenses are currently active. We have filed for marketing authorization with ANVISA, the Brazilian regulatory authority.
We expect a regulatory decision on approval in Brazil by the end of 2019. Many territories outside of the EEA, including Israel,
South Korea and Chile, reference and depend on the determinations by the EMA when considering the grant of a marketing
authorization. It is unlikely that we would be able to maintain our marketing authorizations in these regions in the event the EMA
determines not to renew or otherwise modifies or withdraws our marketing authorization in the EEA. We have been pursuing and
expect to continue to pursue marketing authorizations for Translarna for the treatment of nmDMD in other regions.
Emflaza for the treatment of Duchenne muscular dystrophy in the United States
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Emflaza, both in tablet and suspension form, received approval from the FDA in February 2017 as a treatment for DMD in patients
five years of age and older in the United States. We estimate that there are between approximately 10,000 and 15,000 DMD patients
in the United States. We are obligated to complete certain post-marketing requirements in connection with the FDA's approval,
including pre-clinical and clinical safety studies. In recent interactions with the FDA, we were invited to submit a supplementary
NDA, or sNDA, for Emflaza for patients 2 to 5 years of age on the basis that existing data support its safety and efficacy in this
population. We recently submitted the sNDA for potential approval in 2019, recently received an approval action date of July 4,
2019, and now expect to launch Emflaza in this younger population before the end of 2019.
Emflaza has a seven-year exclusive marketing period in the United States for the approved indication, commencing on the date
of FDA approval, under the provisions of the Orphan Drug Act of 1983, or the Orphan Drug Act, as well as a concurrent five-year
exclusive marketing period in the United States for the active moiety in Emflaza under the provisions of the Drug Price Competition
and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act. In 2017, the FDA had requested that we conduct a pediatric
study of Emflaza, which, upon completion of an agreed-upon study, we expected to be granted a six-month term of pediatric
exclusivity, added to the end of the term of any existing regulatory exclusivity, including the seven-year orphan exclusivity period.
With the invitation to submit the sNDA, discussed above, this previous request from the FDA that a trial in patients 2 to 5 years
of age be performed has been officially withdrawn and the trial will no longer be conducted, and therefore we will no longer
receive the six-month term of pediatric exclusivity. See “Item 1. Business-Government Regulation-The new drug and biologic
approval process-Hatch-Waxman Act for Drugs” below for further discussion with respect to marketing protection we rely on.
Akcea Partnership
In August 2018 we entered into a Collaboration and License Agreement with Akcea for the commercialization by us of
TegsediTM (inotersen), WaylivraTM (volanesorsen) and products containing those compounds in countries in Latin America and the
Caribbean, or the PTC Territory. See “Item 1. Business-Our Collaboration and Funding Arrangements-Akcea Therapeutics” below
for further discussion with respect to our Collaboration and License Agreement with Akcea.
Tegsedi
Tegsedi, a product of Ionis Pharmaceuticals, Inc.’s, an affiliate of Akcea, proprietary antisense technology, is an antisense
oligonucleotide, or ASO, inhibitor of human transthyretin, or TTR, production. Tegsedi is the world’s first RNA-targeted therapeutic
to treat patients with hereditary transthyretin amyloidosis, or hATTR amyloidosis. It has received marketing authorization in the
U.S., EU and Canada for the treatment of stage 1 or stage 2 polyneuropathy in adult patients with hATTR amyloidosis. We have
filed for marketing authorization with ANVISA, which granted priority review. We expect approval in Brazil by the end of 2019.
hATTR amyloidosis is a progressive, systemic and fatal inherited disease caused by the abnormal formation of the TTR protein
and aggregation of TTR amyloid deposits in various tissues and organs throughout the body, including in peripheral nerves, heart,
intestinal tract, eyes, kidneys, central nervous system, thyroid and bone marrow. The progressive accumulation of TTR amyloid
deposits in these tissues and organs leads to sensory, motor and autonomic dysfunction often having debilitating effects on multiple
aspects of a patient's life. Patients with hATTR amyloidosis often present with a mixed phenotype and experience overlapping
symptoms of polyneuropathy and cardiomyopathy.
Ultimately, hATTR amyloidosis generally results in death within three to fifteen years of symptom onset. Therapeutic options for
the treatment of patients with hATTR amyloidosis are limited and there are currently no disease-modifying drugs approved for
the disease. There are an estimated 50,000 patients with hATTR amyloidosis worldwide, including approximately 6,000 patients
with polyneuropathic hATTR amyloidosis in Latin America.
Waylivra
Waylivra, is under regulatory review in the EU for the treatment of familial chylomicronemia syndrome, or FCS. The U.S. and
EU regulatory agencies have granted orphan drug designation to Waylivra for the treatment of FCS. In August 2018, Waylivra
received a Complete Response Letter from the FDA's Division of Metabolism and Endocrinology Products. In the fourth quarter
of 2018, Waylivra received a notice of noncompliance withdrawal letter from Health Canada. Additionally, Waylivra is currently
in Phase 3 clinical development for the treatment of people with familial partial lipodystrophy, or FPL. The EMA has granted
orphan drug designation to Waylivra for the treatment of patients with FPL.
FCS is an ultra-rare disease caused by impaired function of the enzyme lipoprotein lipase, or LPL, and characterized by severe
hypertriglyceridemia (>880mg/dL) and a risk of unpredictable and potentially fatal acute pancreatitis. Because of limited LPL
function, people with FCS cannot break down chylomicrons, lipoprotein particles that are 90% triglycerides. In addition to
pancreatitis, FCS patients are at risk of chronic complications due to permanent organ damage. They can experience daily symptoms
including abdominal pain, generalized fatigue and impaired cognitions that affect their ability to work. People with FCS also report
major emotional and psychosocial effects including anxiety, social withdrawal, depression and brain fog. There is no effective
therapy for FCS currently available.
Neither Tegsedi nor Waylivra is currently approved for marketing in the PTC Territory.
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Product development programs
Our pipeline has a number of development programs in the clinical and pre-clinical stages. These include our splicing, gene therapy
and oncology programs as well additional studies of our current commercial products to both expand marketing labels and find
benefits that these treatments may have in additional indications.
Translarna™ (ataluren)
Mechanism of action
We discovered Translarna by applying our technologies to identify molecules that promote or enhance the suppression of nonsense
mutations. Nonsense mutations are implicated in a variety of genetic disorders. Nonsense mutations create a premature stop signal
in the translation of the genetic code contained in messenger RNA, or mRNA, and prevent the production of full-length, functional
proteins. Based on our research, we believe that Translarna interacts with the ribosome, which is the component of the cell that
decodes the mRNA molecule and manufactures proteins, to enable the ribosome to read through premature nonsense stop signals
on mRNA and allow the cell to produce a full-length, functional protein. As a result, we believe that Translarna has the potential
to be an important therapy for genetic disorders which are the result of a nonsense mutation. Genetic tests are available for many
genetic disorders, including those noted above, to determine if the underlying cause is a nonsense mutation. Translarna has been
generally well-tolerated in all of our clinical trials to date, which have enrolled over 1,000 individuals to date.
Planned and ongoing clinical development of Translarna in nonsense mutation Duchenne muscular dystrophy
Study 041
Overview. As a specific obligation to our marketing authorization in the EEA, we are required to conduct and submit to the EMA
the results of a three-year clinical trial to confirm the efficacy and safety of Translarna in the treatment of ambulatory patients with
nmDMD aged five years or older. The trial is comprised of two stages: an 18-month randomized, double-blind, placebo controlled
clinical trial followed by an 18-month open label extension period. We refer to the 18-month clinical trial portion as “Stage 1” and
the 18-month extension period as “Stage 2”. We refer to Stage 1 and Stage 2 together as Study 041. As a condition to our marketing
authorization, we are required to submit the results of Study 041 to the EMA by September 2021. Due to enrollment at a slower
pace in certain countries than initially expected, in our February 2019 marketing authorization renewal request, we asked the EMA
to extend the timeframe for submission of the results of Study 041 to the EMA to the end of the third quarter of 2022. The protocol
for Study 041 has been approved by the CHMP.
For a discussion of the risks related to conducting clinical trials, in general, and Study 041, in particular, please see “Item 1A. Risk
Factors-Risks Related to the Development and Commercialization of our Product and our Product Candidates” ands “-Risks
Related to Regulatory Approval of our Product and our Product Candidates”.
Enrollment. According to the study protocol, Study 041 will enroll nmDMD patients aged five years and above who achieve a 6-
minute walk distance, or 6MWD, equal to or greater than 150 meters at three pre-treatment evaluation times (screening, baseline
day one and baseline day two), tested as set forth in the protocol. Qualified participants will also need to perform timed function
tests of running/walking 10 meters, climbing/descending four stairs and standing from supine within 30 seconds at both screening
and baseline, and meet the other criteria set forth in the protocol.
Of the approximately 250 patients planned to be enrolled in Study 041, approximately 160 patients are expected to meet the criteria
for inclusion in the primary analysis population, which we refer to as the modified intention-to-treat population, or mITT. Patients
included in the mITT must be at least 7, but less than 16, years old, with a 6MWD of equal to or greater than 300 meters and a
stand from supine time of five seconds or more, each as tested at screening and baseline.
Objectives and endpoints. The primary objective of Study 041 is to evaluate the effect of Translarna on ambulation and endurance
as assessed by the 6-minute walk test, or 6MWT. Based on the study protocol, the primary analysis of Stage 1 will evaluate the
difference in slope of change in 6MWD from baseline to week 72 between Translarna and placebo in the mITT population. Data
from participants who do not qualify for inclusion in the mITT will be used for summary and analysis of efficacy endpoints.
Slope of change in 6MWD over 144 weeks will also be assessed as a secondary endpoint at the conclusion of Stage 2, and the
consistency of the results at 144 weeks against week 72 will be assessed. Changes in 6MWD from baseline to week 72 and week
144 respectively will also be assessed as secondary endpoints.
A secondary objective of Study 041 is to determine the effects of Translarna on ambulation and burst activity as assessed by timed
function tests (10-meter run/walk, 4-stair stair-climb, and 4-stair stair descend). Each timed function test will be analyzed as a
secondary endpoint for both the mITT and ITT populations, at the end of Stage 1 and Stage 2. A separate analysis will evaluate
10-meter run/walk results in participants with a baseline 6MWD below 300 meters. An additional analysis will evaluate a composite
endpoint of average change in times to run/walk 10 meters, climb 4 stairs, and descend 4 stairs. We will also assess each of time
to loss of ambulation, stair-climbing and stair-descending over 72 weeks and over 144 weeks.
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Determination of the effects of Translarna on lower-limb muscle function as assessed by the North Star Ambulatory Assessment,
or NSAA, a functional scale designed for boys affected by DMD, will serve as an additional secondary objective. NSAA scores
will be analyzed as secondary endpoints for both the mITT and ITT populations, at the end of Stage 1 and Stage 2. A separate
analysis for Stage 2 will evaluate changes in total score in participants with a baseline 6MWD of equal to or greater than 400
meters and under 7 years of age. We will also assess the risk of loss of NSAA items over 72 weeks and 144 weeks.
The safety profile of Translarna also will be evaluated throughout Stage 1 and Stage 2 as a secondary objective.
Certain exploratory endpoints will also be assessed in Study 041. In patients aged 7 years and above, change from baseline in
upper limb function will be assessed using both functional testing and parent/caregiver-reported questionnaires. In patients under
7 years of age, muscle strength will be assessed by change from baseline in myometry parameters. At pre-qualified sites only,
magnetic resonance imaging will be used to assess change from baseline in muscle fat fraction. The effects of Translarna on
pulmonary function will be assessed by change from baseline in forced vital capacity. In addition, subject- and parent/caregiver-
reported questionnaires and at-home diaries will be assessed to evaluate the effect of Translarna on health-related quality of life
(HRQL) changes from baseline.
Stratification. In Stage 1, participants will be randomized 1:1 to placebo or Translarna (10, 10, 20 mg/kg). The randomization will
be stratified based on type of concomitant corticosteroid used at baseline (deflazacort versus prednisone/prednisolone), maximum
of the two valid 6-minute walk tests performed at baseline day 1 and day 2 (<300 meters versus 300 to <350 meters, versus 350
to <400 meters, versus 400 meters), and time to stand from supine at baseline (<5 seconds versus 5 seconds).
Study 045
Following the FDA’s recommendation to collect dystrophin data using validated quantification methods, we initiated Study 045
to evaluate the ability of ataluren to increase dystrophin protein levels in boys with nmDMD. The study, a Phase 2 open label
clinical study, was initiated in the fourth quarter of 2018, and will have a 40-week study period. We expect the study to be completed
in the first quarter of 2020.
Observational study, data collection, and open label, extension trials of Translarna for treatment of nmDMD
We are undertaking a multi-center, observational post-approval study of patients receiving Translarna on a commercial basis, or
Study 025o, as required by the Pharmacovigilance Risk Assessment Committee of the EMA and in collaboration with TREAT-
NMD and the Cooperative International Neuromuscular Research Group. During the study we will gather data on the safety,
effectiveness, and prescription patterns of Translarna in routine clinical practice. We have successfully enrolled more than 200
patients in Study 025o and we expect to follow their progress over five years.
Pursuant to the five-year managed access agreement entered into in July 2016 between us, the UK National Institute for Health
and Care Excellence, or NICE, National Health Services England, or NHS England, and other interested parties, the NorthStar
Network is collecting data on the efficacy of Translarna for the treatment of nmDMD as measured by the NorthStar Ambulatory
Assessment test. Patients receiving Translarna will be compared to an historical natural history population as well as a matched
control group in order to assess response to treatment over the period specified in the managed access agreement.
An open label, extension trial involving patients who participated in ACT DMD is also ongoing, across multiple sites in the United
States, Europe and other territories. Two open label extension trials involving patients from the United States, Europe, Israel,
Australia, and Canada who had participated in our prior trials for nmDMD are also ongoing. In certain limited territories where
Translarna is available via a commercial or EAP program, we have begun to wind down the studies and are investigating the
potential impact that additional site closures may have on our research and development expense.
Completed clinical trials of Translarna in nonsense mutation Duchenne muscular dystrophy
Phase 2 pediatric study
As part of our pediatric development commitments under our marketing authorization in the EEA and to support the potential
expansion of the Translarna label to younger patients with nmDMD, we initiated a Phase 2 pediatric clinical study to evaluate the
safety and pharmacokinetics of Translarna in patients two to five years of age. The study, initiated in June 2016, included a four-
week screening period, a four-week study period, and a 48-week extension period for patients who complete the four-week study
period (52 weeks total treatment). In July 2018, the EMA approved a label-extension request to our marketing authorization for
Translarna in the EEA to include patients from two to up to five years of age, based on data from this study.
Phase 3 clinical trial of Translarna for nmDMD (ACT DMD)
In October 2015, we announced results from ACT DMD, also referred to as Study 020, our Phase 3, double-blind, placebo-
controlled, 48-week clinical trial to evaluate the safety and efficacy of Translarna in patients with nmDMD. ACT DMD involved
228 patients at 53 sites across 18 countries.
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In the overall intent-to-treat, or ITT, study population, the primary endpoint of change from baseline at week 48 in the 6MWT,
showed a 15 meter benefit in favor of Translarna, which did not meet statistical significance.
A summary of the safety and efficacy results from ACT DMD is outlined below.
Safety and tolerability. The results of ACT DMD confirmed the favorable safety profile of Translarna seen in our 48-week, 174-
patient Phase 2b double-blind, placebo controlled clinical trial evaluating the long-term safety and efficacy of Translarna in patients
with nmDMD completed in 2009, or the Phase 2b trial.
Translarna was generally well tolerated at both dose levels in our Phase 2b clinical trial. There were no study discontinuations due
to adverse events. Most treatment-emergent adverse events were mild or moderate in severity. Investigators’ attributions of drug-
related adverse effects were generally similar across the placebo and Translarna arms. The most common adverse events in this
trial were vomiting (46.6% overall), headache (29.3%), diarrhea (24.1%), nasopharyngitis (20.7%), fever (19.0%), cough (19.0%)
and upper abdominal pain (17.8%). These events were generally balanced across treatment arms and are typical of pediatric
illnesses. Adverse events with at least a 10% incidence in any treatment arm that were seen with increased frequency from the
placebo group to the Translarna 40 mg dose group to the Translarna 80 mg dose group were nausea (12.3% for placebo, 14.0%
for the Translarna 40 mg group and 16.7% for the Translarna 80 mg group), abdominal pain (7.0% for placebo, 12.3% for the
Translarna 40 mg group and 16.7% for the Translarna 80 mg group), pain in extremity (10.5% for placebo, 12.3% for the Translarna
40 mg group and 13.3% for the Translarna 80 mg group), flatulence (7.0% for placebo, 8.8% for the Translarna 40 mg group and
11.7% for the Translarna 80 mg group) and nasal congestion (7.0% for placebo, 8.8% for the Translarna 40 mg group and 10.0%
for the Translarna 80 mg group). There were no serious adverse events observed during the trial that were considered possibly or
probably related to Translarna. Determination of relatedness of the serious adverse event to Translarna was made by the trial
investigator, based on his or her judgment.
Translarna was generally well tolerated in ACT DMD. There were two study discontinuations due to adverse events, including
one in the Translarna arm (constipation) and one in the placebo arm (disease progression). Most treatment-emergent adverse events
were mild or moderate in severity. The most common adverse events in this trial were vomiting (20.4% overall), nasopharyngitis
(20.0%), headache (18.3%), and fall (17.8%). These events were generally balanced across treatment arms and are typical of
pediatric illnesses and/or patients with DMD. Adverse events with at least a 10% incidence in either treatment arm that were seen
with increased frequency from the placebo group to the Translarna 40 mg dose group were vomiting (18.3% for placebo, 23.6%
for the Translarna 40 mg group), nasopharyngitis (19.1% for placebo, 20.9% for the Translarna 40 mg group), fall (17.4% for
placebo, 18.3% for the Translarna 40 mg group), cough (11.3% for placebo, 16.5% for the Translarna 40 mg group) diarrhea (8.7%
for placebo, 17.4% for the Translarna 40 mg group), and pyrexia (10.4% for placebo, 13.9% for the Translarna 40 mg group). An
overview of adverse events in this trial is shown in the table below.
Overview of treatment-emergent adverse events in Phase 3 clinical trial (as-treated population)
Parameter
Adverse events by severity
Grade 1 (mild)
Grade 2 (moderate)
Grade 3 (severe)
Grade 4 (life-threatening)
Adverse events by relatedness
Unrelated
Unlikely
Possible
Probable
Discontinuations due to adverse events
Serious adverse events
Deaths
Placebo
N=115
Translarna
40 mg group
N=115
All
patients
N=230
101 (87.8)%
103 (89.6)%
204 (88.7)%
54 (47.0)%
37 (32.2)%
9 (7.8)%
—
47 (40.9)%
30 (26.1)%
18 (15.7)%
6 (5.2)%
1 (0.9)%
4 (3.5)%
—
61 (53.0)%
35 (30.4)%
115 (50.0)%
72 (31.3)%
7 (6.1)%
16 (7.0)%
—
—
44 (38.3)%
20 (17.4)%
27 (23.5)%
12 (10.4)%
1 (0.9)%
4 (3.5)%
—
91 (39.6)%
50 (21.7)%
45 (19.6)%
18 (7.8)%
2 (0.9)%
8 (3.5)%
—
There were no serious adverse events observed during the trial that were considered possibly or probably related to Translarna.
Determination of relatedness of the serious adverse event to Translarna was made by the trial investigator, based on his or her
judgment.
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Intent to Treat (ITT) Population. The primary efficacy endpoint in ACT DMD was change in 6MWD from baseline to week 48.
In the ITT population, a 15 meter benefit (p=0.213) was observed in the primary endpoint which did not meet statistical significance.
Secondary endpoints in the trial included the proportion of patients with at least 10% worsening in 6MWD at week 48 of the trial
compared to baseline, or 10% 6MWD worsening, and change in timed function tests of time to run/walk 10 meters, climb four
stairs and descend four stairs. The hazard ratio for Translarna versus placebo was 0.75 (p=0.160) for 10% 6MWD worsening.
Benefits trended in favor of Translarna over placebo in the timed function tests in the ITT population, including observed results
in time to run/walk 10 meters (1.2 seconds; p=0.117), time to climb four stairs (1.8 seconds; p=0.058), and time to descend four
stairs (1.8 seconds; p=0.012).
Additional endpoints included the NSAA test and the Pediatric Outcomes Data Collection Instrument, or PODCI, a validated tool
for measuring quality of life in pediatric patients with orthopedic conditions. These additional endpoints favored Translarna in the
ITT population but did not meet statistical significance.
Pre-Specified Analyses. The statistical analysis plan submitted to the FDA for ACT DMD set forth pre-specified analyses of
efficacy to be conducted, including subgroups of patients with baseline 6MWD less than 350 meters and patients with baseline
6MWD of greater than or equal to 300 and less than 400 meters, which we refer to as our key subgroups.
The pre-specification of our key subgroups was scientifically justified based upon knowledge of the biology and natural history
of the disease and the evolving understanding of the of the six minute walk test as used to assess DMD patients. We considered
the pre-specified less than 350 meter baseline 6MWD population as a key subgroup based on the knowledge that 350 meters
represents a transition point for patients towards a more rapid decline in walking ability as supported by analysis from our Phase 2b
trial. Furthermore, we considered the pre-specified 300 to 400 meter baseline 6MWD population as a key subgroup based on an
increasing understanding of the sensitivity limitations of the six minute walk test as an endpoint in 48-week studies. Natural history
data suggest that the 6MWT may not be the optimal tool to demonstrate efficacy in patients with either a baseline 6MWD of less
than 300 meters, as these patients have significant muscle loss as monitored by magnetic resonance spectroscopy and are at high
risk for losing ambulation regardless of treatment, or in high walking patients, such as those with a baseline 6MWD at or greater
than 400 meters, as these patients are likely to remain stable over a 48 week testing period.
By defining these key subgroups, we thereby also defined corresponding subgroups of patients with baseline 6MWD greater than
or equal to 350 meters, greater than or equal to 400 meters, and less than 300 meters. We also pre-specified a meta-analysis of the
combined results from ACT DMD and the Phase 2b ambulatory decline phase patients.
Pre-specified sub-group analysis. We saw strong evidence of clinical benefit in the pre-specified subgroup of patients with
baseline 6MWD between 300 and 400 meters. Specifically, we observed a benefit in Translarna-treated patients of 47 meters
(nominal p=0.007) in the 6MWT in this subgroup. This was consistent with an observed benefit of 49 meters (nominal p=0.026)
in our Phase 2b clinical trial in the 300 to 400 meters baseline 6MWD population. We also saw clinically meaningful benefit for
Translarna over placebo in each of the timed function tests, including observed results in time to run/walk 10 meters (2.1 seconds;
nominal p=0.066), time to climb four stairs (3.6 seconds; nominal p=0.003), and time to descend four stairs (4.3 seconds; nominal
p<0.001). The hazard ratio for Translarna versus placebo was 0.79 (nominal p=0.418) for 10% 6MWD worsening. In addition, a
benefit of 4.5 points over placebo (nominal p=0.041) was observed in the NSAA test, which we believe is clinically meaningful.
We believe that the benefits observed in this key pre-specified subgroup support the use of the 6MWT in the patients with a walking
ability in the 300 to 400 meters range and the understanding that the reliability of the 6MWT over a 48 week period was limited
at both the lower and upper ends of our 6MWD enrollment range.
In the pre-specified subgroup of patients with baseline 6MWD less than 350 meters, we observed a benefit of 24 meters (nominal
p=0.210) in favor of Translarna in the 6MWT. An analysis of the results from our Phase 2b clinical trial in the less than 350 meters
baseline 6MWD population, defined post-hoc, demonstrated a 68 meter benefit in the 6MWT (nominal p=0.006). In the timed
function tests for the subgroup of ACT DMD patients with baseline 6MWD less than 350 meters, we observed benefits for Translarna
over placebo in time to run/walk 10 meters (2.3 seconds; nominal p=0.033), time to climb four stairs (4.2 seconds; nominal p=0.019)
and time to descend four stairs (4.0 seconds; nominal p=0.007).
Typically, a trial result is statistically significant if the chance of it occurring when the treatment is like placebo is less than one
in 20, resulting in a p-value of less than 0.05. A nominal p-value is the result of one particular comparison when more than one
comparison is possible, such as when two active treatments are compared to placebo or when two or more subgroups are analyzed.
As described above, we believe the 6MWT lacks sensitivity to detect a clinical effect in patients with baseline less than 300 meters
in a 48-week trial. However, the timed function tests trended in favor of patients treated with Translarna with a baseline 6MWD
below 300 meters, including observed benefit over placebo in time to run/walk 10 meters (2.5 seconds; nominal p=0.066), time
to climb four stairs (2.4 seconds; nominal p=0.790), and time to descend four stairs (2.1 seconds; nominal p=0.595). We believe
the positive trends in this population reflect that short muscle burst activity tests may be a better clinical measure for patients that
are at a more advanced stage of disease progression. Consistent with the natural history of ambulatory DMD patients with 6MWD
greater than 400 meters, which indicates stability in walking ability over a 48 week period, we observed no meaningful difference
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in 6MWT between patient groups. Similarly, we observed no meaningful difference in 6MWT between patient groups with baseline
6MWD greater than 350 meters.
Pre-specified meta-analysis. The meta-analysis combined efficacy results from the ACT DMD ITT population and Phase 2b
ambulatory decline phase subgroup. The Phase 2b ambulatory decline phase group includes the patients from our randomized,
double-blind, placebo controlled, Phase 2b clinical trial in patients with nmDMD who would have met the enrollment criteria of
ACT DMD.
Results from the meta-analysis showed a statistically significant 21 meter improvement in 6MWD (p = 0.015) favoring Translarna.
Additionally, the meta-analysis showed statistically significant benefit for Translarna over placebo across each timed function test
including time to run/walk 10 meters (1.4 seconds; p=0.025), time to climb four stairs (1.6 seconds; p =0.018) and time to descend
four stairs (2.0 seconds; p=0.004). The hazard ratio for Translarna versus placebo was 0.66 (p=0.023) for 10% 6MWD worsening.
We believe that we are able to demonstrate a statistically significant outcome in the 6MWD in the meta-analysis, despite the
significant variability in baseline 6MWD among patients in both ACT DMD and the Phase 2b trial’s ambulatory decline phase,
due to the substantially larger patient population available in the pooled analysis.
Retrospective Analysis. We also looked back at the observed results in the meta-analysis for all patients with a baseline 300 to
400 meter 6MWD from ACT DMD and the Phase 2b trial. The meta-analysis of these data demonstrated a 45 meter benefit (nominal
p<0.001) in the 6MWT as well as clinically meaningful benefits across each secondary endpoint timed function test, including
benefit over placebo in time to run/walk 10 meters (2.2 seconds; nominal p=0.008), time to climb four stairs (3.4 seconds; nominal
p<0.001) and time to descend four stairs (4.3 seconds; nominal p<0.001). This meta-analysis of patients with baseline 6MWD of
300 to 400 meters was not pre-specified and is defined post-hoc.
A retrospective analysis performed after unblinding trial results can result in the introduction of bias if the analysis is inappropriately
tailored or influenced by knowledge of the data and actual results. In addition, nominal p-values cannot be compared to the
benchmark p-value of 0.05 to determine statistical significance without being adjusted for the testing of multiple dose groups or
analyses of subgroups. Because of these limitations, regulatory authorities typically give greatest weight to results from pre-
specified analyses and adjusted p-values and less weight to results from post-hoc, retrospective analyses and nominal p-values.
Statistical Considerations. The pre-specified meta-analysis results, which favored Translarna in the 6MWT and each of the timed
function tests, are considered statistically significant. In the pre-specified subgroups of ACT DMD patients with a baseline 6MWD
less than 350 meters and 300 to 400 meters, the p-values for the 6MWT and each of the timed function tests are considered nominal.
For information with respect to the use of nominal p-values and post-hoc analyses, see Item 1A. Risk Factors, “Our conclusions
regarding the activity and potential efficacy of Translarna in nmDMD are primarily based on retrospective, subgroup and meta-
analyses of the results of our Phase 2b and ACT DMD clinical trials of Translarna for the treatment of nmDMD. Other than with
respect to certain of our meta-analyses, results of our analyses are expressed as nominal p-values, which are generally considered
less reliable indicators of efficacy than adjusted p-values. In addition, retrospective analyses are generally considered less reliable
than pre-specified analyses.”
Participation Criteria and Stratification. Certain key inclusion criteria were specified in the ACT DMD trial protocol for
enrollment: the patient had to be 7 through 16 years of age; at the screening visit the patient had to be able to walk no more than
80% of predicted 6MWD compared to healthy boys matched for age and height, but had to be able to walk at least 150 meters
during the 6MWT; and the patient must have used systemic corticosteroids for a minimum of six months prior to start of treatment.
The ACT DMD trial protocol provided for the exclusion of patients from the trial if, among other things, they recently used systemic
aminoglycoside antibiotics, recently initiated or changed corticosteroid therapy or previously received Translarna treatment.
Patients enrolled in ACT DMD underwent 48 weeks of blinded treatment prior to the final analysis and the randomization was
stratified based on age (<9 years versus 9), baseline 6MWD (<350 versus 350 meters), and duration of prior use of corticosteroids
(<12 months versus 12 months).
TranslarnaTM for additional indications
Over the last seven years, multiple independent investigators have conducted preclinical studies in which Translarna enabled
readthrough of the premature stop codons from a large set of nonsense mutations across a diverse group of experimental models
exhibiting various genetic disorders. The studies evaluated the ability of Translarna to read through premature stop codons in
mRNA in cell-free systems, transfected cell lines, mouse models and patient cells. Based on these studies by independent
investigators in addition to our own trials and studies, we expect to continue to pursue additional indications for Translarna,
including aniridia caused by nonsense mutation and, via an investigator initiated study, Dravet syndrome/CDKL5 caused by
nonsense mutation.
Nonsense mutation aniridia
Aniridia is a genetic disorder due to mutations in the PAX6 gene associated with ocular anatomical defects at birth, progressive
loss of eyesight, and other symptoms. We estimate that approximately one-third of all aniridia cases are due to a nonsense mutation.
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In a prior study conducted by an independent investigator, Translarna-treated mice with nonsense mutation aniridia showed a
significant increase in the PAX6 protein in a nonsense mutation PAX6 gene, but not in mice with a PAX6 gene harboring a splice-
site mutation. The investigators in this study found that Translarna not only inhibited disease progression, but also reversed corneal,
lens and retinal defects and restored electrical responses of the retina.
The first patient in our clinical study of Translarna in nonsense mutation aniridia, which we refer to as STAR, was dosed in February
2016. STAR is a Phase 2, randomized, double-blinded, placebo-controlled study of Translarna in patients with aniridia caused by
a nonsense mutation, followed by an open-label extension study. Patients will receive blinded study drug for 48 weeks followed
by open-label Translarna for another 96 weeks. The open label portion of the study was extended from the initially planned 48
weeks to 96 weeks as our knowledge of the disease and endpoint evolved from when the study was originally initiated. Safety and
efficacy will be assessed. We have completed enrollment for our aniridia study and anticipate results during 2019.
Nonsense mutation Dravet syndrome/CDKL5
Dravet syndrome and CDKL5 are two different genetically defined disorders of epilepsy. Dravet syndrome, also called severe
myoclonic epilepsy of infancy, is a debilitating form of epilepsy caused by mutations in the sodium voltage gated channel a1
subunit gene required for the proper function of brain cells. People with Dravet syndrome experience frequent seizures and
developmental delays. CDKL5 is caused by a mutation of the Cyclin-dependent kinase-like 5 (CDKL5) gene leading to a lack of
the protein critical in brain development. CDKL5 is characterized by seizures starting early in life and severe developmental
impairment.
A clinical study assessing Translarna in nonsense mutation Dravet syndrome/CDKL5 was initiated in the first quarter of 2017.
The study is an investigative trial and we do not expect to use it as the basis for a regulatory submission. The study is fully enrolled
and we expect it to be completed in the first quarter of 2021, at which point we will reassess the program.
Emflaza for Limb-girdle 2I
Limb-girdle muscular dystrophy type 2I, or LGMD2I, is a form of limb-girdle muscular dystrophy, which refers to a group of
conditions that cause weakness and wasting of the muscles in the arms and legs. The proximal muscles (those closest to the body
such as the upper arms and thighs) are generally most affected by the condition. In LGMD2I, specifically, signs and symptoms often
develop in late childhood (average age 11.5 years) and may include difficulty running and walking. The symptoms gradually
worsen over time and affected people generally rely on a wheelchair for mobility approximately 23-26 years after onset. LGMD2I
is caused by changes (mutations) in the FKRP gene and is inherited in an autosomal recessive manner. There is currently no cure
for LGMD2I and treatment is based on the signs and symptoms present in each person.
We plan on initiating a clinical study assessing Emflaza in limb-girdle 2I in the second quarter of 2019. The study is expected to
be a 52 week placebo controlled study and we anticipate results during 2020.
Splicing Platform
Spinal muscular atrophy program
Spinal muscular atrophy, or SMA, is a genetic neuromuscular disease characterized by muscle wasting and weakness. The disease
generally manifests early in life. SMA is caused by mutation or deletion of the Survival of Motor Neuron 1, or SMN1, gene that
encodes the survival of motor neuron, or SMN, protein. The SMN protein is critical to the health and survival of the nerve cells
in the spinal cord responsible for muscle contraction. A second gene, SMN2, is very similar to SMN1, except that SMN2 contains
a T nucleotide at position 6 in exon 7 that results in splicing and production of reduced levels of functional SMN protein. According
to the SMA Foundation, SMA is the leading genetic cause of death in infants and toddlers and that one in approximately 11,000
children is born with the disease. We estimate that SMA affects approximately 20,000 to 30,000 children and adults in the United
States, Europe and Japan.
Using our splicing technology and in collaboration with the SMA Foundation, we identified highly potent small molecule splicing
modifiers that, in non-clinical studies in cultured cells derived from patients with SMA, increased both the inclusion of exon 7 in
the SMN2 mRNA and the levels of SMN protein produced by SMN2. Importantly, in studies in transgenic mice carrying only the
SMN2 gene, these orally bioavailable compounds, penetrated the blood-brain barrier and increased the levels of full-length SMN2
mRNA and protein in brain, spinal cord, muscle and other tissues. In these same mouse studies, treatment with these compounds
resulted in increased survival, restoration of body weight, prevention of motor neuron loss and improved motor function.
In November 2011, we entered into a collaboration and licensing agreement with Roche which included a $30 million upfront
payment, the potential for up to $460 million in milestone payments and royalties on net sales. Roche is responsible for pursuing
clinical development of compounds from the research program under the collaboration and then commercializing any resulting
products. We have received $47.5 million in milestone payments from Roche, including a $20 million milestone payment upon
the transition into the pivotal second part of the Sunfish study for risdiplam. We also previously received $13.3 million in sponsored
research funding for this program from the Spinal Muscular Atrophy Foundation.
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One of the compounds in the SMA collaboration that is currently being advanced in development is risdiplam. In October 2016,
a two-part clinical study, called Sunfish, initiated in pediatric and adult type 2 and type 3 SMA patients to investigate the safety,
tolerability, and efficacy of risdiplam. Both parts of Sunfish are double-blinded, placebo-controlled, and randomized. Part one of
the study was a dose-finding study in 51 type 2 and type 3 SMA patients randomized 2:1 risdiplam vs. placebo and treated for 12
weeks with the primary objective of evaluating the safety, pharmacokinetics, and pharmacodynamics of risdiplam in patients. Data
from the open label extension of part 1 of the Sunfish trial were presented in October 2018 at the 23rd International Annual Congress
of the World Muscle Society, or the World Muscle conference. Risdiplam was well-tolerated at all doses and there have been no
drug-related safety findings leading to withdrawal. In Sunfish, the data demonstrated that the previously reported median greater-
than-2-fold SMN protein level increase was maintained over 52 weeks of treatment indicating the durability of the
pharmacodynamic effect.
Based on the results from part one of Sunfish, dosing for the second part of the study was selected and the pivotal part two of
Sunfish initiated in October 2017, which triggered a $20 million milestone payment to us from Roche. Part two of Sunfish completed
recruitment in October 2018 with 180 type 2 and type 3 SMA patients enrolled. The patients are randomized 2:1 risdiplam vs.
placebo for 12 months followed by 12 months of all study participants receiving risdiplam. Patients enrolled in part 2 of Sunfish
have a broad age range (2-24 years; median age 8 years) and broad functional characteristics. The primary endpoint is change
from baseline in the total Motor Function Measure 32, or MFM-32, score at Month 12. Both part one and part two of the study
will be followed by an open-label extension.
In December 2016, a two-part clinical study, called Firefish, also initiated in infants with type 1 SMA to investigate safety,
tolerability, and efficacy of risdiplam. Both parts of Firefish are open-label studies. Part one of Firefish was a dose-finding study
in 21 infants. The primary objective of part one was to assess the safety profile of risdiplam in infants and determine the dose for
part two. Interim clinical data from the Firefish part 1 trial were also presented in October 2018 at the World Muscle conference.
The median age of first dose was 6.7 months and babies have received risdiplam for a duration of up to 20.3 months. Risdiplam
has been well tolerated at all doses and there have been no drug-related safety findings leading to withdrawal. At day 245 of
treatment, over 90% of the babies achieved a greater than 4-point increase in CHOP-INTEND score compared to baseline, a rating
to evaluate the motor skills of patients with type 1 SMA developed by the Children’s Hospital of Philadelphia. The CHOP-INTEND
data were further supported by video footage presented by a principal investigator in the trial, who showed a video of an additional
type 1 SMA baby sitting unassisted, bringing the total to 4 babies sitting unassisted as shown in patient videos. Natural history
indicates that type 1 SMA babies never achieve this milestone. The video also showed type 1 SMA babies from the Firefish trial
demonstrating head control and rolling. Moreover, no babies have required a tracheostomy or permanent ventilation since study
initiation and no baby has lost the ability to swallow. Previously published natural history data indicate that in comparable historic
cohorts the median age of event-free survival for type 1 SMA infants is between 8 and 10.5 months. In addition, SMN protein
level increases of up to 6.5-fold were observed after 28 days of dosing and the increase was sustained.
Based on the results from part one of Firefish, part two of Firefish was initiated in March 2018 and completed recruitment in
November 2018 with 41 type 1 SMA infants enrolled. The primary objective of part two is to assess the efficacy of risdiplam
measured as the proportion of infants sitting without support after 12 months of treatment, as assessed in the Gross Motor Scale
of the Bayley Scales of Infant and Toddler development - Third Edition (BSID-III) (defined as sitting without support for 5 seconds).
Based on recent feedback from the FDA and national health authorities in Europe that Part 1 of FIREFISH and SUNFISH may
be sufficient to file NDA and an MAA, Roche is preparing an NDA and a MAA for risdiplam for the treatment of SMA in the
United States and the EU, respectively, which Roche anticipates submitting to the FDA and the EMA in the second half of 2019.
Jewelfish, an open-label study investigating the safety, tolerability, PK, and PK/pharmacodynamic relationship of risdiplam in
type 2 and type 3 SMA patients who have been previously treated with one of several experimental SMA therapies, initiated in
the first quarter of 2017. Preliminary PD data from twelve Jewelfish patients presented in October 2018 at the World Muscle
conference demonstrated sustained >2-fold increase in median SMN protein levels versus baseline over 12 months of treatment.
Also, risdiplam was well tolerated, without drug- related adverse events leading to withdrawal from the study.
Familial dysautonomia
Familial dysautonomia, or FD, is a rare genetic neurological disorder that effects the sensory and autonomic nervous systems,
causing life-threatening medical complications from birth. It is caused by a splicing-altering mutation in the IKBKAP (ELP1)
gene resulting in low levels of IKAP protein. FD occurs primarily in people of Ashkenazi (central or eastern European) Jewish
descent, affecting about 1 in 3,700 individuals in Ashkenazi Jewish populations. It is extremely rare in the general population.
There are currently no available therapies for FD, only supportive treatments.
Using our splicing technology and in collaboration with the with Massachusetts General Hospital, or MGH, and New York
University, we identified the splicing compound PTC258 which is a splicing modifier that restores IKAP levels. We expect to
finalize IND-enabling studies and submit an IND for PTC258 in late 2019.
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Oncology program
We have two oncology agents in Phase 1 clinical development, PTC299 and PTC596. PTC299 is a small molecule dihydrooratate
dehydrogenase (DHODH) inhibitor that inhibits de novo pyrimidine nucleotide synthesis. In the fourth quarter of 2018, we initiated
a Phase 1 dose-escalation trial in patients diagnosed with acute myelogenous leukemia, or AML, who have relapsed or are refractory
to current treatment options and have no other approved treatment options. We expect to fully enroll this trial by the end of 2019. In
addition to assessing PTC299 as a monotherapy in our Phase 1 study, we are also assessing PTC299 in a variety of therapeutic
combinations preclinically.
AML is a rapidly progressing hematologic cancer that causes uncontrolled growth of immature blast cells in the bone marrow
preventing formation of normal blood cells. It may arise as a primary cancer or result from patient exposure to prior cytotoxic
and/or radiation therapy. Approximately 20,000 new patients are diagnosed annually in the United States.
PTC596 is a small molecule inhibitor of tubulin polymerization that is associated with cell cycle arrest. In addition, administration
is associated with a hyperphosphorylation of tumor BMI1 protein that subsequently leads to BMI1 protein degradation and reduction
in BMI1 protein function. We have assessed PTC596 in a Phase 1 trial as a monotherapy for the treatment of ovarian cancer and
we are in the process of reformulating PTC596 as a tablet to decrease pill burden and minimize exposure to excipients. PTC596
is now being assessed in clinical trials in combination with standards of care in pediatric patients with diffuse intrinsic pontine
glioma, or DIPG, in combination with radiation as first-line therapy, with PTC596 continuing as monotherapy after radiation is
completed. DIPG is a rapidly fatal pediatric cancer with 90% of patients dying within two years of diagnosis. There are
approximately 300 patients diagnosed annually in the United States and Canada. In the fourth quarter of 2018, we initiated a Phase
1 dose-escalation trial in DIPG patients and expect to fully enroll this trial by the end of 2019.
PTC596 is also being evaluated in leiomyosarcoma, or LMS, in patients who have relapsed or are refractory to current treatments.
LMS is a type of sarcoma that manifests as malignant soft tissue tumors of muscle tissue. Preclinical evaluations suggested that
PTC596 had synergistic effects in combination with dacarbazine. Of about 3,000 sarcoma patients diagnosed annually in the U.S.,
approximately 20% have LMS. We expect to initiate a Phase 1 dose escalation study of PTC596 for LMS in the first quarter of
2019.
We received grant funding of $5.4 million for our oncology program from the Wellcome Trust. To the extent that we develop and
commercialize program intellectual property on a for-profit basis ourselves or in collaboration with a partner (provided we retain
overall control of worldwide commercialization), we may become obligated to pay to Wellcome Trust development and regulatory
milestone payments. Our first such milestone payment of $0.8 million to Wellcome Trust occurred in the second quarter of 2016.
For additional information, see “Item 1. Business - Our Collaborations and Funding Arrangements”.
Pre-clinical and other programs
We continue to invest in our pre-clinical product pipeline by committing significant resources to research and development programs
and business development opportunities within our areas of scientific expertise, including potential collaborations, alliances, and
acquisitions or licensing of assets that complement our strategic mission to provide access to best-in-class treatments for patients
who have an unmet medical need.
Our Approach
Our approach to drug discovery and development is to target rare diseases with high-unmet needs using a variety of tools, including
RNA and DNA approaches.
Splicing
Post-transcriptional control processes are the events that occur in a cell following the transcription of DNA into RNA. These
processes regulate, for example, how long RNA molecules last in the cell, how precursor messenger RNA, or pre-mRNA, molecules
are spliced, and how efficiently mRNA molecules are translated to produce a protein. In the majority of human protein-encoding
genes, the sequence representing the mature mRNA transcript is not contiguous but rather has an interrupted structure consisting
of nucleotide sequences, called introns, that are removed from the final mRNA product and nucleotide sequences, called exons,
that are retained in the mature mRNA. The process of intron removal and exon joining is called splicing.
We use our splicing technology to identify molecules that modulate splicing of the pre-mRNA. Pre-mRNA splicing is a multi-step
biochemical reaction. Approximately 94% of all human genes encode pre-mRNAs that undergo splicing. In addition, through
splicing, one gene can often generate several mRNA products by including or excluding exons that can result in the mRNA being
regulated differently or translated into different proteins. Altered regulation of splicing is the direct cause of many human diseases,
including many forms of cancer, SMA, Riley-Day syndrome (familial dysautonomia) and myotonic dystrophy.
We have developed a powerful high-throughput drug discovery technology that enables us to identify small molecule modifiers
of pre-mRNA splicing. The technology relies on a sensitive quantification of mRNA directly in human cells or tissue samples.
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Using this technology, we have successfully identified orally bioavailable small molecules that correct splicing of the Survival of
Motor Neuron 2, or SMN2, mRNA, which is implicated in the genetic disorder SMA. Based on this experience, we believe that
other small molecule drug candidates can be rapidly identified that correct splicing of pre-mRNA, promote inclusion of specific
exons into mRNA or force skipping of undesired exons from the mature mRNA. We believe that this technology is potentially
widely applicable to a large number of target genes in all therapeutic areas.
Nonsense suppression
An mRNA contains multiple regions that have specific functions. Although the protein coding region of mRNA contains the
information for the amino acid sequence of the protein product, several regions of mRNA do not code for the protein and are
known as untranslated regions, or UTRs. They are unique to specific mRNAs or groups of mRNAs and are directly involved in
the post-transcriptional control of protein production. Interactions of cellular factors with the UTRs on the mRNA determine when
and how much protein is produced as well as how mRNA is degraded and eliminated from the cell.
We use our nonsense suppression technology to identify molecules that promote or enhance readthrough of premature stop codons
in the mRNA. The presence of a premature stop codon results in translation termination before a full-length protein can be produced.
Our nonsense suppression technologies identify small molecules that increase readthrough at the premature stop codon by
facilitating the incorporation of a defined set of amino acids at the site of the premature stop codon resulting in the production a
full-length protein. We anticipate that this approach will be applicable to a wide variety of therapeutic areas.
In addition to identifying molecules that increase readthrough, we are identifying molecules that can enhance the nonsense
suppression effect of Translarna and other readthrough agents by preventing the decay of nonsense-mutation containing mRNAs,
a process known as nonsense mediated decay. We have developed a high throughput screen to identify molecules that increase the
level of and stabilize premature stop codon-containing mRNAs. We can evaluate the effect of these molecules alone and in
combination with Translarna in cell-based models of disease, identify lead compounds and initiate a chemical optimization program.
We are currently in the process of evaluating compounds as single agents and in combination with readthrough compounds in
preparation for an optimization program.
Gene therapy
Gene therapy is a technique that uses genes to treat or prevent disease through several approaches including 1) replacing a mutated
gene that causes disease with a healthy copy of the gene, 2) inactivating, or “knocking out,” a mutated gene that is functioning
improperly or 3) introducing a new gene into the body to help fight a disease. Utilizing our CNS delivery strategy and technologies,
we are focused on developing gene therapy product candidates that are engineered and optimized to provide durable treatments,
and potentially functional cures, for CNS diseases for which there are currently no approved treatments. By directly administering
low doses our therapies using non-pathogenic AAV to deliver therapeutic genes to the target non-dividing neuronal cells in the
CNS, which we term targeted micro-dosing, we believe we maximize the probability of achieving a therapeutic benefit and mitigate
systemic antibody, cellular immunity and complement-based reactions, minimize the stimulation of new immune responses, and
eliminate off-target effects.
We believe that our gene therapy platform will enable us to treat patients across a range of CNS disease indications. Our detailed
knowledge and expertise in rare CNS diseases has developed competitive advantages and a gene therapy platform which we believe
is highly differentiated and provides practical approaches for delivery of gene therapies to the CNS in a range of disease indications.
Our platform utilizes commercially-available advanced devices, instrumentation and software to optimize targeting to the region
of the CNS known to be involved in the cause of the disease. Targeted micro-dosing ensures direct delivery to the CNS, thereby
avoiding systemic administration, mitigating systemic immune and complement responses, minimizing the generation of newly
mounted immunity to the gene therapy, and bypassing uptake and excretion of the gene therapy vector by organs such as the liver
and kidney which further enhances safety and keeps the dose levels low. Our targeted micro-dosing strategy has the added benefit
of requiring significantly lower gene therapy doses than systemic dosing would require. Our low dose requirements provide for
efficient manufacturing approaches that reduce supply risks, enhance product quality, and lower production costs. Our direct
delivery processes have also resulted in a deep understanding of routes of administration that result in effective gene therapy
delivery to target cells.
Our Collaborations, License Agreements and Funding Arrangements
We currently have ongoing collaborations with Roche and the SMA Foundation for SMA, collaboration and license agreements
with National Taiwan University, or NTU, for PTC-AADC, and a collaboration and license agreement with Akcea for Tegsedi and
Waylivra. We also have received grant funding from Wellcome Trust pursuant to funding agreements under which we have
continuing obligations. In addition to these collaboration, license and funding agreements, which are described in more detail
below, during 2015 we announced our research collaboration with Massachusetts General Hospital, or MGH, a Partners Healthcare
hospital, for the treatment of rare genetic disorders resulting from pre-mRNA splicing defects pursuant to which we have certain
licensing, development and commercialization obligations to MGH.
Roche and the SMA Foundation
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Overview. In November 2011, we entered into a license and collaboration agreement with Roche and the SMA Foundation to
further develop and commercialize compounds identified under our SMA sponsored research program with the SMA Foundation
and to research other small molecule compounds with potential for therapeutic use in patients with SMA. The research term of
this agreement was terminated effective December 31, 2014. The ongoing collaboration is governed by a joint steering committee
consisting of an equal number of representatives of us, the SMA Foundation and Roche. We, the SMA Foundation and Roche have
agreed to endeavor to make decisions by consensus, but if the joint steering committee cannot reach agreement after following a
specified decision resolution procedure, Roche’s decision will control. However, Roche may not exercise its final decision-making
authority with respect to certain specified matters, including any decision that would increase our or the SMA Foundation’s
obligations, reduce our or the SMA Foundation’s rights, expand Roche’s rights, or reduce Roche’s obligations under the license
and collaboration agreement.
Commercialization. We have granted Roche worldwide exclusive licenses, with the right to grant sublicenses, to our patent rights
and know-how with respect to such compounds and products. Roche is responsible for pursuing worldwide clinical development
of compounds from the research program and has the exclusive right to develop and commercialize compounds from the
collaboration.
Payments and Contingent Payments. Pursuant to the license and collaboration agreement, Roche paid us an upfront non-
refundable payment of $30.0 million. During the research term, which was terminated effective December 31, 2014, Roche
provided us with funding, based on an agreed- upon full-time equivalent rate, for an agreed-upon number of full- time equivalent
employees that we contributed to the research program. We are eligible to receive up to an aggregate of $135 million in payments
if specified development and regulatory milestones are achieved and up to an aggregate of $325 million in payments if specified
sales milestones are achieved. As of December 31, 2018, we have earned $47.5 million of these development and regulatory
milestone payments based on the progression of the collaboration from the pre-clinical stage to Phase 2 clinical study in SMA
patients. We are also entitled to tiered royalties ranging from 8% to 16% on worldwide net product sales of products developed
pursuant to the collaboration. Roche’s obligation to pay us royalties will expire generally on a country-by- country basis at the
latest of the expiration of the last-to-expire patent covering a product in the given country, the expiration of regulatory exclusivity
for that product in such country or 10 years from the first commercial sale of that product in such country. However, the royalties
payable to us may be decreased in certain circumstances. For example, the royalty rate in a particular country is reduced if the
product is not protected by patents in that country and no longer entitled to regulatory exclusivity in that country. We remain
responsible for making any payments to the SMA Foundation that may become due under our pre-existing sponsored research
agreement with the SMA Foundation.
Termination. Unless terminated earlier, the license and collaboration agreement will expire on the date when no royalty or other
payment obligations are or will become due under the agreement. Roche’s termination rights under the license and collaboration
agreement include the right to terminate the agreement at any time after November 22, 2013 on a product-by-product and country-
by-country basis upon three months’ notice before the launch of the applicable product or upon nine months’ notice thereafter;
and the right to terminate the agreement in specified circumstances following a change of control of us. The license and collaboration
agreement provides that we or Roche may terminate the agreement in the event of an uncured breach by the other party of a material
provision of the agreement, or in the event of the other party’s bankruptcy or insolvency. Upon termination of the collaboration
agreement by Roche for convenience or termination by us as a result of Roche’s breach, bankruptcy, change of control or patent
challenge, we have the right to assume the development and commercialization of product candidates arising from the license and
collaboration agreement. In that event, we may become obligated to pay royalties to Roche on sales of any such product.
SMA Foundation
Overview. In June 2006, we entered into a sponsored research agreement with the SMA Foundation under which we and the
SMA Foundation have collaborated in the research and preclinical development of small molecule therapeutics for SMA. As
discussed above, we are also collaborating with the SMA Foundation and Roche to further develop these compounds. Pursuant to
the sponsored research agreement, as amended, the SMA Foundation provided us with $13.3 million in funding. The SMA
Foundation is not obligated to provide any further funding under this agreement.
Continuing financial obligations. We may become obligated to pay the SMA Foundation single-digit royalties on worldwide net
product sales of any collaboration product that we successfully develop and subsequently commercialize or, if we outlicense rights
to a collaboration product, a specified percentage of certain payments we receive from our licensee. As discussed above, we have
outlicensed rights to Roche pursuant to a license and collaboration agreement. We are not obligated to make such payments unless
and until annual sales of a collaboration product exceed a designated threshold. Our obligation to make such payments would end
upon our payment to the SMA Foundation of a specified amount, which we refer to as the repayment amount.
Reversion rights. In specified circumstances, including those involving our decision to discontinue development or
commercialization of a collaboration product, our uncured failure to meet agreed timelines or those that might arise following our
change of control, we may be obligated to grant the SMA Foundation exclusive or non-exclusive sublicensable rights under our
intellectual property, in certain collaboration products, among other rights, to assume the development and commercialization of
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such collaboration products and to provide the SMA Foundation with other transitional assistance, which we refer to as a reversion.
In some such cases, we may be entitled to receive licensing fee payments from the SMA Foundation and single-digit royalties on
sales of the applicable collaboration product, which amounts we collectively refer to as reversion payments. In other cases, the
SMA Foundation is not required to make any payments to us in connection with the licenses it receives from us.
Termination. Unless terminated earlier, the sponsored research agreement will continue until the earliest of the SMA Foundation’s
receipt of the repayment amount or, if there was a reversion, either our receipt of all reversion payments that the SMA Foundation
may be obligated to make to us or, if the SMA Foundation is not obligated to make reversion payments, the expiration of the last-
to-expire patent we licensed to the SMA Foundation in connection with such reversion. The sponsored research agreement provides
that either party may terminate the agreement in the event of an uncured material breach by the other party or in the event of the
other party’s bankruptcy or insolvency.
National Taiwan University
We have two agreements with NTU relating to PTC-AADC: a collaborative research agreement, originally entered into between
Agilis and NTU, in September 2015, as amended, or the NTU Collaboration Agreement; and a license and technology transfer
agreement, originally entered into between Agilis, NTU and Professor Wuh-Liang (Paul) Hwu, in December 2015, or the NTU
Licensing Agreement.
NTU Collaboration Agreement
Overview. The NTU Collaboration Agreement governs the collaboration between us and NTU with respect to the research and
clinical trials for AADC deficiency gene therapy, or the “Research.” Pursuant to the NTU Collaboration Agreement, NTU is
responsible for performing the research and clinical trials and we are responsible for providing related funding. In accordance with
such obligations, NTU completed a Phase 1/2 trial, AADC-010, in Taiwan of GT-AADC for the treatment of AADC deficiency
and is conducting an ongoing Phase 2b trial, AADC-011, in Taiwan of PTC-AADC for the treatment of AADC deficiency and is
collaborating on certain other ongoing activities with third parties. We are responsible for any regulatory submissions for PTC-
AADC for the treatment of AADC deficiency.
Funding obligations. Our funding obligations consist of funding payments for NTU’s research paid upon the achievement of
certain milestones. As of December 31, 2018, an aggregate amount of $617,045 in funding payments has been paid to NTU and
an additional $197,266 is expected to become due and payable between now and December 31, 2020.
Intellectual property. All intellectual property developed or obtained by NTU relating to the Research shall be owned by NTU.
The NTU Collaboration Agreement provided us a right of first refusal for an exclusive, worldwide, royalty bearing license for the
results of the Research, which Agilis exercised in 2015 in connection with entering into the Licensing Agreement.
Termination. The NTU Collaboration Agreement expires on September 30, 2020, with automatic annual extensions subject to our
written approval. The NTU Collaboration Agreement can be terminated for certain specified breaches by either party upon 30 or
60 days’ notice, depending on the breach and following a specified cure period. Upon termination at our election, NTU is obligated
to return to us any unused funding payments made to NTU that have not yet been utilized, and we are obligated to pay any non-
cancellable expenses incurred by NTU, as of the date of termination.
NTU Licensing Agreement
Overview. Pursuant to the NTU Licensing Agreement, NTU granted to us an exclusive, perpetual license, with the right to grant
sublicenses through all tiers, to research and use the intellectual property, data, chemistry, manufacturing and controls, or CMC,
records, documents, confidential information, materials and know-how pertaining to the Research, including PTC-AADC for the
treatment of AADC deficiency, under the NTU Collaboration Agreement, or the Technology, and to develop, make, manufacture,
use, sell, import and market the Technology and any other products made, invented, developed or incorporated by or with the
Technology, or the Licensed Products. Subject to any regulatory delays or issues, we are obligated to research, use and develop
the Technology to manufacture Licensed Products by December 23, 2025. Additionally, we are obligated to obtain marketing
approval of PTC-AADC for the treatment of AADC deficiency, either by the FDA or by the EMA, by December 31, 2024.
Funding Obligations. NTU received a lump sum of $100,000 upon execution of the NTU Licensing Agreement. Additionally,
NTU will be entitled to receive contingent payments from us based on (i) the achievement of certain clinical and regulatory
milestones up to an aggregate maximum amount of $2.0 million, (ii) annual license maintenance fees, (iii) a low double-digit
percentage royalty of annual net sales of Licensed Products, and (iv) a percentage of sublicense revenue, ranging from low-twenties
to mid-twenties. The annual license maintenance fees are non-refundable, but creditable against annual net sales payments. The
NTU Licensing Agreement also stipulates milestones in relation to a Phase 3 trial with respect to PTC-AADC for the treatment
of AADC deficiency, which such Phase 3 trial we do not deem necessary and do not plan to conduct.
Intellectual Property. All intellectual property relating to the manufacture, production, assembly, use or sale of Technology and
any Licensed Products derived thereof are owned by NTU.
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Termination. The NTU Licensing Agreement expires on December 23, 2035. Upon expiration, we will have a fully paid-up,
perpetual, royalty-free exclusive license to the Technology. We may terminate the NTU Licensing Agreement upon 60 days’ written
notice to NTU in the event of (a) the failure of a pivotal clinical study, or serious adverse event in a clinical study, with respect to
PTC-AADC for the treatment of AADC deficiency, that prevents continuing such clinical study under reasonable circumstances
or (b) the rejection of a BLA with the FDA or a MAA with the EMA, or equivalent biologics approval application in another
territory with respect to PTC-AADC for the treatment of AADC. In such termination event, we must pay $100,000 to NTU within
30 days of termination and NTU would retain all rights to the Technology. We may terminate the NTU Licensing Agreement for
material breach by another party following a 30-day cure period. NTU may terminate the NTU Licensing Agreement for our failure
to pay any undisputed license fees or net sales or sublicensing royalty fees within the applicable deadline following a 30-day cure
period.
Akcea
Overview. In August 2018, PTC Therapeutics International Limited, our subsidiary, entered into a Collaboration and License
Agreement, or the Akcea Agreement, with Akcea, for the commercialization by us of Tegsedi, Waylivra and products containing
those compounds, which we refer to collectively as the Products, in countries in Latin America and the Caribbean, or the PTC
Territory. In addition, Akcea has granted to us a right of first negotiation, or ROFN, to commercialize AKCEA-TTR-Lrx, a follow-
on product candidate to inotersen, on an exclusive basis in the PTC Territory. We are responsible for all meetings, communications
and other interactions with regulatory authorities in the PTC Territory. The activities of the parties pursuant to the Akcea Agreement
is overseen by a Joint Steering Committee, composed of an equal number of representatives appointed by each of us and Akcea.
Commercialization. Under the terms of the Akcea Agreement, Akcea has granted to us an exclusive right and license, with the
right to grant certain sublicenses, under Akcea’s product-specific intellectual property to develop, manufacture and commercialize
the Products in the PTC Territory. In addition, Akcea has granted to us a non-exclusive right and license, with the right to grant
certain sublicenses, under Akcea’s core intellectual property and manufacturing intellectual property to develop, manufacture and
commercialize the Products in the PTC Territory and to manufacture the Products worldwide in accordance with a supply agreement
with Akcea. Akcea has in-licensed certain of the Akcea intellectual property from its affiliate, Ionis Pharmaceuticals, Inc., or Ionis.
Each party has agreed not to, independently or with any third party, commercialize any competing oligonucleotide product in the
PTC Territory for the same gene target as inotersen.
Payments and Contingent Payments. We agreed to pay to Akcea an upfront licensing fee of $18.0 million, consisting of an initial
payment of $12.0 million paid in connection with entering into the Akcea Agreement, and $6.0 million to be paid within 30 days
after receipt of regulatory approval of Waylivra from the FDA or the EMA, whichever occurs earlier. In addition, Akcea is eligible
to receive milestone payments, on a Product-by-Product basis, of $4.0 million upon receipt of regulatory approval for a Product
from ANVISA, subject to a maximum aggregate amount of $8.0 million for all such Products. Akcea is also entitled to receive
royalty payments in the mid-twenty percent range of net sales on a country-by-country and Product-by-Product basis, commencing
on the earlier to occur of (1) 12 months after the first commercial sale of such Product in Brazil or (2) the date when we, our
affiliates or sublicensees have recognized revenue of $10.0 million or more in cumulative net sales for such Product in the PTC
Territory. The royalty payments are subject to reduction in certain circumstances as set forth in the Akcea Agreement.
Right of first negotiation. Akcea has granted to us a ROFN to commercialize AKCEA-TTR-Lrx in the PTC Territory, subject to
negotiation of the terms of a definitive agreement and certain other terms and conditions. Such a definitive agreement would
provide for a royalty rate to be paid by us for AKCEA-TTR-Lrx equal to the royalty rate we have agreed to pay for Tegsedi under
the Akcea Agreement, or in the mid-twenty percent range of net sales, and the term of such royalty payments would be the same
as the term of the Tegsedi royalty payments. During a specified period in the Agreement, neither Akcea nor Ionis may enter into
an agreement or grant any license to AKCEA-TTR-Lrx that is inconsistent with PTC’s ROFN.
Termination. The Akcea Agreement will continue until the expiration of the last to expire royalty term with respect to all Products
in all countries in the PTC Territory. Either party may terminate the Akcea Agreement on written notice to the other party if such
other party is in material breach of its obligations thereunder and has not cured such breach within 30 days after notice in the case
of a payment breach or 60 days after notice in the case of any other breach.
Wellcome Trust
We have two separate funding agreements with Wellcome Trust for the research and development of small molecule compounds
in connection with our oncology and antibacterial programs. Pursuant to the agreement relating to the antibacterial program,
Wellcome Trust awarded us a $5.0 million grant of which we received $4.8 million between 2011 and 2015. We are no longer
actively pursuing an antibacterial program and do not expect to receive additional funding under this agreement. The materials
terms of these funding agreements are similar in substance, except as described below.
The other agreement, entered into in May 2010, relates to the research and development of small molecule compounds, which we
refer to as our oncology program. Pursuant to this agreement, Wellcome Trust awarded us a $5.4 million grant, of which
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approximately $0.9 million was paid in connection with execution of the agreement and the balance of which was paid to us in
2010 and 2012 based on our achievement of specified milestones.
Development and commercialization. We own all intellectual property that arises from the conduct of the research programs
under these funding agreements, which we refer to as program intellectual property, and are responsible for developing and
commercializing the program intellectual property, including PTC596 (for our oncology program), and other compounds. However,
we will require Wellcome Trust’s written consent prior to any such development or commercialization. If Wellcome Trust withholds
such consent and we and Wellcome Trust are not able to resolve Wellcome Trust’s concerns, the parties have agreed to follow a
specified dispute resolution procedure that gives neither party final decision-making authority.
Reversion rights. Under both funding agreements, if we fail to take reasonable steps to develop or commercialize program
intellectual property during specified timeframes, we may be obligated to grant exclusive rights to Wellcome Trust or its nominee
under the program intellectual property, along with non-exclusive rights under our background intellectual property, so that
Wellcome Trust or its nominee can assume such development and commercialization. If we grant such a license, we would be
entitled to a share of any consideration received by Wellcome Trust in connection with any subsequent development or
commercialization of program intellectual property on a for-profit basis, which share would be proportionate to our contribution
to the development and commercialization.
Continuing financial obligations-oncology program. To the extent that we develop and commercialize program intellectual
property on a for-profit basis ourselves or in collaboration with a partner (provided we retain overall control of worldwide
commercialization), we may become obligated to pay to Wellcome Trust development and regulatory milestone payments and
single-digit royalties on sales of any research program product under our oncology program. We made the first development
milestone payment of $0.8 million to Wellcome Trust under this agreement during the second quarter of 2016. Additional
development and regulatory milestone payments up to an aggregate of $22.4 million may become payable by us under the
agreement. For example, in the event a Phase 2 clinical study of a research program candidate, such as PTC596, is commenced,
a milestone payment of $2.5 million would become payable by us to Wellcome Trust upon the earlier to occur of the first dose
administered to the last patient enrolled in the study or the termination of dosing of all patients in the study.
Additional continuing financial obligations. Our obligation to pay the royalties describe above would continue on a country-by-
country basis until the longer of the expiration of the last patent in the program intellectual property in such country covering the
research program product and the expiration of market exclusivity of such product in such country. To the extent that we develop
and commercialize program intellectual property on a for-profit basis through outlicensing, we will be obligated to pay to Wellcome
Trust a specified share of any consideration we receive from our licensee, provided that Wellcome Trust would be entitled to
receive a minimum amount equal to its original contribution. We would incur no payment obligations to Wellcome Trust to the
extent that we elect to develop and commercialize program intellectual property on a non-profit basis.
Termination. Unless terminated earlier, each funding agreement will continue until we have received the full amount of the grant,
the research program has ended, the last-to-expire of the patents in the program intellectual property has expired, any agreement
entered into for the exploitation of the program intellectual property or our background intellectual property has expired, and there
are no remaining payment obligations relating to the exploitation of the program intellectual property or our background intellectual
property. Each funding agreement provides that either party may terminate the agreement in the event of an uncured material
breach by the other party or in the event of the other party’s bankruptcy or insolvency and that Wellcome Trust may terminate the
agreement under specified circumstances, including, among others, in specified circumstances following a change in control of
us or if Wellcome Trust believes that an uncorrected serious failure exists in the progress, management or conduct of the research
program or that an act or omission by us is incompatible with or has an adverse effect on Wellcome Trust’s charitable objectives
or reputation.
If Wellcome Trust terminates either or both funding agreements in specified circumstances, including as a result of our material
breach, bankruptcy or insolvency, or following our change of control, we may be obligated to assign to Wellcome Trust ownership
of the applicable program intellectual property, grant to Wellcome Trust royalty-free non-exclusive rights under the applicable
background intellectual property for the continuation of the research program (if applicable) and the development and
commercialization of the applicable program intellectual property, and provide Wellcome Trust with other specified transitional
assistance.
Certain specified rights and obligations of the parties will generally survive termination of the funding agreements, including
Wellcome Trust’s right to receive payments from us with respect to development and commercialization of program intellectual
property on a for-profit basis.
If a funding agreement terminates prior to the end of a research program, we are obligated to return all funding we received from
Wellcome Trust that is unspent at the date of termination (after deduction of costs and non-cancellable commitments incurred prior
to such date).
Intellectual Property
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Patents and trade secrets
Our success depends in part on our ability to obtain and maintain proprietary protection for our product candidates, technology
and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary
rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and certain foreign patent
applications related to our proprietary technology, inventions and improvements that we believe are important to the development
of our business, where patent protection is available. We also rely on trade secrets, know-how, continuing technological innovation
and in-licensing opportunities to develop and maintain our proprietary position.
As of January 31, 2019, our patent portfolio included a total of 74 active U.S. patents and 13 pending U.S. patent applications,
including original filings, continuations and divisional applications, as well as numerous foreign counterparts to many of these
patents and patent applications. We own or exclusively in-license these patents and patent applications with claims directed to
composition of matter, pharmaceutical formulation and methods of use of many of our compounds, including ataluren, the active
ingredient in the formulated product TranslarnaTM.
The patent rights relating to TranslarnaTM (ataluren) owned by us consist of 35 issued U.S. patents relating to composition of
matter, methods of use, formulation, dosing regimens and methods of manufacture and multiple pending U.S. patent applications
relating to composition of matter, methods of use, formulation, and dosing regimens. We do not license any material patent rights
relating to ataluren to unaffiliated parties. The issued U.S. patents relating to composition of matter are currently scheduled to
expire in 2024 and all U.S. patents that issue from U.S. patent applications arising from the composition of matter would also be
scheduled to expire in 2024. Issued U.S. patents relating to therapeutic methods of use are currently scheduled to expire in 2026
and 2027, including patent term adjustment. We have patent rights that are the subject of granted patents or pending counterpart
patent applications in a number of other jurisdictions, including Canada, certain South American countries, Europe, certain Middle
Eastern countries, certain Africa countries, certain Asian countries and certain Eurasian countries. We own nine European patents
relating to composition of matter, uses, dosing regimens and methods of manufacture of ataluren, as well as multiple pending
European patent applications relating to composition of matter, uses and formulations. The expiration dates of the granted European
patents occur for composition of matter in 2024, for dosing regimen patents in 2026 and 2027, and for the manufacturing process
in 2027. Except as indicated above, the anticipated expiration dates referred to above are without regard to potential patent term
extension, patent term adjustment or other marketing exclusivities that may be available to us.
The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In most countries,
including the United States, the patent term is 20 years from the earliest filing date of a non-provisional patent application. In the
United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for
administrative delays by the U.S. Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent
is terminally disclaimed over an earlier filed patent. The term of a U.S. patent that covers a drug, biological product or medical
device approved pursuant to a pre-market approval, or PMA, may also be eligible for patent term extension when FDA approval
is granted, provided statutory and regulatory requirements are met. The length of the patent term extension is related to the length
of time from NDA submission that the drug is under regulatory review until the approval date while the patent is in force. The
Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration date set for the patent. Patent extension
based on Hatch-Waxman cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval,
only one patent applicable to each regulatory review period may be granted an extension and only those claims reading on the
approved drug may be extended.
Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an
approved drug. One means of patent term extension in Europe after EMA approval is based on obtaining a Supplementary Protection
Certificate (SPC). We have applied for SPCs for ataluren in all applicable European countries in which we have a European patent
and expect that all will be granted. The maximum patent term extension provided by an SPC is a total of 5 years from the date of
patent term expiration. In the future, if and when our product candidates receive approval by the FDA or other non-European
foreign regulatory authorities, we expect to apply for patent term extensions on issued patents covering those products, depending
upon the length of the clinical trials for each drug and other factors.
We presently have no patent rights to protect the approved use of Emflaza, and we rely on non-patent market exclusivity periods
under the Orphan Drug Act of 1983, or the Orphan Drug Act, and the Drug Price Competition and the Hatch-Waxman Act to
commercialize Emflaza in the United States. See “Item 1. Business-Government Regulation-The new drug and biologic approval
process-Hatch-Waxman Act for Drugs” for further information regarding the exclusivity periods that we rely on.
We are pursuing patent protection for PTC-AADC and our other gene therapy product candidates, and, in the meantime, if PTC-
AADC is approved, we expect to rely on the non-patent market exclusivity periods under the Orphan Drug Act Biologics Price
Competition and Innovation Act of 2009, or the BPCIA, to commercialize PTC-AADC in the United States. See “Item 1. Business-
Government Regulation-BPCIA exclusivity” for further information regarding the exclusivity periods that we rely on.
We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect.
We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants,
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scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by
maintaining physical security of our premises and physical and electronic security of our information technology systems. While
we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we
may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently
discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others
in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
License agreements
We are a party to a number of license agreements under which we license patents, patent applications and other intellectual property
from third parties. We enter into these agreements to augment our proprietary intellectual property portfolio. The licensed intellectual
property covers some of the compounds that we are researching and developing, some post-transcriptional control targets and
some of the scientific processes that we use. These licenses impose various diligence and financial payment obligations on us. We
expect to continue to enter into these types of license agreements in the future.
We exclusively in-license all of the patents and patent applications, with claims directed to composition of matter, formulation
and methods of use, for our gene therapy programs, including for the target disease AADC. For a further discussion of the material
agreements relating to our in-licensing of PTC-AADC for the treatment of AADC deficiency, see “Item 1. Business-Our
Collaboration, Licensing and Funding Arrangements-National Taiwan University.”
Manufacturing
We do not own or operate manufacturing or distribution facilities for the production of clinical or commercial quantities of
Translarna, Emflaza or for our other product candidates or compounds that we are testing in our preclinical programs. We currently
rely, and expect to continue to rely, on third parties for the manufacture, packaging, labeling and distribution of clinical and
commercial supplies of Translarna, Emflaza as well as any other product or product candidate that we may develop, other than
small amounts of compounds that we may synthesize ourselves for preclinical testing. We anticipate taking steps to increase our
manufacturing capabilities for our gene therapy platform.
The active pharmaceutical ingredients in Translarna, Emflaza and our product candidates are provided by third-parties. We currently
rely on a single source for the production of some of our raw materials and we obtain our supply of the drug substance for Translarna
from two third-party manufacturers and the drug substance for our oncology program through another third-party manufacturer.
We engage two separate manufacturers to provide bulk drug product for Translarna. We have a relationship with three manufacturers
that are capable of providing fill and finish services for our finished commercial and clinical Translarna product, although we are
still in the process of finalizing arrangements with one of these manufacturers with respect to commercial product services.
We do not currently have any agreements with third-party manufacturers for the long-term commercial supply of Translarna or
any of our product candidates, although we may seek to establish such arrangements in the future. We may be unable to conclude
agreements for commercial or clinical supply with third-party manufacturers, or may be unable to do so on acceptable terms.
We currently obtain our supplies of Translarna and our other product candidates from our third-party manufacturers pursuant to
agreements that include specific supply timelines and volume expectations. If a manufacturer should become unavailable to us
for any reason, we would seek to obtain supply from another manufacturer engaged by us for the applicable product or service.
In the event that we were unable to procure the applicable supply from a validated manufacturer, we believe that there are a number
of potential replacements for each of our outsourced services, however we likely would experience delays in our ability to supply
Translarna to patients or in advancing our clinical trials while we identify and qualify replacement suppliers.
We obtain our supply of the drug substance for Emflaza through a third-party manufacturer that is currently the only third-party
manufacturer qualified to provide Emflaza drug substance. All of our drug product manufacturing, processing and packaging needs
for Emflaza tablet and suspension product are fulfilled pursuant to two different exclusive supply agreements assumed by us in
connection with our acquisition of Emflaza. We expect to fulfill all of our requirements for Emflaza tablets as well as secondary
packaging of pre-filled Emflaza oral suspension bottles pursuant to one of these agreements, which has an initial term of five
years. We expect to fulfill all of our requirements for Emflaza suspension product pursuant to the other agreement. Through the
seventh year anniversary of FDA approval of Emflaza, we are obligated to pay to the manufacturer of the Emflaza suspension
product royalty payments, on a quarterly basis, based on a percentage (ranging from low to middle-low double digits) of, or a
fixed payment with respect to, our annual net sales of suspension product in the United States, subject to reduction in accordance
with the terms of the agreement. The royalty payments for the suspension product are subject to a minimum aggregate annual
payment ranging from €0.5 million to €1.5 million per year.
If our drug substance provider or either of our drug product manufacturers was to be unable to provide drug substance or manufacture
Emflaza product in sufficient quantities to meet projected demand, future sales could be adversely affected, which in turn could
have a detrimental impact on our ability to maintain our marketing authorization in the United States and on our ability to
commercialize Emflaza, which in turn would have a material adverse effect on our business, financial results and results of
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operations. Further, as we presently have no patent rights to protect the approved use of Emflaza, we expect to rely market exclusivity
periods available to us under the Orphan Drug Act and Hatch-Waxman Act to commercialize Emflaza for DMD in the United
States. As the holder of orphan exclusivity, we are required to assure the availability of sufficient quantities of Emflaza to meet
the needs of patients. Failure to do so could result in loss of the drug's orphan exclusivity in the United States, which would have
a material adverse effect on our ability to generate revenue from sales of Emflaza.
We presently contract with third parties for the manufacturing of program materials for our gene therapy product candidates. The
use of contracted manufacturing and reliance on collaboration partners is relatively cost efficient. Although we rely on contract
manufacturers, we have personnel with manufacturing and quality experience to oversee our contract manufacturers. Although
we anticipate taking steps to increase our manufacturing capabilities for our gene therapy platform, we currently rely on third-
party manufacturers to be capable of providing sufficient quantities of our program materials to meet anticipated clinical trial and
commercial scale demands.
Translarna and Emflaza are manufactured in reliable and reproducible synthetic processes. Our raw materials are not scarce and
are readily available. We currently rely on a single source for the production of some raw materials and switching to an alternative
source could, in some instances, take time and could lead to delays in manufacturing. No shortages or delays of raw materials
were encountered in 2018, and none are currently expected in 2019. The chemistry is amenable to scale up and does not require
unusual equipment in the manufacturing process. We expect to continue to develop drug candidates that can be produced cost-
effectively at contract manufacturing facilities.
Manufacturers and suppliers of product candidates are subject to the FDA’s current Good Manufacturing Practices, or cGMP,
requirements, and other rules and regulations prescribed by foreign regulatory authorities. We depend on our third-party suppliers
and manufacturers for continued compliance with cGMP requirements and applicable foreign standards.
We currently have a contract with a pharmacy and hospital distributor in the European Union that distributes Translarna for clinical
programs and limited commercial and EAP programs. We have engaged with third party logistic providers, or 3PLs, which distribute
Translarna for the majority of our commercial and EAP programs on our behalf.
We utilize third parties for the commercial distribution of Emflaza, including a 3PL to warehouse Emflaza as well as a specialty
pharmacy to sell and distribute Emflaza to patients. The specialty pharmacy provides us with third-party call center services to
provide patient support and financial services, prescription intake and distribution, reimbursement adjudication, and ongoing
compliance support.
Commercial Matters
Sales and marketing team
Our product revenue has been attributable to sales of Translarna for the treatment of nmDMD in territories outside of the United
States and to sales of Emflaza for treatment of DMD in the United States. In addition to the United States and multiple European
countries, we have employees in Latin America and Canada. As of December 31, 2018, our commercial team was comprised of
approximately 110 employees, including support personnel and members of our commercial team who work with physicians,
patient advocacy groups and other stakeholders who are involved in the treatment of patients suffering from the diseases for which
we seek to develop treatments.
In addition, in select territories, we have engaged full time consultants, marketing partners and distribution partners to assist us
with our international commercialization efforts for Translarna. We continue to evaluate new territories to determine in which
geographies we might, if approved, choose to commercialize Translarna ourselves and in which geographies we might choose to
collaborate with third parties. We expect that our internal team and partnership network will continue to grow, as needed, to
maximize access to patients.
Customers
During 2018, our product revenue was attributable to Translarna for the treatment of nmDMD and to Emflaza for treatment of
DMD. Translarna for the treatment of nmDMD was available on a commercial basis or via reimbursed EAP programs in multiple
territories outside of the United States. In some territories, orders for Translarna are placed directly with us and in other territories
we have engaged with third-party distributors. As a result, orders for Translarna are generally received from hospital and retail
pharmacies and, in some cases, one of our third-party partner distributors. Our third-party distributors act as intermediaries between
us and end-users and do not typically stock significant quantities of Translarna. The ultimate payor for Translarna is typically a
government authority or institution or a third-party health insurer. The payment terms are generally 30 to 90 days after receipt of
products.
Emflaza for treatment of DMD is available on a commercial basis throughout the United States. We utilize a single, exclusive
specialty pharmacy to sell and distribute Emflaza to patients. The specialty pharmacy receives prescription orders for Emflaza
directly from physicians and ships Emflaza directly to the end-user upon fulfillment of the order. As such, there is very little
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inventory of Emflaza stocked. The ultimate payor for Emflaza is typically a state health insurance program or a third-party health
insurer. The payment terms are generally 30 to 90 days after receipt of products.
During 2018, three of our distributors each accounted for over 10% of our net product sales. Financial information about our net
product revenues and other revenues generated in the principal geographic regions in which we operate and our long-lived assets
is set forth in our financial statements and in Note 15, “Geographic Information” to our consolidated financial statements included
in this Annual Report on Form 10-K.
Translarna and Emflaza can generally only be returned if agreed upon in writing by us and the product is not opened nor in receipt
by the final user, except in the case of quality issues associated with the product. Product is generally shipped when a specific
patient is approved by the applicable government or insurer and an individual prescription has been written. The right of return is
eliminated as a matter of course when the product is dispensed to patients. We have never had a request for a product return for
either Translarna or Emflaza.
In some countries, including those in Latin America, orders for named patient sales may be for multiple months of therapy, which
can lead to an unevenness in orders which could result in significant fluctuations in quarterly net product sales.
Market Access Considerations
Translarna for the treatment of nmDMD is currently available on a commercial basis in Austria, Czech Republic, Denmark,
Hungary, Israel, Italy, Latvia, Norway, Portugal, Romania, Slovakia, Slovenia, Sweden and the United Kingdom (including
England, Scotland, Northern Ireland, and Wales). Commercial drug is also currently available in Germany, subject to the matters
discussed below. We consider Translarna to be commercially available when a reference price for the drug is established in the
applicable country and we are permitted to market treatment to patients.
Translarna for the treatment of nmDMD is also currently available through EAP programs in select countries where funded named
patient or cohort programs exist, both within the EEA and in other territories. These programs generally reference the EMA’s
determinations with respect to our marketing authorization in the EEA. As of today, Translarna is available under EAP or similar
styled programs in Argentina, Brazil, Canada, Colombia, Cyprus, Ecuador, France, Greece, Hong Kong, Kuwait, Lebanon, Russia,
Saudi Arabia, Singapore, Spain, Switzerland, Turkey and United Arab Emirates. Generally, EAP programs allow for access to
Translarna pursuant to a named patient program, under which a physician requests access to Translarna on behalf of the specific,
or “named” patient or pursuant to a cohort program, which allows for a broader temporary authorization for use for nmDMD
meeting the inclusion criteria. Our EAP programs are named patient or similar styled programs in all territories other than France,
which is a cohort program.
Our ability to make Translarna available via commercial or EAP programs is dependent upon our ability to maintain our marketing
authorization in the EEA for Translarna for the treatment of nmDMD in ambulatory patients aged two years and older. The marketing
authorization is subject to annual review and renewal by the European Commission following reassessment by the EMA as well
as the specific obligation to conduct and submit the results of Study 041. See “Item 1. Business-Marketing authorization matters
for Translarna in nonsense mutation Duchenne muscular dystrophy-European Economic Area” and “Risk Factors-Risks Related
to Regulatory Approval of our Product and our Product Candidates” for further information regarding the marketing authorization
in the EEA and related risks.
Our future revenues from Translarna, Emflaza and any other product candidates we may develop, depends largely on our ability
to obtain and maintain reimbursement from governments and third-party insurers. Each country in the EEA has its own pricing
and reimbursement regulations and many countries in the EEA have other regulations related to the marketing and sale of
pharmaceutical products in the applicable country. The pricing and reimbursement process varies from country to country and can
take a substantial amount of time from initiation to complete. As a result, our commercial launch in the EEA has been and is
expected to continue to be on a country-by-country basis and we generally will not be able to commence commercial sales of
Translarna for the treatment of nmDMD pursuant to our marketing authorization in the EEA in any particular member state of the
EEA until we conclude the applicable pricing and reimbursement negotiations and comply with any licensing, employment or
related regulatory requirements in that country.
We have submitted pricing and reimbursement dossiers with respect to Translarna for the treatment of nmDMD in key EEA
countries and have received both pricing and reimbursement approval on terms that are acceptable to us in a number of countries.
The price that is approved by local governmental authorities pursuant to commercial pricing and reimbursement processes may
be lower than the price that can be realized for purchases of product in that country pursuant to a reimbursed early access program.
In some instances, reimbursement may be subject to challenge, reduction or denial by the government and other payers. For
example, in France, EAP programs and commercial sales of a product can begin while pricing and reimbursement rates are under
discussion with the applicable government health programs. In the event that the negotiated price of the product is lower than the
amount reimbursed for sales made prior to the conclusion of price negotiations, we may become obligated to repay such excess
amount to the applicable government health program. Such retroactive reimbursement would be made following the conclusion
of price negotiations with the applicable government health authority.
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We delisted Translarna from the German pharmacy ordering system, effective April 1, 2016, based on unsustainable pricing
established by the arbitration board in Germany. However, patients and healthcare professionals in Germany have generally been
able to access Translarna through a reimbursed importation pathway possible under German law. There can be no assurance that
all such patients will continue to be successful in obtaining reimbursed access to Translarna.
For Emflaza, we are engaged in pricing, coverage and reimbursement discussions with third-party payors, such as state and federal
governments, including Medicare and Medicaid, managed care providers, private commercial insurance plans and pharmacy
benefit management plans. Decisions regarding the extent of coverage and the amount of reimbursement to be provided for Emflaza
are made on a plan-by-plan, and in some cases, on a patient-by-patient basis. Coverage and reimbursement decisions by third-
party payors, including the processing and adjudication of prescriptions, may vary from weeks to several months. Certain third-
party payors routinely impose additional requirements before approving reimbursement of a prescription, including prior
authorization and the requirement to try another therapy first. The specialty pharmacy we utilize provides patient services program
to support product access and, when eligible, out-of-pocket assistance.
We record revenue net of estimated third party discounts and rebates. Allowances are recorded as a reduction of revenue at the
time revenues from product sales are recognized. These allowances are adjusted to reflect known changes in factors and may
impact such allowances in the quarter those changes are known.
For important information regarding market access and pricing and reimbursement considerations see “Item 1. Business-
Pharmaceutical Pricing and Reimbursement” and “Item 1A. Risk Factors-Risks Related
the Development and
Commercialization of our Product and our Product Candidates” and “-Risks Related to Regulatory Approval of our Product and
our Product Candidates”.
to
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a
strong emphasis on proprietary products. While we believe that our technologies, knowledge, experience and scientific resources
provide us with competitive advantages, we face potential competition from many different sources, including commercial
pharmaceutical and biotechnology enterprises, academic institutions, government agencies and private and public research
institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and
new therapies that may become available in the future.
Many of our competitors may have significantly greater financial resources and expertise in research and development,
manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than
we do. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel, as well
as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early stage companies may also prove
to be significant competitors, particularly through collaborative arrangements with large and established companies.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer,
more effective, have fewer side effects, are more convenient or are less expensive than any products that we may develop. In
addition, our ability to compete may be affected because in some cases insurers or other third-party payors seek to encourage the
use of generic products. This may have the effect of making branded products less attractive, from a cost perspective, to buyers.
The key competitive factors affecting the success of Translarna, Emflaza, PTC-AADC, Tegsedi, Waylivra, risdiplam and our other
product candidates are likely to be its efficacy, safety, convenience, price and the availability of coverage and reimbursement from
government and other third-party payors.
The competition for Translarna, Emflaza and our other product candidates includes the following:
• Translarna for nmDMD. There is currently no marketed therapy, other than Translarna in the EEA, which has received
approval for the treatment of the underlying cause of nmDMD. Sarepta Therapeutics recently received approval in the
United States for a treatment addressing the underlying cause of disease for different mutations in the DMD gene.
Other biopharmaceutical companies are developing treatments addressing the underlying cause of disease for different
mutations in the DMD gene (Sarepta, Daiichi Sankyo, Nippon Shinyaku, and Solid Biosciences).
• Translarna for Other Indications. Diacomit is marketed in the European Union by Laboratoires Biocodex for the
treatment of Dravet syndrome. In the United States, both GW Pharmaceuticals and Zogenix have approved products
for the treatment of Dravet syndrome. Aniridia therapeutic interventions, such as artificial iris implantation, are being
developed by HumanOptics AG.
• Emflaza for DMD. The FDA has not approved a corticosteroid specifically for DMD in the United States other than
Emflaza. However, prednisone/prednisolone, which is not approved for DMD in the United States, is generically
available and has been prescribed off label for DMD patients.
• Gene therapy product candidates. Currently, no treatment options are available for the underlying cause of AADC
deficiency, and care is limited to palliative options with significant burden on caregivers. Additionally, we are not aware
of any late-stage development product candidates for AADC deficiency. While there is currently no treatment options
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available for FA, Voyager Therapeutics is also working on pre-clinical studies for a potential gene therapy solution.
Other gene therapy companies may in the future decide to utilize existing technologies to address unmet needs that
could potentially compete with our product candidates.
• Risdiplam. Risdiplam also faces competition. For example, in December 2016, the FDA approved nusinersen, a drug
developed by Ionis Pharmaceuticals, Inc. and marketed by Biogen, to treat SMA. AveXis, Inc., (acquired by Novartis
in 2018) is also evaluating a gene therapy product candidate for the treatment of SMA. Other companies are also
pursuing product candidates for the treatment of SMA, including Trophos (also in collaboration with Roche), Kowa,
Novartis Pharmaceuticals Corporation, and Cytokinetics.
• Waylivra. If approved, Waylivra could face competition from drugs like metreleptin. Metreleptin, produced by Novelion
Therapeutics, Inc., is currently approved for use in generalized lipodystrophy patients.
• Tegsedi. Tegsedi could face competition from drugs like patisiran and ALN-TTRsc02 in development by Alnylam,
tafamidis commercialized in some countries in LATAM by Pfizer and tolcapone in development by SOM Biotech.
Government Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among
other things, the research, development, testing, quality control, approval, manufacturing, labeling, post-approval monitoring and
reporting, recordkeeping, packaging, promotion, storage, advertising, distribution, marketing and export and import of
biopharmaceutical products such as those we are developing. In addition, sponsors of biopharmaceutical products and drug products
participating in Medicaid and Medicare are required to comply with mandatory price reporting, discount, and rebate requirements.
The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign
statutes and regulations require the expenditure of substantial time and financial resources. See “Item 1A. Risk Factors-Risks
Related to Regulatory Approval of our Product and our Product Candidates” for important information regarding some of the risks
to our business arising as a result of government regulation.
U.S. government regulation
In the United States, the FDA regulates drugs and biologic products, including gene therapy products, under the Federal Food,
Drug, and Cosmetic Act, or the FDCA, the Public Health Service Act, or the PHSA, and regulations and guidance implementing
these laws. The FDCA, PHSA and their corresponding regulations govern, among other things, the testing, manufacturing, safety,
efficacy, labeling, packaging, storage, record keeping, distribution, reporting, advertising and other promotional practices involving
drugs and biologic products. Applications to the FDA are required before conducting human clinical testing of drugs or biologic
products. Failure to comply with the applicable FDA requirements at any time pre- or post-approval may result in a delay of
approval or administrative or judicial sanctions. These sanctions could include the FDA’s imposition of a clinical hold on trials,
refusal to approve pending applications or supplements, withdrawal of an approval, issuance of warning or untitled letters, product
recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal
prosecution, among other actions further described in this filing. Any agency or judicial enforcement action could have a material
adverse effect on us.
Regulatory requirements governing our business are also evolving. For example, until recently, the National Institutes of Health,
or the NIH, through its Recombinant DNA Advisory Committee, or RAC, also reviewed certain proposed gene therapy trials
pursuant to the NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules, or NIH Guidelines,;
however, the NIH recently proposed to change this practice so that the RAC will no longer review individual human gene transfer
protocols. Certain aspects of the NIH Guidelines, such as review of studies by Institutional Biosafety Committees, or IBCs remain
in effect. The NIH has stated that it will finalize this change after taking public comments. The FDA has issued a growing body
of guidance documents on CMC, clinical investigations and other areas of gene therapy development, all of which are intended
to facilitate the industry’s development of gene therapy products.
The new drug and biologic approval process
In the United States, the information that must be submitted to the FDA in order to obtain approval to market a new drug or biologic
product varies depending upon whether the drug is a new product whose safety and efficacy have not previously been demonstrated
in humans or a drug whose active ingredients and certain other properties are the same as those of a previously approved drug. A
New Drug Application, or NDA, is the vehicle through which the FDA approves a new pharmaceutical drug product for sale and
marketing in the United States. A Biologics License Application, or BLA, is the vehicle through which the FDA approves a new
biologic product for sale and marketing in the United States.
To market a new drug or biologics product in the United States, a sponsor generally must undertake the following:
•
•
completion of preclinical laboratory tests, animal studies and formulation studies under the FDA’s Good Laboratory
Practice, or GLP, regulations and other applicable laws or regulations;
submission with the FDA of an investigational new drug application, or IND, for clinical testing, which must become
effective before clinical trials may begin at United States clinical trial sites;
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•
•
•
•
•
•
approval by an independent Institutional Review Board, or IRB, and in the case of gene therapy studies, IBC, prior to
initiation and subject to continuing review;
completion of adequate and well-controlled clinical trials to establish safety and efficacy, in the case of a drug product
candidate, or safety purity, and potency, in the case of a biologic product candidate for its intended use, performed in
accordance with Good Clinical Practices, or GCP, and the International Conference on Harmonisation of Technical
Requirements for Registration of Pharmaceuticals for Human Use, or ICH, E6 GCP guidelines. Gene therapy research
must also be conducted in accordance with the NIH Guidelines;
development of manufacturing processes to ensure the product candidate’s identity, strength, quality, purity, and potency;
submission and FDA acceptance of an NDA, in the case of a drug product candidate, or BLA in the case of a biologic
product candidate, and satisfactory completion of an FDA Advisory Committee meeting, if applicable;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced
to assess compliance with current good manufacturing practices, or cGMPs, which require that the facilities, methods
and controls are adequate to preserve the product’s identity, strength, quality and purity, as well as satisfactory completion
of an FDA inspection of selected clinical sites and selected clinical investigators to determine GCP compliance; and
FDA review and approval of the NDA or BLA to permit commercial marketing for particular indications for use.
Preclinical Studies and IND Submission
Preclinical tests include laboratory evaluations of product chemistry, pharmacology, stability, toxicity and product formulation,
as well as animal studies to assess potential safety and efficacy. In order to begin clinical testing, a sponsor must submit an IND
to the FDA, which includes, among other things, the results of the preclinical tests, manufacturing information, analytical data,
proposed clinical protocols, and any available clinical data or literature on the product candidate. Some preclinical testing may
continue after the IND is submitted. The IND must become effective before human clinical trials may begin. An IND will
automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions
about issues such as the conduct of the trials as outlined in the IND. In that case, the IND sponsor and the FDA must resolve any
outstanding FDA concerns or questions before clinical trials can proceed. In other words, submission of an IND may not result in
the FDA allowing clinical trials to commence. Clinical holds also may be imposed by the FDA at any time before or during trials
due to safety concerns or non-compliance. As a result, submission of an IND may not result in FDA authorization to commence
or continue a clinical trial.
Clinical Trials
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified
investigators. Clinical trials are conducted in accordance with protocols detailing, among other things, the objectives of the study,
the parameters to be used in monitoring safety, the effectiveness criteria to be evaluated, and a statistical analysis plan. A protocol
for each clinical trial and subsequent protocol amendments must be filed with the FDA as part of the IND. All research subjects
or their legally authorized representatives must provide their informed consent in writing prior to their participation in a clinical
trial. Each clinical trial must be reviewed and approved by an IRB and is subject to ongoing IRB monitoring. The IRB must approve
the protocol, protocol amendments, the informed consent form, and communications to study subjects before a study commences
at the site. An IRB considers among other things, whether the risks to individuals participating in the trials are minimized and are
reasonable in relation to anticipated benefits, and whether the planned human subject protections are adequate. The IRB must
continue to oversee the clinical trial while it is being conducted. In the case of gene therapy studies, an IBC at the local level must
also review and maintain oversight over the particular study, in addition to the IRB. If the product candidate is being investigated
for multiple intended indications, separate INDs may also be required. Progress reports detailing the results of the clinical trials
must be submitted at least annually to FDA and the IRB and more frequently if serious adverse events or other significant safety
information is found. Certain reports may also be required to be submitted to the IBC.
Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor,
known as a data safety monitoring board or committee. This group regularly reviews accumulated data and advises the study
sponsor regarding the continuing safety of the trial. This group may also review interim data to assess the continuing validity and
scientific merit of the clinical trial. The data safety monitoring board receives special access to unblinded data during the clinical
trial and may advise the sponsor to halt the clinical trial if it determined there is an unacceptable safety risk for subjects or on other
grounds, such as no demonstration of efficacy.
Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health, or NIH,
to be publicly posted on the Clinicaltrials.gov website. Sponsors or distributors of investigational products for the diagnosis,
monitoring, or treatment of one or more serious disease or conditions must also have a publicly available policy on evaluating and
responding to requests for expanded access requests. Investigators must also provide certain information to clinical trial sponsors
to allow the sponsors to make certain financial disclosures to the FDA.
The manufacture of investigational drugs and biologics for the conduct of human clinical trials is subject to cGMP requirements.
Investigational drugs and biologics and active ingredients and therapeutic substances imported into the United States are also
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subject to regulation by the FDA. Further, the export of investigational products outside the United States is subject to regulatory
requirements of the receiving country as well as U.S. export requirements under the FDCA.
In general, for the purposes of NDA and BLA approval, human clinical trials typically are conducted in three sequential phases,
but the phases may overlap or be combined. Phase 1 clinical trials may be conducted in patients or healthy volunteers to evaluate
the product’s safety, dosage tolerance, structure-activity relationships, mechanism of action, absorption, metabolism distribution,
excretion, and pharmacokinetics and, if possible, seek to gain an early indication of its effectiveness. Phase 2 clinical trials usually
involve controlled trials in a larger but still relatively small number of subjects from the relevant patient population to evaluate
dosage tolerance and appropriate dosage; identify possible short-term adverse effects and safety risks; and provide a preliminary
evaluation of the efficacy of the drug or biologic product for specific indications.
Phase 2 clinical trials are sometimes denoted by companies as Phase 2a or Phase 2b clinical trials. Phase 2a clinical trials typically
represent the first human clinical trial of a drug or biologic product candidate in a smaller patient population and are designed to
provide earlier information on safety and efficacy. Phase 2b clinical trials typically involve larger numbers of patients or longer
durations of therapy and may involve comparison with placebo, standard treatments or other active comparators.
Phase 3 clinical trials usually further evaluate clinical efficacy and test further for safety in an expanded patient population at
geographically dispersed clinical trial sites, to generate enough data to provide statistically significant evidence of clinical efficacy
and safety of the product candidate for approval. Phase 3 clinical trials usually involve comparison with placebo, standard treatments
or other active comparators. These trials are well-controlled and are intended to establish the overall risk- benefit profile of the
product or product candidate and provide an adequate basis for physician labeling. Phase 3 clinical trials are usually larger, more
time consuming, more complex and more costly than Phase 1 and Phase 2 clinical trials.
Additional kinds of data may also help support a BLA or NDA, such as patient experience data and real world evidence. Real
world evidence may also be used to assist in clinical trial design or support an NDA for already approved products. For genetically
targeted populations and variant protein targeted products intended to address an unmet medical need in one or more patient
subgroups with a serious or life threatening rare disease or condition, the FDA may allow a sponsor to rely upon data and information
previously developed by the sponsor or for which the sponsor has a right of reference, that was submitted previously to support
an approved application for a product that incorporates or utilizes the same or similar genetically targeted technology or a product
that is the same or utilizes the same variant protein targeted drug as the product that is the subject of the application.
Clinical trials may not be completed successfully within any specified period, if at all. The FDA, the sponsor, or a data safety
monitoring board may suspend or terminate clinical trials at any time on various grounds, including a finding that the subjects are
or would be exposed to an unreasonable and significant risk of illness or injury. Similarly, an IRB can suspend or terminate approval
of a clinical trial if the trial is not being conducted in accordance with the IRB’s requirements or if the research has been associated
with unexpected serious harm to patients. IBCs can also require that research activities be ceased if applicable requirements are
not being met. The FDA typically requires that an NDA or BLA include data from two adequate and well-controlled clinical trials,
but approval may be based upon a single adequate and well-controlled clinical trial plus confirmatory evidence. In some cases,
the FDA may condition approval of an NDA or BLA on the applicant’s agreement to conduct additional clinical trials to further
assess the product’s safety and effectiveness after NDA or BLA approval. Such post-approval trials are typically referred to as
Phase 4 studies. The results of Phase 4 studies can confirm or refute the effectiveness of a product candidate, and can provide
important safety information.
The FDA’s accelerated approval process allows for potentially faster development and approval of certain drugs or biologic products
intended to treat serious or life- threatening illnesses that provide meaningful therapeutic benefit to patients over existing treatments.
Under the accelerated approval process, the adequate and well-controlled clinical trials conducted with the drug or biologics
product establish that the drug or biologics product has an effect on a “surrogate” endpoint that is reasonably likely to predict
clinical benefit or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity, that is reasonably
likely to predict an effect on irreversible morbidity or mortality, taking into account the severity, rarity, or prevalence of the condition
and availability or lack of alternative treatments. Drugs or biologics products approved through the accelerated approval process
are subject to certain post-approval requirements, including that the applicant complete Phase 4 clinical trials to demonstrate the
drug’s or biological product’s clinical benefit. If the trials fail to verify the clinical benefit of the drug or biologics product, the
FDA may withdraw approval of the application through a streamlined process. Promotional materials for a drug or biologic
approved under the accelerated approval pathway are subject to FDA prior review.
Concurrent with clinical trials, companies usually complete additional preclinical studies and must also develop additional
information about the physical characteristics of the drug or biologic product candidate as well as finalize a process for
manufacturing the product candidate in commercial quantities in accordance with cGMP requirements. The manufacturing process
must be capable of consistently producing quality batches of the product candidate and, among other requirements, the sponsor
must develop methods for testing the identity, strength, quality, potency and purity of the final biologic product. Additionally,
appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the biologic product
candidate does not undergo unacceptable deterioration over its shelf life.
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If a drug or biologic product’s approved indication is dependent on the measurement or detection of specified biomarkers, the
therapeutic approval may require the contemporaneous approval or clearance of an in vitro companion diagnostic device. An in
vitro companion diagnostic device provides information that is essential for the safe and effective use of a corresponding therapeutic
product. The use of an in vitro companion diagnostic device with a therapeutic product is stipulated in the instructions for use in
the labeling of both the diagnostic device and the corresponding therapeutic product. The FDA has explained in guidance in vitro
diagnostic companion diagnostic devices may be used for a number of purposes, including identifying appropriate subpopulations
for treatment. According to the guidance, in vitro companion diagnostic devices may require the submission and approval of a
preauthorization application before they are marketed. Some in vitro companion diagnostic devices, however, could potentially
be cleared through a 510(k) premarket notification submission. The guidance states that the FDA generally will not approve a drug
or biologic that is dependent upon the use of an in vitro companion diagnostic device if no such device is contemporaneously
FDA- approved or -cleared for the relevant indication. According to the guidance, however, the FDA may approve such a product
without an approved or cleared in vitro companion diagnostic device when the drug or biologic is intended to treat a serious or
life- threatening condition for which no satisfactory alternative treatment exists and the FDA determines that the benefits from the
use of the product are so pronounced as to outweigh the risks from the lack of an approved or cleared in vitro companion diagnostic
device. Under these circumstances, the FDA expects that a diagnostic would be subsequently approved or cleared through an
appropriate device submission, and that the therapeutic product labeling would be revised to stipulate the use of the diagnostic
device. The FDA would also consider whether additional protections, such as risk evaluation and mitigation strategies, or REMS,
or post-approval requirements, are necessary.
In a separate guidance, specific to Duchenne Muscular Dystrophy and related dystrophinopathies, the FDA has stated that for
drugs and biologics in which efficacy or safety may be related to the patient’s specific dystrophin mutation or to another type of
finding related to a biomarker for which a suitable diagnostic device is not available, a sponsor should contemporaneously develop
a companion diagnostic device. However, given the serious and life-threatening nature of dystrophinopathies and the lack of
satisfactory alternative treatments that currently exist, the guidance further states that, the FDA may approve a drug or biologic
even if a companion diagnostic device is not yet approved or cleared, if the benefits are so pronounced as to outweigh the risks
from the lack of an approved or cleared in vitro companion diagnostic device. During the review, the FDA will determine the
need for clearance or approval of the device. The FDA guidance documents represent the FDA’s current thinking on a topic but
do not establish legally enforceable responsibilities.
Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical trials,
together with other detailed information, including proposed labeling and information on the chemistry, manufacture and
composition of the product, are submitted to the FDA in the form of an NDA or BLA requesting approval to market the product
for one or more indications. In most cases, the NDA or BLA must be accompanied by a substantial user fee, though a waiver of
such fees may be obtained under certain limited circumstances. Product candidates that are designated as orphan products are not
subject to application user fees unless the application includes an indication other than the orphan indication. The user fees must
be paid at the time of the first submission of the application, even if the application is being submitted, by section, on a rolling
basis. The FDA has 60 days from its receipt of an NDA or BLA to determine whether the application will be accepted for filing
based on the FDA’s threshold determination that it is sufficiently complete to permit a substantive review.
If the FDA determines that the NDA or BLA is incomplete, the FDA may refuse to file the application. If the FDA refuses to file
an NDA or BLA, the applicant may refile the application with information addressing the FDA identified deficiencies, which
refiling would be subject to FDA review before it is accepted for filing, or the applicant may request an informal conference with
the FDA about whether the application should be filed. After the conference, the applicant may request that the application be filed
over protest. When an application is filed over protest, the FDA is required to review the application as filed. Generally, the FDA
does not favor the file over protest procedure. There are also certain consequences of filing an application over protest. For example,
such an application would not be eligible for certain FDA communications over the course of the review cycle.
In addition, an applicant that receives an RTF can, in some circumstances, appeal the decision using the FDA’s dispute resolution
procedures. After the NDA or BLA submission is accepted for filing, the FDA reviews the NDA or BLA to determine, among
other things, whether a product meets FDA’s approval standard and whether the product is being manufactured in accordance with
cGMP to assure and preserve the product’s identity, strength, quality and purity. Under the goals and policies agreed to by the
FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has set the review goal of completing its review of 90% of
all applications for new molecular entities within ten months of the 60-day filing date. The FDA does not always meet its PDUFA
goal dates for review of NDAs or BLAs. The review process and the PDUFA goal date may be extended by additional three-month
review periods whenever the FDA requests or the NDA or BLA sponsor otherwise provides additional information or clarification
regarding information already provided in the submission at any time during the review cycle. If, however, an application is filed
with the FDA over protest, the FDA generally will not review amendments to the application during any review cycle and will
not issue information requests to the applicant during the agency’s review.
Under the Pediatric Research Equity Act of 2003, or PREA, NDAs or BLAs or supplements to NDAs or BLAs for a new active
ingredient, dosage form, dosage regimen, or route of administration, unless subject to the below requirement for molecularly
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targeted cancer products, must contain data to assess the safety and effectiveness of the product for the claimed indications in all
relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product
is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of data
or full or partial waivers. PREA does not generally apply to products for an indication for which orphan designation has been
granted. However, PREA compliance may be required if approval is sought for other indications for which the product has not
received orphan designation.
The FDA Reauthorization Act of 2017 introduced a new provision regarding required pediatric studies. Under this statute, for
product candidates intended for the treatment of adult cancer which are directed at molecular targets that the FDA determines to
be substantially relevant to the growth or progression of pediatric cancer, original application sponsors must submit, with the
marketing application, reports from molecularly targeted pediatric cancer investigations designed to yield clinically meaningful
pediatric study data, gathered using appropriate formulations for each applicable age group, to inform potential pediatric labeling.
The FDA may, on its own initiative or at the request of the applicant, grant deferrals or waivers of some or all of this data, as above.
Unlike PREA, orphan products are not exempt from this requirement.
The FDA will typically inspect one or more clinical sites to assure compliance with GCP before approving an NDA or BLA. The
FDA also will inspect the facility or the facilities at which the product is manufactured before the NDA or BLA is approved. The
FDA will not approve the product unless current good manufacturing practice, or cGMP, compliance is satisfactory. The FDA may
also take into account results of inspections performed by certain counterpart foreign regulatory agencies in assessing compliance
with GCP or cGMP. The FDA has entered into international agreements with foreign agencies, including the EMA, in order to
facilitate this type of information sharing. If the FDA determines the application, manufacturing process or manufacturing facilities
are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information.
Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does
not satisfy the regulatory criteria for approval.
We may encounter difficulties or unanticipated costs in our efforts to secure necessary FDA approvals, which could delay or
prevent us from marketing our products. The FDA may refer applications for novel drug products or biologic products to an
advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what
conditions. Specifically, for a product candidate for which no active ingredient (including any ester or salt of active ingredients)
has previously been approved by the FDA, the FDA must either refer that product candidate to an advisory committee or provide
in an action letter, a summary of the reasons why the FDA did not refer the product candidate to an advisory committee. The FDA
may also refer other product candidates to an advisory committee if FDA believes that the advisory committee’s expertise would
be beneficial. The advisory committee process may cause delays in the approval timeline. The FDA is not bound by the
recommendation of an advisory committee, but it considers such recommendations carefully, particularly any negative
recommendations or limitations, when making drug or biologic product approval decisions.
After evaluating the marketing application and all related information, including the advisory committee recommendation, if any,
and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in
some cases, a Complete Response Letter, or CRL. A CRL indicates that the review cycle of the application is complete and the
application is not ready for approval and describes all of the specific deficiencies that the FDA identified. A CRL generally contains
a statement of specific conditions that must be met in order to secure final approval of the marketing application, and may require
additional clinical or preclinical testing in order for the FDA to reconsider the application. The deficiencies identified may be
minor, for example, requiring labeling changes; or major, for example, requiring additional clinical trials. If a CRL is issued, the
applicant may either: resubmit the marketing application, addressing all of the deficiencies identified in the letter; withdraw the
application; or request an opportunity for a hearing. The FDA has the goal of reviewing 90% of application resubmissions in either
two or six months of the resubmission date, depending on the kind of resubmission. However, if the application that was the
subject of a CRL was filed over protest, these review timeframes do not apply and any such resubmission will be reviewed by
FDA as available resources permit. Moreover, even with submission of additional information, the FDA ultimately may decide
that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s
satisfaction, the FDA may issue an approval letter. An approval letter authorizes commercial marketing of the product with specific
prescribing information for specific indications.
The testing and approval process requires substantial time, effort and financial resources, and may take years to complete. Data
obtained from clinical trials are not always conclusive and may be susceptible to varying interpretations, which could delay, limit
or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all.
Even if approval is granted, the FDA may limit the indications for use, approve narrow labeling relegating a drug or biologic
product to second- line or later-line use, add limitations of use to the labeling or place other conditions on approvals, which could
restrict the marketing of the products. Further, the FDA may require that certain contraindications, warnings or precautions be
included in the product labeling, including black box warnings, require testing and surveillance programs to monitor the product
after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms
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under a REMS which can materially affect the potential market and profitability of the product. The FDA may also not approve
label statements that are necessary for successful commercialization and marketing. After approval, some types of changes to the
approved product, such as adding new indications or label claims, which may themselves require further clinical testing, or changing
the manufacturing process are subject to further FDA review and approval.
The FDA may also withdraw the product approval if compliance with the pre-and post-marketing regulatory standards are not
maintained or if problems occur after the product reaches the marketplace, among other consequences. Further, should new safety
information arise, additional testing, product labeling, or FDA notification may be required.
Additional regulation for gene therapy clinical trials
In addition to the regulations discussed above, there are a number of additional standards that apply to clinical trials involving the
use of gene therapy. The FDA has issued various guidance documents regarding gene therapies, which outline additional factors
that the FDA will consider at each of the above stages of development and relate to, among other things: the proper preclinical
assessment of gene therapies; the CMC information that should be included in an IND application; the proper design of tests to
measure product potency in support of an IND or BLA application; and long term follow up to observe delayed adverse effects in
subjects who have been exposed to investigational gene therapies when the risk of such effects is high. Further, long-term follow
up may be required for gene therapies to assess delayed adverse events. The NIH and the FDA have a publicly accessible database,
the Genetic Modification Clinical Research Information System, which includes information on gene therapy trials and serves as
an electronic tool to facilitate the reporting and analysis of adverse events on these trials.
Post-approval requirements
After FDA approval of a product is obtained, we are required to comply with a number of post-approval requirements, including,
among other things, establishment registration and product listing, record-keeping requirements, reporting certain adverse reactions
and production problems to the FDA, providing updated safety and efficacy information, and complying with requirements
concerning advertising and promotional labeling. As a condition of approval of an NDA or BLA, the FDA may require the applicant
to conduct additional clinical trials or other post market testing and surveillance to further monitor and assess the product’s safety
and efficacy. There also are continuing annual program user fee requirements for approved products, though orphan products may
receive exemptions.
The FDA also has the authority to require a specific REMS to ensure the safe use of the drug or biologic. In determining whether
a REMS is necessary, the FDA must consider the size of the population likely to use the product, the seriousness of the disease or
condition to be treated, the expected benefit of the product, the duration of treatment, the seriousness of known or potential adverse
events, and whether the product is a new molecular entity. A REMS may be required to include various elements, such as a
medication guide or patient package insert, a communication plan to educate health care providers of the product’s risks, limitations
on who may prescribe or dispense the product, or other measures that the FDA deems necessary to assure the safe use of the drug.
The REMS strategy must be approved by the FDA. In addition, the REMS must include a timetable to assess the strategy at
18 months, three years, and seven years after the strategy’s approval. The FDA may also impose a REMS requirement on an
approved product if the FDA determines, based on new safety information, that a REMS is necessary to ensure that the product’s
benefits outweigh its risks.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Although
physicians may prescribe a drug or biologic for off-label uses, manufacturers may only promote the product for the approved
indications and in accordance with the approved labeling. The FDA and other agencies actively enforce the laws and regulations
prohibiting the promotion of off-label uses. Failure to comply with the laws and regulations governing advertising and promotion
can have negative consequences, including adverse publicity, warning and untitled letters from the FDA, requests for corrective
advertising or communications with doctors, civil penalties or criminal prosecution, exclusion from participation in federal
healthcare programs, mandatory compliance programs under corporate integrity agreements, suspension and debarment from
government contracts, and refusal or orders under existing government contracts, among others.
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA,
which regulates the distribution of samples at the federal level. The Drug Supply Chain Security Act, or DSCSA, added new
sections in the FDCA that require manufacturers, repackagers, wholesale distributors, dispensers, and third-party logistics providers
to take steps to identify and trace certain prescription drugs and biologics to protect against the threats of counterfeit, diverted,
stolen, contaminated, or otherwise harmful products in the supply chain. The DSCSA regulates the distribution of prescription
pharmaceutical drugs and biologics, requiring passage of documentation to track and trace each prescription product at the saleable
unit level through the distribution system. This documentation must be transferred electronically. Products subject to the DSCSA
must only be transferred to appropriately licensed purchasers. The DSCSA also requires manufacturers and repackagers to affix
or imprint a unique product identifier (comprised of a standardized numerical identifier, lot number, and expiration date of the
product) on product packages in both a human-readable and on a machine-readable data carrier. The standardized numerical
identifier is comprised of the product’s corresponding National Drug Code combined with a unique alphanumeric serial number.
A product is misbranded if it does not bear the product identifier. The DSCSA also establishes several requirements relating to the
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verification of product identifiers. Further, under this legislation, sponsors have product investigation, quarantine, disposition, and
notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products that would result in
serious adverse health consequences of death to humans, as well as products that are the subject of fraudulent transactions or which
are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.
Similar requirements additionally are and will be imposed through this legislation on other companies within the biopharmaceutical
product supply chain, such as distributors and dispensers, as well as certain sponsor licensees and affiliates. Implementation of
the DSCSA requirements, such as the product identifier requirements has imposed and will continue to impose increased costs
and administrative burdens and may lead to potential liability associated with the marketing and sale of products subject to these
requirements. The PDMA, DSCSA, and state laws limit the distribution of prescription pharmaceutical product samples and impose
requirements to ensure accountability in distribution.
Also, quality control and manufacturing procedures must continue to conform to cGMP after approval, including quality control
and quality assurance and maintenance of records and documentation. Changes to the manufacturing process are strictly regulated
and often require prior FDA approval or notification before being implemented. FDA regulations also require investigation and
correction of any deviations from cGMP and specifications, and impose reporting and documentation requirements upon the
sponsor and any third-party manufacturers that the sponsor may decide to use.
Manufacturers and others involved in the manufacture and distribution of such products also must register their establishments
with the FDA and certain state agencies. Both domestic and foreign manufacturing establishments must register and provide
additional information to the FDA upon their initial participation in the manufacturing process for a commercial product.
Establishments may be subject to periodic, unannounced inspections by government authorities to ensure compliance with cGMP
requirements and other laws. Discovery of problems may result in a government entity placing restrictions on a product,
manufacturer or holder of an approved NDA or BLA, and may extend to requiring withdrawal of the product from the market
among other consequences further described in this filing. Accordingly, manufacturers must continue to expend time, money and
effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our product and
product candidates. Future FDA inspections may identify compliance issues at our facilities or at the facilities of our contract
manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of
problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer
or holder of an approved NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated
or judicial action, among other consequences further described in this filing, that could delay or prohibit further marketing.
Once approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or
if issues bearing on the product’s safety or efficacy are discovered. Newly discovered or developed safety or effectiveness data or
other information may also require changes to a product’s approved labeling, including the addition of new warnings and
contraindications, and also may require the implementation of other risk management measures. Such actions may include refusal
to approve pending applications, license or approval suspension or revocation, imposition of a clinical hold or termination of
clinical trials, warning letters, untitled letters, cyber letters, modification of promotional materials or labeling, provision of corrective
information, imposition of post-market requirements including the need for additional testing, imposition of distribution or other
restrictions under a REMS, product recalls, product seizures or detentions, refusal to allow imports or exports, total or partial
suspension of production or distribution, FDA debarment, injunctions, fines, consent decrees, corporate integrity agreements,
suspension and debarment from government contracts, and refusal of orders under existing government contracts, exclusion from
participation in federal and state healthcare programs, restitution, disgorgement, or civil or criminal penalties, including fines and
imprisonment, and adverse publicity, among other adverse consequences. New government requirements, including those resulting
from new legislation, may be established that could delay or prevent FDA approval of our products under development or negatively
impact the marketing of any future approved products.
Additional controls for biologics
To help reduce the risk of the introduction of adventitious agents or of causing other adverse events with the use of biologic
products, the PHSA emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined.
The PHSA also provides authority to the FDA to immediately suspend licenses in situations where there exists a danger to public
health, to prepare or procure products in the event of shortages and critical public health needs, and to authorize the creation and
enforcement of regulations to prevent the introduction or spread of communicable diseases in the United States and between states.
After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturing
process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the
product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together
with a release protocol showing the results of all of the manufacturer’s tests performed on the lot. The FDA may also perform
certain confirmatory tests on lots of some products before releasing the lots for distribution by the manufacturer.
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In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency, and effectiveness
of biological products.
Orphan drug designation.
We have received orphan drug designation from the FDA for Translarna for the treatment nmDMD and nonsense mutation aniridia,
for PTC-AADC for the treatment of AADC deficiency, for risdiplam for the treatment of SMA, for PTC-FD for the treatment of
Friedreich ataxia and PTC-AS for the treatment of Angelman syndrome. The FDA may grant orphan drug designation to drugs
and biologics intended to treat a “rare disease or condition,” which is defined as a disease or condition that affects fewer than
200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable
expectation that the cost of developing and making available in the United States a product for this type of disease or condition
will be recovered from sales in the United States for that product. Additionally, sponsors must present a plausible hypothesis for
clinical superiority to obtain orphan designation if there is a product already approved by the FDA that that is considered by the
FDA to be the same as the already approved product and is intended for the same indication. This hypothesis must be demonstrated
to obtain orphan exclusivity. Orphan drug designation must be requested before submitting an application for marketing approval.
Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
Orphan drug designation can provide opportunities for grant funding towards clinical trial costs, tax advantages and FDA user-
fee benefits. The tax advantages, however, were limited in 2017 Tax Cuts and Jobs Act. In addition, if a product which has an
orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, the
product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same
drug or biologic for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical
superiority to the product with orphan exclusivity or the same drug or biologic for different indications. However, competitors
may receive approval of different drugs or biologics for the indications for which the orphan product has exclusivity. The FDA
awarded an orphan drug designation to Emflaza for the treatment of patients with DMD and approved Emflaza on February 9,
2017, as the first corticosteroid approved in the United States for the treatment of patients with DMD, granting Emflaza orphan
drug exclusivity for this disease as of the date of approval.
Rare Pediatric Disease Voucher Program
Under the FDCA, the FDA awards priority review vouchers to sponsors of rare pediatric disease products that meet certain criteria.
To qualify, the rare disease must be serious or life-threatening in which the serious or life-threatening manifestations primarily
affect individuals aged from birth to 18 years. Also, the product must contain no active ingredient (including any ester or salt of
the active ingredient) that has been previously approved in any other application and the application must meet certain additional
qualifying criteria, including eligibility for FDA priority review. If FDA determines that a product is for a rare pediatric disease
and the qualifying application criteria are met, upon a sponsor’s request, FDA may award the sponsor a priority review voucher.
This voucher may be redeemed to receive priority review (i.e., a review time of 6 months as compared to 10 months for standard
review) of a subsequent marketing application for a different product. Use of a priority review voucher is subject to an FDA user
fee. These vouchers are transferable. Accordingly, sponsors may sell these vouchers for substantial sums of money. Vouchers
may also be revoked by FDA under certain circumstances and sponsors of approved rare pediatric disease products must submit
certain reports to FDA.
Changes to the FDCA, however, have limited the future use of pediatric priority review vouchers. Under the law’s sunset provision,
the drug or biologic must be designated by FDA for a rare pediatric disease no later than September 30, 2020, and approved no
later than September 30, 2022, unless the law is reauthorized by Congress. Accordingly, while PTC-AADC currently has a rare
pediatric disease designation, if we cannot secure FDA BLA approval prior to September 30, 2022, we may not be able to receive
the benefit of such designation.
Hatch-Waxman Act for Drugs.
Section 505 of the FDCA describes three types of drug marketing applications that may be submitted to the FDA to request
marketing authorization for a new drug. A Section 505(b)(1) NDA is an application that contains full reports of investigations of
safety and efficacy. A 505(b)(2) NDA is an application that contains full reports of investigations of safety and efficacy but where
at least some of the information required for approval comes from investigations that were not conducted by or for the applicant
and for which the applicant has not obtained the right of reference or use from the person by or for whom the investigations were
conducted. This regulatory pathway enables the applicant to rely, in part, on the FDA’s prior findings of safety and efficacy for
an existing product, or published literature, in support of its application. Section 505(j) establishes an abbreviated approval process
for a generic version of approved drug products through the submission of an Abbreviated New Drug Application, or ANDA. An
ANDA provides for marketing of a generic drug product that generally has the same active ingredients, dosage form, strength,
route of administration, labeling, performance characteristics and intended use, among other things, to a previously approved
product, called the reference listed drug. Certain differences, however, between the reference listed drug and ANDA product may
be permitted pursuant to a suitability petition. Certain labeling differences may also be permitted if information in the reference
listed drug’s label is protected by patent or exclusivities. ANDAs are termed “abbreviated” because they are generally not required
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to include preclinical (animal)and clinical (human) data to establish safety and efficacy. Instead, generic applications must
scientifically demonstrate that their product is bioequivalent to, or performs in the same manner as, the innovator drug through in
vitro, in vivo, or other testing. The generic version must deliver the same amount of active ingredients to the site of action in the
same amount of time as the innovator drug and can often be substituted by pharmacists under prescriptions written for the reference
listed drug. In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims
that cover the applicants drug or a method of using the drug. Upon approval of a drug, each of the patents listed in the application
for the drug is then published in the FDA’s list of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly
known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential competitors in support of approval
of an ANDA or 505(b)(2) NDA.
Upon submission of an ANDA or 505(b)(2) NDA, an applicant must certify to the FDA that (1) no patient information has been
submitted to the FDA; (2) such patent has expired; (3) the date on which such patent expires; or (4) such patent is invalid or will
not be infringed upon by the manufacturer, use or sale of the drug product for which the application is submitted. Generally, the
ANDA or 505(b)(2) NDA approval cannot be made effective until all listed patents have expired, except where the ANDA or
505(b)(2) NDA applicant challenges a listed patent through the last type of certification, also known as a paragraph IV certification.
If the ANDA of 505(b)(2) NDA applicant has provided a paragraph IV certification to the FDA, the applicant must send notice of
the certification to the NDA and patent holders. The NDA and patent holders may then initiate a patent infringement lawsuit in
response to the notice of the paragraph IV certification, in which case the FDA may not make an approval effective until the earlier
of 30 months from the patent or application owner’s receipt of the notice of the paragraph IV certification, the expiration of the
patent, when the infringement case concerning each such patent is favorably decided in the applicant’s favor or settled, or such
shorter or longer period as may be ordered by a court. This prohibition is generally referred to as the 30-month stay. In instances
where an ANDA of 505(b)(2) NDA applicant files a paragraph IV certification, the NDA holder or patent owner(s) regularly take
action to trigger the 30-month stay. Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for a significant period of
time depending on the patent certification the applicant makes and the reference drug sponsor’s decision to initiate patent litigation.
In addition to the above, the Hatch Waxman Act established certain periods of regulatory exclusivity. As we presently have no
patent rights to protect the approved use of Emflaza, we rely on non-patent market exclusivity periods under the Orphan Drug Act
and the Hatch-Waxman Act to commercialize Emflaza in the United States.
Market and data exclusivity provisions under the FDCA can delay the submission or the approval of certain applications for
competing products. The FDCA provides a five-year period of non-patent data exclusivity within the United States to the first
applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously
approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the therapeutic
activity of the drug substance. During the exclusivity period, the FDA generally may not accept for review an ANDA or a 505(b)
(2) NDA submitted by another company that references the previously approved drug. However, an ANDA or 505(b)(2) NDA
may be submitted after four years if it contains a certification of patent invalidity or non-infringement.
The FDCA also provides a shorter three-year period of market exclusivity for an NDA, 505(b)(2) NDA, or supplement to an
existing NDA or 505(b)(2) NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored
by the applicant are deemed by the FDA to be essential to the approval of the application. Three-year exclusivity may be granted
for example, for new indications, dosages, strengths or dosage forms of an existing drug. This three-year exclusivity covers only
the conditions of use associated with the new clinical investigations and, as a general matter, does not prohibit the FDA from
approving ANDAs or 505(b)(2) NDAs for generic versions of the original, unmodified drug product. Five-year and three-year
exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required
to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary
to demonstrate safety and effectiveness.
BPCIA Exclusivity
We are currently pursuing patent protection for GT-AADC for the treatment of AADC deficiency, and, in the meantime, we expect
to rely on the twelve-year BPCIA regulatory exclusivity to commercialize PTC-AADC in the United States, if it is approved.
The 2010 Patient Protection and Affordable Care Act included the BPCIA as a subtitle. The BPCIA established a regulatory scheme
authorizing the FDA to approve biosimilars and interchangeable biosimilars. As of January 1, 2019, the FDA has approved sixteen
biosimilar products for use in the United States. No interchangeable biosimilars have been approved. The FDA has issued a number
of guidance documents outlining an approach to review and approval of biosimilars.
Under the BPCIA, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or
“interchangeable with” a previously approved biological product or “reference product.” In order for the FDA to approve a
biosimilar product, it must find that there is a high degree of similarity to the reference product, notwithstanding minor differences
in clinically inactive components, and that there are no clinically meaningful differences between the reference product
and proposed biosimilar product in terms of safety, purity and potency. Biosimilarity must be shown through analytical studies,
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animal studies, and at least one clinical trial, absent a waiver by the FDA. There must be no difference between the reference
product and a biosimilar in mechanism of action, conditions of use, route of administration, dosage form, and strength. For the
FDA to approve a biosimilar product as interchangeable with a reference product, the FDA must find that the biosimilar product
can be expected to produce the same clinical results as the reference product, and (for products administered multiple times) that
the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks
or risks of diminished efficacy relative to exclusive use of the reference biologic.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date of
approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the
reference product was approved. However, certain changes and supplements to an approved BLA, and subsequent applications
filed by the same sponsor, manufacturer, licensor, predecessor in interest, or other related entity do not qualify for the 12 year
exclusivity period. Even if a product is considered to be a reference product eligible for exclusivity, another company could market
a competing version of that product if the FDA approves a full BLA for such product containing the sponsor’s own preclinical
data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The
BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products.
The BPCIA also includes provisions to protect reference products that have patent protection. The biosimilar product sponsor and
reference product sponsor may exchange certain patent and product information for the purpose of determining whether there
should be a legal patent challenge. Based on the outcome of negotiations surrounding the exchanged information, the reference
product sponsor may bring a patent infringement suit and injunction proceedings against the biosimilar product sponsor. The
biosimilar applicant may also be able to bring an action for declaratory judgment concerning the patent.
Patent Term Restoration
If approved, drug and biologic products may also be eligible for periods of U.S. patent term restoration. If granted, patent term
restoration extends the patent life of a single unexpired patent, that has not previously been extended, for a maximum of five years.
The total patent life of the product with the extension also cannot exceed fourteen years from the product’s approval date. Subject
to the prior limitations, the period of the extension is calculated by adding half of the time from the effective date of an IND to
the initial submission of a marketing application, and all the time between the submission of the marketing application and its
approval. This period may also be reduced by any time that the applicant did not act with due diligence.
Pediatric exclusivity
Pediatric exclusivity is another type of non-patent market exclusivity in the United States and, if granted, provides for the attachment
of an additional six months of market protection to the term of any existing Orange Book- listed patents or regulatory exclusivity,
including the non-patent exclusivity periods described above. This six-month exclusivity may be granted based on the voluntary
completion of a pediatric study or studies in accordance with an FDA-issued “Written Request” for such a study or studies within
a specified timeframe prior to the expiration of the underlying patent or market exclusivity period to be extended.
Regulation outside the United States
In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory
requirements of other countries regarding safety and efficacy and governing, among other things, clinical trials, marketing
authorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would
need to obtain the necessary approvals by the comparable regulatory authorities of foreign countries before we can commence
clinical trials or marketing of the product in those countries. The approval process varies from country to country and can involve
additional product testing and additional administrative review periods. The time required to obtain approval in other countries
might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country does not ensure
regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the
regulatory process in others. And, even if regulatory approval is granted, it may be withdrawn or limited under certain circumstances
or post-approval requirements may be imposed by the applicable regulatory authority. Because biologically sourced raw materials
are subject to unique contamination risks, their use may be restricted in some countries.
Regulation in the European Union
We have obtained an orphan medicinal product designation from the European Commission, following an evaluation by the EMA’s
Committee for Orphan Medicinal Products, for Translarna for the treatment of nmDMD, Becker muscular dystrophy and aniridia
- but have only received conditional marketing authorization for Translarna for the treatment of nmDMD. The European
Commission can grant orphan medicinal product designation to products for which the sponsor can establish that it is intended
for the diagnosis, prevention, or treatment of (1) a life-threatening or chronically debilitating condition affecting not more than
five in 10,000 people in the European Union, or (2) a life threatening, seriously debilitating or serious and chronic condition in
the European Union and that without incentives it is unlikely that sales of the drug in the European Union would generate a
sufficient return to justify the necessary investment. In addition, the sponsor must establish that there is no other satisfactory
method approved in the European Union of diagnosing, preventing or treating the condition, or if such a method exists, the proposed
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orphan drug will be of significant benefit to patients. Orphan drug designation is not a marketing authorization. It is a designation
that provides a number of benefits, including fee reductions, regulatory assistance, and the possibility to apply for a centralized
EU marketing authorization, as well as 10 years of EU market exclusivity following a marketing authorization. During this market
exclusivity period, neither the EMA, nor the European Commission nor any EU member states can accept an application or grant
a marketing authorization for a “similar medicinal product.” A “similar medicinal product” is defined as a medicinal product
containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended
for the same therapeutic indication. The market exclusivity period for the authorized therapeutic indication may be reduced to six
years if, at the end of the fifth year, it is established that the orphan designation criteria are no longer met, including where it is
shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. In addition, a competing similar
medicinal product may in limited circumstances be authorized prior to the expiration of the market exclusivity period, including
if it is shown to be safer, more effective or otherwise clinically superior to our product. Our product and product candidates can
lose orphan designation, and the related benefits, prior to us obtaining a marketing authorization if it is demonstrated that the
orphan designation criteria are no longer met.
Overview of application process. To obtain regulatory approval of a drug under the European Union’s regulatory systems and
authorization procedures, an applicant may submit marketing authorization applications under a centralized, decentralized, or
national procedure. The centralized procedure is compulsory for certain medicinal products, including orphan medicinal products,
like Translarna for the treatment of nmDMD, and medicinal products produced by certain biotechnological processes, and optional
for certain other innovative products. The centralized procedure enables applicants to obtain a marketing authorization that is valid
in all EU member states based on a single application. Under the centralized procedure, the EMA’s Committee for Human Medicinal
Products, or CHMP, is required to adopt an opinion on a valid application within 210 days, excluding clock stops, when additional
written or oral information is to be provided by the applicant in response to questions. More specifically, on day 120 of the
procedure, once the CHMP has received the preliminary assessment reports and opinions from the rapporteur and co-rapporteur,
it prepares a list of potential outstanding issues, referred to as “other concerns” or “major objections”. These are sent to the applicant
together with CHMP’s recommendation. The CHMP can make one of two recommendations: (1) the marketing authorization could
be granted provided that satisfactory answers are given to the “other concerns” and/or “major objections” identified and that all
conditions outlined in the list of outstanding issues are implemented and complied with; or (2) the product is not approvable since
there are “major objections”.
Applicants have three months from the date of receiving the potential outstanding issues to respond to the CHMP, and can request
a three-month extension if necessary. The granting of a marketing authorization will depend on the recommendations and potential
major objections identified by the CHMP as well as the ability of the applicant to adequately respond to these findings. An
accelerated assessment can be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major
public health interest, in particular from the viewpoint of therapeutic innovation. In this circumstance, the EMA ensures that the
opinion of the CHMP is given within 150 days. After the adoption of the CHMP opinion, a decision on the marketing authorization
application must be adopted by the European Commission, after consulting the European Union member states, which in total can
take more than 60 days.
An applicant for a marketing authorization application may request a re-examination in the event of a negative opinion, in connection
with which CHMP appoints new rapporteurs. Within 60 days of receipt of the negative opinion, the applicant must submit a
document explaining the basis for its request for re-examination. The CHMP has 60 days to consider the applicant’s request for
re-examination. The applicant may request an oral explanation before the CHMP, which is routinely granted, following which
CHMP will adopt a final opinion. The final opinion, whether positive or negative, is published by the CHMP shortly following
the CHMP meeting at which the oral explanation takes place.
Conditional marketing authorizations. In specific circumstances, as with Translarna for the treatment of nmDMD, EU legislation
enables applicants to obtain a marketing authorization on a conditional basis prior to obtaining the comprehensive clinical data
required for an application for a full marketing authorization. Such conditional approvals may be granted for products designated
as orphan medicinal products, if (1) the benefit-risk balance of the product is positive, (2) it is likely that the applicant will be in
a position to provide the required comprehensive clinical trial data, (3) the product fulfills unmet medical needs, and (4) the benefit
to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the
fact that additional data are still required. A conditional marketing authorization may contain specific obligations to be fulfilled
by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies, and with
respect to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year, and may be
renewed annually, if the benefit-risk balance remains positive, and after an assessment of the need for additional or modified
conditions and/or specific obligations. The timelines for the centralized procedure described above also apply with respect to the
review by the CHMP of applications for a conditional marketing authorization. The granting of a conditional marketing authorization
will depend on the applicant’s ability to fulfill the conditions imposed within the agreed upon deadline.
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For important information about matters that may adversely affect our ability to renew our conditional marketing authorization
for Translarna, see “Item 1A. Risk Factors-Risks Related to the Development and Commercialization of our Product and our
Product Candidates” and “Risks Related to Regulatory Approval of our Product and our Product Candidates.”
Variations to conditional marketing authorizations. After the granting of a conditional marketing authorization, the marketing
authorization holder may submit an application to vary the conditional marketing authorization under a variation procedure. In
the case of the introduction of an additional therapeutic indication, the timeframe for the variation procedure for the initial assessment
of the dossier is generally 90 days (plus up to 20 days for validation).
However, in the framework of a variation application assessment procedure, the EMA may send one or more requests for
supplementary information to the marketing authorization holder, requiring that additional information be provided by the marketing
authorization holder to support its variation application. Such supplementary requests will be sent together with a timetable stating
the date by when the marketing authorization holder must submit the requested data and, where appropriate, the extended evaluation
period to be applied to such variation procedure. The 90-day variation procedure may be suspended for up to three months for the
marketing authorization holder to submit its responses to such supplementary requests. The marketing authorization holder will
be notified of the outcome of the CHMP’s assessment of the variation procedure within 15 days from the adoption of the CHMP
opinion. If unfavorable, the CHMP opinion may be subject to a re-examination procedure upon the marketing authorization holder’s
request. This may imply an additional minimum two-month procedure. If the CHMP opinion is favorable, the European Commission
will usually vary the marketing authorization to introduce the additional therapeutic indication within approximately two months
from the receipt of the final CHMP opinion.
Additional requirements and considerations. Prior to obtaining a marketing authorization in the European Union, applicants
have to demonstrate compliance with all measures included in an EMA-approved Pediatric Investigation Plan, or PIP, covering
all subsets of the pediatric population, unless the EMA has granted (1) a product-specific waiver, (2) a class waiver, or (3) a deferral
for one or more of the measures included in the PIP. In the case of orphan medicinal products, completion of an approved PIP can
result in an extension of the aforementioned market exclusivity period from ten to twelve years.
In the European Union, independently generated data submitted as part of a full marketing authorization application dossier are
protected by regulatory data protection (‘data exclusivity’) for a period of eight years from the granting of a marketing authorization
for a ‘reference product’. This means that for a period of eight years, competent authorities may not accept marketing authorization
applications that rely on the independently generated data in the marketing authorization dossier of the reference product. Generic
medicinal products that rely on the independently generated data of the reference product may not be placed on the market for
10 years from the granting of the initial marketing authorization for the reference medicinal product. This is extended to a maximum
of 11 years if, during the first eight years of those 10 years, the marketing authorization holder obtains an authorization for one or
more new therapeutic indications considered to offer a significant clinical benefit in comparison with existing therapies. These
periods of data exclusivity and market exclusivity do not prevent other companies from obtaining a marketing authorization based
on their own independently generated data.
If a marketing authorization is granted in the EEA for a medicinal product, such as the marketing authorization granted for Translarna
for the treatment of nmDMD by the European Commission, the marketing authorization holder is required to comply with a range
of requirements applicable to the manufacturing, marketing, promotion and sale of the medicinal products that are in addition to
the other conditions of the marketing authorization described above. The marketing authorization holder must, for example, comply
with the EU’s stringent pharmacovigilance or safety reporting rules, pursuant to which post- authorization studies and additional
monitoring obligations can be imposed. Other requirements relate to, for example, the manufacturing of products and active
pharmaceutical ingredients in accordance with good manufacturing practice standards. Competent authorities of EU member states
may conduct inspections to verify compliance with applicable requirements, and the marketing authorization holder will have to
continue to expend time, money and effort to remain compliant. Non-compliance with EU requirements regarding safety monitoring
or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result
in significant financial penalties in the EU Similarly, failure to comply with the EU’s requirements regarding the protection of
individual personal data can also lead to significant penalties and sanctions. Individual EU member states may also impose various
sanctions and penalties in case we do not comply with locally applicable requirements.
Off-label promotion of medicinal products is prohibited in the European Union. The applicable laws at European Union level and
in the individual European Union member states also prohibit the direct-to-consumer advertising of prescription-only medicinal
products. Violations of the rules governing the promotion of medicinal products in the European Union could be penalized by
administrative measures, fines and imprisonment. These laws may further limit or restrict our promotional activities with health
care professionals. In addition, legislation adopted at the European Union level and by individual European Union member states
require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product
Characteristics, or SmPC, as approved by the competent authorities. The SmPC is the document that provides information to
physicians concerning the safe and effective use of the medicinal product. Promotion of indications not covered by the SmPC is
specifically prohibited.
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The EMA is responsible for coordinating inspections to verify compliance with the principles of good clinical practice, or GCP,
good manufacturing practice, or GMP, good laboratory practice, or GLP, and good pharmacovigilance practice, or GVP. These
inspections are also intended to verify compliance with other aspects of the supervision of authorized medicinal products in use
in the European Union. The EMA coordinates any inspection by the relevant member state regulatory authority as requested by
the CHMP in connection with the assessment of marketing authorization applications or matters referred to these committees.
Inspections may be routine or triggered by issues arising during the assessment of the dossier or by other information, such as
previous inspection experience. Inspections usually are requested during the initial review of a marketing authorization application,
but could arise post-authorization.
Inspectors are drawn from the regulatory authorities of member states of the European Union and the European Economic Area.
Following an inspection, the inspectors provide a written inspection report to the inspected site or applicant and provide an
opportunity for response. Some inspection reports require follow-up and may result in additional adverse consequences due to
critical or major findings. The inspectors and the CHMP will comment on any response from an inspected site or applicant and
may monitor future compliance with any proposed corrective action plan.
In the GCP area, inspectors grade their findings according to the following scale:
• Critical: Conditions, practices or processes that adversely affect the rights, safety or well-being of the subjects or the
quality and integrity of data. Observations classified as critical may include a pattern of deviations classified as major.
• Major: Conditions, practices or processes that might adversely affect the rights, safety or well-being of the subjects
and/or the quality and integrity of data. Observations classified as major may include a pattern of deviations or numerous
minor observations.
• Minor: Conditions, practices or processes that would not be expected to adversely affect the rights, safety or wellbeing
of the subjects or the quality and integrity of data. Minor observations indicate the need for improvement of conditions,
practices and processes.
• Comments: Suggestions on how to improve quality or reduce the potential for a deviation to occur in the future.
Possible consequences of critical and major findings include rejection of clinical trial data, causing significant delays in obtaining
final marketing authorization, or other direct action by national regulatory authorities.
Early access programs
Many jurisdictions allow the supply of unauthorized medicinal products in the context of strictly regulated and exceptional EAP
programs, and some countries may provide reimbursement for drugs provided in the context of such programs. In the European
Union, the legal basis for EAP programs, also referred to as named-patient and compassionate use programs, is set out in the EU
legislation regulating the authorization, manufacture, distribution and marketing of medicinal products. Detailed regulatory
requirements applicable to EAP programs have been adopted and implemented by EU member states in their national laws. The
promotion, advertising and marketing of unauthorized medicinal products is generally prohibited, and authorization for EAP
programs must generally be obtained from national competent authorities, which might not grant such authorization. Obtaining
authorization for an EAP program in one country does not ensure that authorization will be obtained in another country.
U.S. law permits “expanded access” (also known as compassionate use and treatment use) for certain patients with serious diseases
who have no comparable alternative treatment options. The potential patient benefit must justify the potential risks of the treatment
use and those potential risks must not be unreasonable in the context of the disease or condition to be treated. Moreover, providing
the investigational drug or biologic for the requested use must not interfere with the initiation, conduct, or completion of clinical
investigations that could support marketing approval of the expanded access use or otherwise compromise the potential development
of the expanded access use. Additional requirements apply depending on the size of the expanded access population. To provide
expanded access, sponsors, including individual physicians, must submit detailed regulatory information to the FDA and receive
the agency’s approval for the use. However, if there is an emergency that requires that a patient be treated before a written
submission can be made, the FDA may authorize the expanded access use by telephone. In such a case, a written expanded access
submission must be submitted to the FDA within fifteen working days of the FDA’s authorization. Following approval for expanded
access use, both the sponsor of the use and the investigator (i.e., physician) must comply with certain FDA requirements. Sponsors
may not promote products as safe or effective for expanded-access uses.
U.S. law further permits access to investigational drugs or biologics for treatment use under new federal Right to Try legislation.
Under this law, patients diagnosed with a life-threatening disease or condition, who have exhausted all approved treatment options,
may be able to obtain access, with the agreement of the product manufacturer and the patient’s physician to certain investigational
drugs and biologics. The patient must further be unable to participate in a clinical trial involving the investigational drug or biologic
and must provide informed consent. If all of the statutory criteria are satisfied, FDA approval of the use of the investigational
drug or biologic for patient treatment is not required but certain reports must be submitted to the agency annually. Individual
states also have their own Right to Try statutes.
Pharmaceutical Pricing and Reimbursement
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The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of
pharmaceuticals have been a focus of this effort. Foreign governments, the U.S. government, and state legislatures have shown
significant interest in implementing cost-containment programs to limit the growth of government-paid healthcare costs, including
price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs.
In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to
governmental control. In these countries, pricing and reimbursement negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a product. In addition, there can be considerable pressure by
governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. In some
countries, governments can set conditions that must be satisfied for prices to be set at a certain value. Political, economic and
regulatory developments may further complicate pricing and reimbursement negotiations, and pricing negotiations may continue
after reimbursement has been obtained. Reference pricing used by various EU member states, and parallel distribution (arbitrage
between low-priced and high- priced member states), can further reduce prices. In some countries we may be required to conduct
a clinical trial or other studies that compare the cost-effectiveness of our product or product candidate to other available therapies
in order to obtain reimbursement or pricing approval.
In the United States, federal price reporting laws require manufacturers to calculate and report complex pricing metrics used to
determine prescription rebates paid under the Medicaid Drug Rebate Program and amounts reimbursed pharmacies and other
providers by the Medicaid and Medicare programs. Various state health care programs similarly obligate us to report drug pricing
information that is used as the basis for their reimbursement of pharmacies and other health care providers. Payment for a
manufacturer’s drugs by these programs is conditioned on submission of this pricing information. Some government health care
programs impose penalties if drug price increases exceed specified percentages or inflation rates, and these penalties can result in
mandatory penny prices for certain federal and 340B program customers. States, such as California, have also enacted transparency
laws that require manufacturers to report price increases and related information, and cap price increases. Failure to comply with
the rules for calculating and submitting pricing information or otherwise overcharging the government or its beneficiaries may
result in criminal, civil, or administrative sanctions or enforcement actions, and expose us to False Claims Act liability.
The Veterans Health Care Act of 1992 requires, as a condition of payment by certain federal agencies and the Medicaid program,
that manufacturers of “covered drugs” (including all drugs approved under an NDA) enter into a Master Agreement and Federal
Supply Schedule (FSS) contract with the Department of Veterans Affairs through which their covered drugs must be offered for
sale at a mandatory ceiling price to certain federal agencies, including the VA and Department of Defense. FSS contracts require
compliance with applicable federal procurement laws and regulations, including disclosure of commercial prices during contract
negotiations and maintenance of price relationships during the term of the contract, and subject manufacturers to contractual
remedies as well as administrative, civil, and criminal sanctions. The Veterans Health Care Act also requires manufacturers to
enter into pricing agreements with the Department of Health and Human Services to charge no more than a different ceiling price
(derived from the Medicaid rebate percentage) to covered entities participating in the 340B drug discount program. Failure to
provide the mandatory discount may subject the manufacturer to specific civil monetary penalties. Termination of either of these
agreements also jeopardizes payment by Medicaid for the manufacturer’s drugs.
Coverage policies, third-party reimbursement rates and drug pricing regulation may change at any time. For example, in the United
States, healthcare reform measures under the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care
and Education Reconciliation Act of 2010, referred to together as the Affordable Care Act, contain provisions that may affect the
profitability of drug products. However, since its passage, Congress has repealed and amended certain provisions of the Affordable
Care Act, and repeal efforts may occur again, and there are ongoing legal challenges to the Affordable Care Actwhich may contribute
to the uncertainty of the ongoing implementation and impact of the Affordable Care Act and also underscores the potential for
additional reform going forward. Certain provisions of enacted or proposed legislative changes may negatively impact coverage
and reimbursement of healthcare items and services. We cannot assure that the Affordable Care Act, as currently enacted or as
amended in the future, will not adversely affect our business and financial results and we cannot predict how future federal or state
legislative or administrative changes relating to healthcare reform will affect our business.
Legislators and regulators at both the federal and state level are increasingly focused on containing the cost of drugs, and there
has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices.
Specifically, there have been recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more
transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government
program reimbursement methodologies for drugs. For example, the Centers for Medicare and Medicaid Services, or CMS, recently
reduced the payment rate for certain hospitals purchasing outpatient drugs at the 340B program discounted price, and in 2016,
CMS issued a final rule regarding the Medicaid drug rebate program, which among other things, revises the manner in which the
“average manufacturer price” is to be calculated by manufacturers participating in the program and implements certain amendments
to the Medicaid rebate statute created under the Affordable Care Act, or ACA. Similarly, 340B program guidance regulations on
civil monetary penalties for statutory violations, which had been was finalized in early 2017, recently went into effect. In October
2018, CMS issued an advance notice of proposed rulemaking paving the way for a proposed rule in 2019 that would significantly
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reduce the price of drugs paid by Medicare Part B by basing reimbursement on the average prices among other industrialized
countries, and in January 2019, CMS proposed eliminating the Anti-Kickback Act safe harbor for rebates typically provided to
PBMs and health plans that are included in their cost effectiveness determinations. These and any additional healthcare reform
measures could further constrain our business or limit the amounts that federal and state governments will pay for healthcare
products and services, which could result in additional pricing pressures.
Any regulatory approval of a product is limited to specific diseases and indications for which such product has been deemed safe
and effective by the FDA. Coverage by federal healthcare programs, however, may be more limited than the indications for which
a drug is approved by the FDA or comparable foreign regulatory authorities’ coverage of the same products. Sales of any products
for which we may receive regulatory approval for commercial sale will depend in part on the extent to which the costs of the
products will be covered and reimbursed by third-party payors, including government healthcare programs (such as, in the United
States, Medicare and Medicaid), private health insurers and other organizations. Obtaining reimbursement for orphan drugs may
be particularly difficult because of the significant research and development challenges and costs and resulting pricing
considerations typically associated with drugs developed to treat conditions that affect a small population of patients. In addition,
third-party payors are likely to impose strict requirements for reimbursement in connection with drugs that are perceived as having
high costs. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs
or private payors.
The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the
price or reimbursement rate that the payor will pay for the product once coverage is approved. Third- party payors may limit
coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular
indication. Third-party payors are increasingly challenging the price and examining the cost-effectiveness of medical products
and services. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our
product or product candidates or conduct direct head-to-head studies to demonstrate clinical superiority and cost-effectiveness.
Our products and product candidates may not be considered clinically superior and cost-effective to competitor products.
The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government
and other third-party payors fail to provide adequate coverage and reimbursement.
For important information regarding certain pricing and reimbursement matters see “Item 1. Business-Market Access
Considerations” and “Item 1A. Risk Factors,” including the risk factor titled “Commercialization of Translarna has been in, and
is expected to continue to take place in, countries that tend to impose strict price controls, which may adversely affect our revenues.
Failure to obtain and maintain acceptable pricing and reimbursement terms for Translarna for the treatment of nmDMD in the
EEA and other countries where Translarna is available would delay or prevent us from marketing our product in such regions,
which would adversely affect our business, results of operations, and financial condition.”
Freedom of Information Requests and Affirmative Disclosures
We are also subject, in the U.S. and many other countries, to various regulatory schemes that require disclosure of clinical trial
data or allow access to our data via freedom of information requests. We have been and may, from time to time, be notified by
regulators, such as the EMA or the competent authorities of EU member states that they have received a freedom of information
request for documents that they hold relating to our company, including information related to our product or our product candidates.
For example, in 2015, we were notified by the EMA that it had received from another pharmaceutical company a request under
Regulation (EC) No 1049/2001 seeking access to aspects of our marketing authorization application for Translarna for the treatment
of nmDMD. Following the decision of the EMA to release such documentation with only minimal redactions we initiated litigation
before the General Court of the European Union to prevent disclosure of this information. In the first quarter of 2018, the Court
ruled in favor of the EMA, allowing the EMA to release the documentation. We have appealed the General Court’s decision to the
Court of Justice of the European Union and the EMA has confirmed that it will not release the documents while the matter is still
subject to the appeal process. However, there can be no assurance that we will be successful in the appeal and we may not ultimately
succeed in preventing disclosure of the data in our marketing authorization for Translarna for the treatment of nmDMD. In addition,
under policies recently adopted in the EU, clinical trial data submitted to the EMA in MAAs that were traditionally regarded as
confidential commercial information is now subject to automatic public disclosure. Further, once the Clinical Trials Regulation
536/2014 is fully in place, the sponsor of an EU trial must submit a summary of the results to an EU database within a year of the
end of the trial. In addition, where the trial was intended to be used for obtaining a marketing authorization the applicant must
submit the clinical study report 30 days after MA has been granted, refused or withdrawn. Subject to our limited ability to review
and redact a narrow sub-set of confidential commercial information, these new EU policies will result in the EMA’s public disclosure
of certain of our clinical study reports, clinical trial data summaries and clinical overviews for recently completed and future MAA
submissions. The move toward public disclosure of development data could adversely affect our business in many ways, including,
for example, resulting in the disclosure of our confidential methodologies for development of our products, preventing us from
obtaining intellectual property right protection for innovations, requiring us to allocate significant resources to prevent other
companies from violating our intellectual property rights, adding even more complexity to processing health data from clinical
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trials consistent with applicable data privacy regulations, and enabling competitors to use our data to gain approvals for their own
products.
Fraud and Abuse Laws
Any present or future arrangements or interactions with third-party payors, healthcare providers and professionals, patients and
customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may restrict certain
marketing and contracting practices. These laws include, and are not limited to, anti-kickback and false claims statutes.
Both the federal Foreign Corrupt Practices Act, or FCPA, and the UK Bribery Act of 2010, or Bribery Act are broad in scope and
will require companies to make and keep books and records that accurately and fairly reflect the transactions of the company and
to devise and maintain an adequate system of internal accounting controls. The FCPA prohibits the offering, promising, giving,
or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official, political party or
candidate for public office in order to improperly influence any act or decision, secure any other improper advantage, or obtain
or retain business. The FCPA also prohibits any U.S. person from corruptly acting outside the U.S. in furtherance of such offer,
promise or payment. Under the UK Bribery Act, companies which carry on a business or part of a business in the United Kingdom
may be held liable for bribes given, offered or promised to any person, including non-UK government officials and private persons,
by employees and persons associated with the company in order to obtain or retain business or a business advantage for the
company. Similar statutes have been adopted, or may be adopted in the future, by other countries in which we operate and with
which we are or may be required to comply.
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving
remuneration, directly or indirectly, in cash or kind, to induce or reward either the referral of an individual for, or the purchase, or
order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs
such as Medicare and Medicaid. This statute imposes criminal penalties and has been broadly interpreted to apply to manufacturer
arrangements with prescribers, purchasers and formulary managers, among others. Although a number of statutory exemptions
and regulatory safe harbors exist to protect certain common activities from prosecution, the exemptions and safe harbors for this
statute are narrow, and practices that involve compensation intended to induce prescriptions, purchases, or recommendations may
be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not always meet all of the criteria
for safe harbor protection. A person or entity need not have knowledge of the statutes or the specific intent to violate it in order to
have committed a violation. In addition, the government may assert that a claim including items or services resulting from a
violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act.
Many states have adopted laws similar to the federal Anti-Kickback Statute, which apply to items and services reimbursed under
Medicaid and other state programs; furthermore, in several states, these statutes and regulations apply regardless of the payor.
Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s product from
reimbursement under government programs, debarment, criminal fines, and imprisonment. Several other countries, including the
United Kingdom, have enacted similar anti-kickback, fraud and abuse laws and regulations.
The federal civil False Claims Act imposes civil liability and penalties on individuals or entities for knowingly presenting, or
causing to be presented, to the federal government, claims for payment that are false or fraudulent, as well as for making a false
statement to avoid, decrease or conceal an obligation to pay money to the federal government. Claims may be pursued by
whistleblowers through qui tam actions, even if the government declines to intervene. Intent to deceive is not necessary to establish
civil liability, which may be predicated on reckless disregard for the truth. The federal government continues to use the False
Claims Act, and the accompanying threat of significant liability, in investigations against pharmaceutical and health care companies.
These investigations have involved, for example, allegations of providing free product to customers with the expectation that the
customers would bill federal programs for the free product, as well as the promotion of products for unapproved uses and reporting
false pricing information. Violations of the Anti-Kickback Statute may also be grounds for civil False Claims Act actions. Potential
liability under the federal False Claims Act includes treble damages and significant per claim penalties, currently set at $10,957
to $21,916 (as adjusted for inflation) per false claim. The criminal federal False Claims Act imposes criminal fines or imprisonment
against individuals or entities who make or present a claim to the government knowing such claim to be false fictitious or fraudulent.
Conviction or civil judgment for violation of the False Claims Act can also result in debarment from government contracting and
exclusion from participation in federal healthcare programs. The majority of states also have statutes or regulations similar to the
federal False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs.
The Affordable Care Act included a provision requiring certain providers and suppliers of items and services to Federal Health
Care Programs to report and return overpayments within sixty days after they are “identified” (the “Overpayment Statute”). In
2014 and 2016, the Centers for Medicare and Medicaid Services, or CMS, released regulatory guidance (in the form of a final
rule) to Medicare providers, suppliers and managed care and prescription drug plans regarding how to comply with the Overpayment
Statute. Although these Medicare providers, suppliers and plans have faced federal False Claims Act liability since 2010 for failures
to comply with the Overpayment Statute, these final rules interpreting the Overpayment Statute provide guidance regarding how
to comply with applicable obligations, and guidance to government regulators and enforcement authorities regarding monitoring
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and prosecuting suspected violations. These final rules are not directly applicable to manufacturers, but may impact their customers
and potential customers who are Medicare providers, suppliers, and plans.
The federal Physician Payments Sunshine Act, enacted as part of the Affordable Care Act, and its implementing regulations, require
manufacturers of drugs, devices, biologics and medical supplies to report to CMS information related to payments and other
transfers of value made to covered recipients, such as physicians and teaching hospitals, as well as physician ownership and
investment interests. Payments made to physicians and certain research institutions for clinical trials are included within the ambit
of this law. Pharmaceutical manufacturers are required annually to report and disclose payments and ownership and investment
interests held by physicians and their immediate family members during the preceding calendar year. Such information is made
publicly available by CMS in a searchable format, with data collected in each calendar year published the following June. Failure
to submit required information may result in civil monetary penalties, with increased penalties for “knowing failures,” for all
payments, transfers of value or ownership or investment interests not reported in an annual submission. If not preempted by this
federal law, several states currently require pharmaceutical companies to report expenses relating to the marketing and promotion
of pharmaceutical products and to report gifts and payments to healthcare professionals in those states. Depending on the state,
legislation may prohibit various other marketing related activities, or require the posting of information relating to clinical studies
and their outcomes. In addition, certain states, such as California, Nevada, Connecticut and Massachusetts, require pharmaceutical
companies to implement compliance programs or marketing codes and several other states are considering similar proposals.
Manufacturers that fail to comply with these state laws can face civil penalties.
Statutory requirements to disclose publicly payments made to healthcare professionals and healthcare organizations have also
been enacted in certain European Union member states. In addition, self-regulatory bodies of the pharmaceuticals industry, such
as the European Federation of Pharmaceutical Industries and Associations, or EFPIA, have published codes of conduct to which
its members have agreed to abide to, that require the public disclosure of payments made to healthcare professionals and healthcare
organizations. In some countries (including France, Denmark and Portugal) such requirements are enforceable by law.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, also created federal criminal statutes that
prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by
means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody
or control of, a healthcare benefit program, regardless of whether the payor is public or private, in connection with the delivery
or payment for health care benefits, knowingly and willfully embezzling or stealing from a health care benefit program, willfully
obstructing a criminal investigation of a health care offense and knowingly and willfully falsifying, concealing, or covering up by
any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for,
healthcare benefits, items, or services relating to healthcare matters. Additionally, the ACA amended the intent requirement of
certain of these criminal statutes under HIPAA so that a person or entity no longer needs to have actual knowledge of the statute,
or the specific intent to violate it, to have committed a violation.
HIPAA, the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and similar state laws,
also impose obligations on certain entities with respect to safeguarding the privacy, security and transmission of certain individually
identifiable health information, known as protected health information. Among other things, HITECH and implementing
regulations makes HIPAA's security and certain privacy standards directly applicable to “business associates,” defined as persons
or organizations of covered entities, other than members of the covered entity’s workforce, that create, receive, maintain or transmit
protected health information on behalf of a covered entity for a function or activity regulated by HIPAA. HITECH also strengthened
the civil and criminal penalties that may be imposed against covered entities, business associates and individuals, and gave state
attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws
and seek attorney's fees and costs associated with pursuing federal civil actions. Civil and criminal penalties include up to $50,000
per violation plus a criminal fine of up to $250,000 and ten years in prison. In addition, other federal and state laws may regulate
the privacy and security of information that we maintain, many of which may differ from each other in significant ways and may
not be preempted by HIPAA,
Any continuing efforts by the Trump Administration and the U.S. Congress to modify, repeal, or otherwise invalidate all, or certain
provisions of, the Affordable Care Act, could have an impact on fraud and abuse provisions and other requirements, including the
Physician Payments Sunshine Act, that were authorized and enacted under the Affordable Care Act.
The foregoing discussion should be read in conjunction with the information appearing under “Item 1A. Risk Factors-Our
relationships with customers, healthcare providers and professionals, patients, patient organizations, and third-party payors are
or will be subject to applicable anti-kickback, fraud and abuse, transparency and other healthcare laws and regulations, which
could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future
earnings.” which contains important information regarding some of the risks to our business arising as a result fraud and abuse
laws.
Employees
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As of December 31, 2018, we had 517 employees, of whom 511 were employed on a full-time basis, and 48 consultants and
contractors, of whom 47 were full-time. None of our U.S. based employees are represented by labor unions or covered by collective
bargaining agreements, although certain international employees are covered by collective labor agreements established under
local law. We consider our relationship with our employees to be good.
Our Corporate Information
We were incorporated under the laws of the State of Delaware on March 31, 1998, under the name PTC Therapeutics, Inc. Our
principal executive offices are located at 100 Corporate Court, South Plainfield, New Jersey 07080. Our telephone number is
(908) 222-7000. We maintain a website at www.ptcbio.com.
Additional Information
We make available, free of charge on our website, www.ptcbio.com, our annual reports on Form 10-K, quarterly reports on Form 10-
Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file
those reports with, or furnish them to, the Securities and Exchange Commission, or SEC. We also make available, free of charge
on our website, the reports filed with the SEC by our executive officers, directors and 10% stockholders pursuant to Section 16
under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons. Such
reports, proxy statements and other information may be obtained through the SEC’s website (www.sec.gov). The information
contained on, or that can be accessed through, our website is not a part of or incorporated by reference in this Annual Report on
Form 10-K.
Item 1A. Risk Factors
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered.
The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known
to us or that we presently deem less significant may also impair our business operations. Please see page 1 of this Annual Report
on Form 10-K for a discussion of some of the forward-looking statements that are qualified by these risk factors. If any of the
following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and
adversely affected.
Risks Related to Our Gene Therapy Platform
We may fail to obtain regulatory approval for PTC-AADC for the treatment of AADC deficiency within our expected timeline
or at all.
In July 2017, an end-of-phase 2 meeting was held with the United States Food and Drug Administration, or FDA, and the clinical
data from two completed PTC-AADC clinical trials, and non-clinical and manufacturing data available to date were reviewed.
The FDA provided feedback indicating that the clinical and non-clinical data available to date were sufficient to support a submission
for a biologics license application, or BLA, without undertaking additional trials at this time. Based on the FDA input, including
with respect to manufacturing, we are preparing a BLA for PTC-AADC for the treatment of AADC deficiency in the United States,
which we anticipate submitting to the FDA in late 2019, with an anticipated commercial launch in the United States in 2020. In
April 2018, Agilis held a protocol assistance meeting with the Scientific Advice Working Party of the European Medicines Agency,
or EMA, in anticipation of the expected submission of a Marketing Authorization Application, or MAA, in the European Union
and received feedback indicating the clinical and non-clinical data available to date were sufficient to support a submission for
an MAA without undertaking additional trials or studies at this time. We are preparing an MAA for PTC-AADC for the treatment
of AADC deficiency in the European Union, which we expect to submit to the EMA following our BLA submission to the FDA.
There is no guarantee that we will be able to make our BLA or MAA submissions within our expected timelines or that upon our
making the submissions, the FDA or the EMA would not have additional comments or requirements with respect to the respective
submissions that we would be required to address before such applications would be accepted for regulatory review or before
obtaining regulatory approval, or that the FDA or the EMA will approve PTC-AADC for the treatment of AADC deficiency at
all. Any delays in obtaining regulatory approval from either the FDA and/or the EMA, or if we never obtain regulatory approval
from either the FDA and/or the EMA, could have a material adverse effect on our business, financial condition and results of
operations.
Gene therapies are novel, complex and difficult to manufacture. We could experience manufacturing problems that result in
delays in the development or commercialization of our gene therapy product candidates or otherwise harm our business.
The manufacture of gene therapy products, such as PTC-AADC and our other gene therapy product candidates, is technically
complex and necessitates substantial expertise and capital investment. Production difficulties caused by unforeseen events may
delay the availability of material for clinical studies and commercial product for any of our gene therapy product candidates that
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may receive regulatory approval in the future. We presently contract with third parties for the manufacturing of program materials
for our gene therapy product candidates. The use of contracted manufacturing and reliance on collaboration partners is relatively
cost-efficient. Although we rely on contract manufacturers, we have personnel with manufacturing and quality experience to
oversee our contract manufacturers.
Although we anticipate taking steps to increase our manufacturing capabilities for our gene therapy platform, we currently rely
on third-party manufacturers to be capable of providing sufficient quantities of our program materials to meet anticipated clinical
trial scale demands. To meet our projected needs for commercial manufacturing, the third party from whom we currently obtain
our clinical supply of PTC-AADC may need to increase its scale of production and confirm with the applicable regulatory authorities
that the commercial material is comparable to the material used in clinical trials in addition to satisfying other regulatory obligations,
or we will need to secure alternate suppliers. In general, gene therapy products have only in limited cases been manufactured at
scales sufficient for pivotal trials and commercialization. Few pharmaceutical contract manufacturers specialize in gene therapy
products and those that do are still developing appropriate processes, controls and facilities for large-scale production. While we
believe that there are alternate sources of supply that can satisfy our clinical and commercial requirements, we cannot be certain
that we will be able to identify and establish relationships with such sources, if necessary, in a timely manner or at all, and what
the terms and costs of such new arrangements would be, or that such alternate suppliers would be able to supply our potential
commercial needs. Any switch from our current manufacturer would result in a significant delay, would require FDA approval,
and cause material additional costs.
As further described in these risks, the manufacturers of pharmaceutical products must comply with strictly enforced cGMP
requirements, state and federal regulations, as well as foreign requirements when applicable. Any failure by us or our contract
manufacturing organizations to adhere to or document compliance to such regulatory requirements could lead to a delay or
interruption in the availability of our program materials for clinical studies or commercial use, among other consequences. If we
or our manufacturers fail to comply with the FDA, EMA, or other regulatory authorities, it could result in sanctions being imposed
on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, clinical holds or termination of
clinical studies, warning or untitled letters, regulatory communications warning the public about safety issues with a product,
import or export refusals, license revocation, seizures, detentions, or recalls of product candidates or product, operating restrictions,
criminal prosecutions or debarment, suits under the civil False Claims act, corporate integrity agreements, or consent decrees any
of which could significantly and adversely affect supplies of our product candidates and our business, results of operations and
financial condition could be materially adversely affected.
Our dependence upon others for the manufacture of our product candidates may also adversely affect our business, results of
operations, financial condition and prospects, and our ability to commercialize any product candidates that receive regulatory
approval on a timely and competitive basis.
The process for administering PTC-AADC is complex and includes specific specialized requirements that could delay or prevent
the regulatory approval of PTC-AADC for the treatment of AADC deficiency, limit its commercial potential or result in
significant negative consequences following any potential marketing approval.
PTC-AADC is administered directly to the putamen in the brain using stereotactic surgery, a brain surgery requiring significant
skill and training. There is little experience with such surgeries being used to deliver drugs and for such surgeries being performed
on children. If we are unable to engage with and train sufficient brain surgeons to perform the procedure properly, the availability
of PTC-AADC for the treatment of AADC deficiency could be substantially diminished. The need to train brain surgeons to
perform the procedures may also expose us to additional regulatory risks as our interactions with such health care providers must
comply with all applicable laws and regulations. For example, if PTC-AADC receives approval in the United States, such
interactions would need to comply with FDA’s laws and regulations on product promotion, as well as laws and regulations related
to healthcare fraud and abuse. As a result, we will need to invest significant resources to ensure all personnel and contractors are
adequately trained on these requirements and to monitor their conduct.
Any contamination in our manufacturing process, shortages of raw materials or failure of any of our key suppliers to deliver
necessary components could result in delays in our clinical development or marketing schedules and adversely affect our ability
to meet our supply obligations.
Given the nature of biologics manufacturing, there is a risk of contamination. Any contamination could materially adversely affect
our ability to produce our gene therapy product candidates on schedule and could, therefore, harm our results of operations and
cause reputational damage.
Some of the raw materials and other components required in our manufacturing process are derived from diverse biologic sources.
Such raw materials are difficult to procure and may be subject to contamination or recall. A material shortage, contamination,
recall or restriction on the use of biologically derived substances in the manufacture of our product candidates could adversely
impact or disrupt the production of clinical material, which could materially and adversely affect our development and
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commercialization timelines, including with respect to PTC-AADC for the treatment of AADC deficiency, and our business,
financial condition and results of operations.
Regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in
the future. Such requirements may lengthen the regulatory review process, require us to perform additional studies, and increase
our development costs, or may force us to delay, limit, or terminate certain of our programs.
We may experience development problems related to our gene therapy programs that cause significant delays, changes in plans
or unanticipated costs, or that cannot be solved. Although numerous companies are currently advancing gene therapy product
candidates through clinical trials and the FDA has approved several cell-based gene therapy treatments to date, the FDA has only
approved one vector-based gene therapy product to date. In addition, there are only two gene therapy products for genetic diseases
approved to date in the European Union. As a result, it is difficult to determine how long it will take or how much it will cost to
obtain regulatory approvals for PTC-AADC for the treatment of AADC deficiency or our other gene therapy product candidates
in any jurisdiction, if at all. Regulatory requirements governing gene and cell therapy products are still evolving and may continue
to change in the future. For example, in 2018, the FDA issued a number of new guidance documents on human gene therapy
development. The FDA will likely continue to issue new guidance and replace existing guidance. Similarly, the U.S. National
Institutes of Health, which also has authority over research involving gene therapy products, issued a proposed rule in October
2018, seeking to streamline the oversight of such protocols and reduce duplicative reporting requirements that are already captured
within existing regulatory frameworks. The European Commission may also issue new guidelines concerning the development
and marketing authorization for gene therapy medicinal products and require that we comply with these new guidelines. Regulatory
review agencies and the new requirements and guidelines they promulgate may lengthen the regulatory review process, require
us to perform additional or larger studies, increase our development costs, lead to changes in regulatory positions and interpretations,
delay or prevent approval and commercialization of our product candidates or lead to significant post-approval studies, limitations
or restrictions. Moreover, while there are significant risks that accompany all development programs, because gene and cell therapy
products are a relatively new development, less is known about such products and product candidates. Accordingly, there is an
increased risk that such products and product candidates may not perform in clinical or preclinical trials as we expect. Additionally,
because gene and cell therapy products are complex, the manufacture of such products and product candidates is more difficult
and costly. We may not be able to have such products reliably manufactured in accordance with the applicable regulatory
requirements in sufficient quantities to support our development programs and, if ultimately approved, commercial supply. Delay,
failure or unexpected costs in obtaining, the regulatory approval necessary to bring our product candidates to market, as well as
manufacturing difficulties or challenges, could have a material adverse effect on our business, results of operations, financial
condition and prospects. Even if we do obtain regulatory approval, ethical, social and legal concerns about gene therapy arising
in the future could result in additional regulations restricting or prohibiting sale of our products.
In addition, the clinical trial requirements of the FDA, the EMA and other regulatory authorities and the criteria these regulators
use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and
intended use and market of such product candidates. The regulatory approval process for novel product candidates such as ours
can be more expensive and take longer than for other, better known or more extensively studied product candidates.
The FDA has established the Office of Tissues and Advanced Therapies within the Center for Biologics Evaluation and Research,
or CBER, to consolidate the review of gene therapy and related products, and has established the Cellular, Tissue and Gene
Therapies Advisory Committee to advise the CBER in its review; other international regulatory agencies have also dedicated
personnel and/or offices to review gene therapy programs and products.
These regulatory review committees and advisory groups and any new guidelines they promulgate, as well as any unexpected
results or manufacturing difficulties, may lengthen the regulatory review process, require us to perform additional studies, increase
our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization
of our product candidates or lead to significant post-approval limitations or restrictions. As we advance our gene therapy product
candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable laws, regulations
and guidelines. If we fail to do so, we may be required to delay or discontinue development of certain of our product candidates.
These additional requirements may result in a review and approval process that is longer than we otherwise would have expected.
Delays as a result of lengthier regulatory approval process and further restrictions on development of our gene therapy product
candidates can be costly and could negatively impact our or our collaborators’ ability to complete clinical trials and commercialize
our current and future product candidates in a timely manner, if at all, any of which could have a material adverse effect on our
business, results of operations, financial condition and prospects.
Our gene therapy product candidates and the process for administering such product candidates may cause undesirable side
effects or have other properties that could delay or prevent their regulatory approval, limit their commercial potential or result
in significant negative consequences following any potential marketing approval.
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The goal of gene therapy is to be able to correct an inborn genetic defect through one-time administration of therapeutic genetic
material containing non-defective gene copies. The gene copies are designed to reside permanently in a patient, allowing the
patient to produce an essential protein or ribonucleic acid, or RNA, molecule that a healthy person would normally produce. There
is a risk, however, that the new gene copies will produce too much or too little of the desired protein or RNA. There is also a risk
that production of the desired protein or RNA will increase or decrease over time. Because the treatment is irreversible, there may
be challenges in managing side effects, particularly those caused by overproduction. Adverse effects would not be able to be
reversed or relieved by stopping dosing and might require us to develop additional clinical safety procedures. Furthermore, because
the new gene copies are designed to reside permanently in a patient, there is a risk that they will disrupt other normal biological
molecules and processes, including other healthy genes, and we may not learn the nature and magnitude of these side effects until
long after clinical trials have been completed. Accordingly, long-term follow up may be required for gene therapies to assess
delayed adverse events.
There have been several significant adverse side effects in gene therapy treatments in the past, including reported cases of leukemia,
immune- and complement-mediated responses, and death seen in other trials using other vectors. While new recombinant vectors
have been developed to potentially reduce these side effects, gene therapy is still a relatively new approach to disease treatment
and additional adverse side effects could develop. Accordingly, depending on the vector that is used, additional manufacturing,
clinical, and preclinical testing may be required, as well as additional analyses, assessments, and potential long-term patient
monitoring and sample testing. There also is the potential risk of delayed adverse events following exposure to gene therapy
products due to persistent biologic activity of the genetic material or other components of products used to carry the genetic
material.
Possible adverse side effects that could occur with treatment with gene therapy products include an immunologic or complement-
mediated reactions early after administration which, while not necessarily adverse to the patient’s health, could substantially limit
the effectiveness of the treatment.
In addition to any potential side effects caused by any gene therapy product candidate, the administration process or related
procedures also can cause adverse side effects. If any such adverse events occur, our clinical trials could be suspended, modified,
or terminated or we may be required to interrupt or cease commercial sales of any product candidates that may receive regulatory
approval. If in the future we are unable to demonstrate that such adverse events were caused by the administration process or
related procedures, the FDA, the European Commission, the EMA or other regulatory authorities could order us to cease further
development of, or deny approval of, our product candidates for any or all targeted indications. Even if we are able to demonstrate
that all future serious adverse events are not product-related, such occurrences could affect patient recruitment or the ability of
enrolled patients to complete the trial, as well as the receptivity of patients and physicians to try any approved gene therapy
products. Moreover, if we elect, or are required, to delay, suspend or terminate any clinical trial of any of our product candidates,
the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of
these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to develop other product
candidates, and may have a material adverse effect on our business, results of operations, financial conditions and prospects.
Furthermore, if we or others later identify undesirable side effects caused by any of our gene therapy product candidates, several
potentially significant negative consequences could result, including:
•
regulatory authorities may suspend or withdraw approvals of any product candidate that may receive regulatory approval,
thereby preventing or delaying its commercialization;
•
regulatory authorities may require additional warnings or limitations of use in product labeling;
• we may be required to change the way a product candidate is administered or conduct additional clinical trials;
• we could be sued and held liable for harm caused by our products to patients; and
•
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of our gene therapy assets for which we
receive marketing approval and could materially harm our business, financial condition, results of operations and prospects.
Our gene therapy approach utilizes vectors derived from viruses, which may be perceived as unsafe or may result in unforeseen
adverse events. Negative public opinion and increased regulatory scrutiny of gene therapy may damage public perception of
the safety of PTC-AADC for the treatment of AADC deficiency or our other potential gene therapy product candidates and
adversely affect our ability to conduct our business or obtain regulatory approvals for PTC-AADC or our other potential gene
therapy product candidates.
Because gene therapy remains a novel technology, we face uncertainty as to whether gene therapy will gain the acceptance of the
public or the medical community. Even if we obtain regulatory approval for our product candidates, the commercial success of
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our product candidates will depend, in part, on the acceptance of physicians, patients and healthcare payers of gene therapy products
in general, and of our product candidates in particular, as medically necessary, cost-effective and safe. Public perception may be
influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical
community. In particular, our success will depend in part upon physicians who specialize in the treatment of genetic diseases
targeted by our product candidates, if approved, prescribing treatments that involve the use of our product candidates, if approved,
in lieu of, or in addition to, existing treatments, if any, with which they are familiar and for which greater clinical data may be
available. Even if a product candidate displays a favorable efficacy and safety profile in clinical trials and is ultimately approved,
market acceptance of the product candidate will not be fully known until after it is commercialized. More restrictive government
regulations or negative public opinion would have an adverse effect on our business, financial condition, results of operations and
prospects and may delay or impair the development and commercialization of our product candidates or demand for any product
candidates that receive regulatory approval. For example, earlier gene therapy trials conducted by other organizations have led to
several well-publicized adverse events, including cases of leukemia, immune- and complement-mediated adverse events, and
death seen in other such organizations' trials using other vectors. A significant negative development in any other gene therapy
program or our failure to satisfy any post-marketing regulatory commitments and requirements to which we may become subject
may adversely impact the commercial results and potential of our product candidates. Serious adverse events in our clinical trials,
or other clinical trials involving gene therapy products or our competitors’ products, even if not ultimately attributable to the
relevant product candidates, and the resulting publicity, could result in increased government regulation, unfavorable public
perception, potential regulatory delays in the testing or approval of our product candidates, stricter labeling requirements for those
product candidates that are approved and a decrease in demand for any gene therapy products for which we obtain marketing
approval. Any of the foregoing could have a material adverse effect on our business, results of operations, financial condition and
prospects.
The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain
adequate coverage and reimbursement for our products candidates, if approved, could limit our ability to market those products
and decrease our ability to generate product revenue.
We expect the cost of a single administration of gene therapy products, including PTC-AADC for the treatment of AADC deficiency,
to be substantial. We expect that coverage and reimbursement by government and private payers will be essential for most patients
to be able to afford these treatments. Accordingly, sales of any product candidates, if approved, will depend substantially, both
domestically and abroad, on the extent to which the prices of such product candidates will be paid by health maintenance, managed
care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government authorities, private
health coverage insurers and other third-party payers. Coverage and reimbursement by a third-party payer may depend upon several
factors, including the availability of alternative therapies or a third-party payer’s determination that use of a product is:
•
•
•
•
•
a covered benefit under its health plan;
safe, effective and medically necessary;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.
Obtaining coverage and reimbursement for a product from third-party payers is a time-consuming and costly process that could
require us to provide to the payer supporting scientific, clinical and cost-effectiveness data. We may not be able to provide data
sufficient to gain acceptance with respect to coverage and reimbursement.
There is significant uncertainty related to third-party coverage and reimbursement of newly approved products, including potential
one-time gene therapies, such as PTC-AADC for the treatment of AADC deficiency. In the United States, third-party payers,
including government payers such as the Medicare and Medicaid programs, play an important role in determining the extent to
which new drugs and biologics will be covered and reimbursed. Expensive specialty drugs in particular are often subject to
restriction. The Medicare and Medicaid programs increasingly are used as models for how private payers and government payers
develop their coverage and reimbursement policies. Currently, there is limited experience with Centers for Medicare and Medicaid
Services, or CMS, coverage of gene therapy product. We cannot be assured that Medicare or Medicaid will cover our product
candidates that may be approved or provide reimbursement without restriction and at adequate levels to realize a sufficient return
on our investment. Moreover, reimbursement agencies in the European Union may be more conservative than CMS. It is difficult
to predict what third-party payers will decide with respect to the coverage and reimbursement for our products for which we obtain
marketing approval. Additionally, within Europe, each country has its own reimbursement regime employing various health
technology assessment approaches to assess the cost-effectiveness of the product (in the UK a HTA assessment is conducted by
NICE) which may significantly affect the effective access to the market.
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We may face competition from biosimilars approved through an abbreviated regulatory pathway or from separate full
applications for approval.
Our gene therapy product candidates are regulated by the FDA as biologics under the Federal Food, Drug and Cosmetics Act, or
FDCA, and the Public Health Service Act, or PHSA. Biologics require the submission of a BLA and approval by the FDA prior
to being marketed in the United States. Historically, a biologic product approved under a BLA was not subject to the generic drug
review and approval provisions of the FDCA. However, the Biologics Price Competition and Innovation Act of 2009, or BPCIA,
created a regulatory pathway under the PHSA for the abbreviated approval of biological products that are demonstrated to be
“biosimilar” or “interchangeable” with an FDA approved biological product. To demonstrate biosimilarity, the biosimilar sponsor
must show that the product candidate is highly similar to the reference product, notwithstanding minor differences in clinically
inactive components, and that there is no clinically meaningful difference between the biosimilar product and the reference product
in terms of safety, purity, and potency. In order to meet the standard of interchangeability, a sponsor must demonstrate that the
biosimilar product can be expected to produce the same clinical result as the reference product, and for a product that is administered
more than once, that the risk of switching between the reference product and biosimilar product is not greater than the risk of
maintaining the patient on the reference product.
Such biosimilars would reference biological products approved in the United States. The BPCIA, however, establishes certain
protections for reference biologic products. For example, the BPCIA sets up a complex and involved framework for reference and
biologic product sponsors to bring patent infringement actions and actions for declaratory judgment. If another company pursues
approval of a product that is biosimilar to any biologic product for which we receive FDA approval, we may need to pursue costly
and time consuming patent infringement actions, which may include certain statutorily specified regulatory steps before an
infringement action may be brought. We may also need to spend time and money defending an action for declaratory judgement
that is brought by the biosimilar product sponsor,
Another protection established by the BPCIA is a period of 12 years of exclusivity for reference products that begins on the date
that the reference product was first licensed by FDA. During this time, FDA may not make the licensure of a biosimilar product
effective. Biosimilar applications can, however, be submitted for FDA review beginning four years after the date of the reference
product’s first licensure. Any of our product candidates that may be approved under BLAs in the future could be reference products
for biosimilar marketing applications. As a result, any of our product candidates that may receive regulatory approval may face
competition from other biological products that receive regulatory approval pursuant to an abbreviated pathway, which may have
a material adverse effect on our results of operations, business, financial condition or prospects.
In addition, the biologic exclusivity period has certain limitations that may limit its ability to protect our product candidates, if
approved, from biosimilar or interchangeable product competition. For example, certain changes and supplements to an approved
BLA, and certain subsequent applications filed by the same sponsor, manufacturer, licensor, predecessor in interest, or other related
entity do not qualify for the 12-year exclusivity period. Moreover, there have been legislative efforts to decrease this period of
exclusivity to a shorter timeframe. Future proposed budgets, international trade agreements and other arrangements or proposals
may affect periods of exclusivity. Further, even if our biologic product candidates qualify for the BPCIA’s 12-year period of
exclusivity, there is a risk that the FDA will not consider our product candidates to be reference products for competing products,
potentially creating the opportunity for biosimilar competition sooner than anticipated. Additionally, this period of regulatory
exclusivity does not apply to companies pursuing regulatory approval via their own traditional BLA, rather than via the abbreviated
pathway. Accordingly, another company could market a competing version of a biological product if the FDA approves a full BLA
for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to
demonstrate the safety, purity and potency. Moreover, the extent to which a biosimilar, once approved, will be substituted for any
one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet fully
clear, and will depend on a number of marketplace and regulatory factors that are still developing. It is also possible that payers
will give reimbursement preference to biosimilars, even over reference biologics, absent a determination of interchangeability.
In the European Union, another company could gain approval for a competing product based on a MAA with a complete independent
data package of pharmaceutical tests, preclinical tests and clinical trials.
To the extent we do not receive any anticipated periods of regulatory exclusivity or to the extent the FDA or foreign regulatory
authorities approve any biosimilar, interchangeable, or other competing products, our business would be adversely impacted.
Competition that our products may face from biosimilar, interchangeable, or other competing products could materially and
adversely impact our future revenue, profitability, and cash flows and substantially limit our ability to obtain a return on the
investments we have made in those product candidates. In the United States, this risk has increased in recent years as the FDA
and the U.S. government have taken steps to encourage increased biosimilar competition in the market, in an effort to bring down
the cost of biologic products.
Risks Related to the Development and Commercialization of our Products and our Product Candidates
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We depend heavily on the success of Translarna, which we are developing for nmDMD and other indications, and Emflaza,
for DMD. If we are unable to execute our commercial strategy for Translarna for the treatment of nmDMD in the EEA or for
Emflaza for the treatment of DMD in the United States, fail to receive regulatory approval for Translarna for the treatment of
nmDMD in the United States and other territories, fail to obtain renewal of, or satisfy the conditions of our marketing
authorization for Translarna for the treatment of nmDMD in the EEA, or fail to maintain our marketing authorization or
market exclusivity for Emflaza in the United States, or if we experience significant delays in accomplishing such goals, our
business will be materially harmed.
We have invested a significant portion of our efforts and financial resources in the development of Translarna for nmDMD and in
the acquisition of Emflaza for DMD. Our ability to generate product revenues will depend heavily on the successful development
and commercialization of Translarna and our successful integration of Emflaza into our business and commercialization of Emflaza
for DMD in the United States. Prior to our commercialization of Emflaza in the United States, we had no history of commercializing
pharmaceuticals in the United States.
As we presently have no patent rights to protect the approved use of Emflaza, we rely on the concurrently running market exclusivity
periods currently available to us under the Hatch-Waxman Act and the Orphan Drug Act to commercialize Emflaza for DMD in
the United States. Further, we are obligated to complete certain FDA post-marketing requirements in connection with our marketing
authorization of Emflaza. Failure to maintain these market exclusivity periods, complete the FDA post-marketing requirements,
maintain our marketing authorization for Emflaza in the United States, or timely execute our commercialization plans for Emflaza,
would have a material adverse effect on our business, financial position and results of operations.
While we have obtained marketing authorization for Translarna for the treatment of nmDMD in the EEA, such authorization is
subject to annual review and renewal by the European Commission following the annual EMA reassessment as well as the specific
obligation to conduct and submit the results of Study 041. For a review of recent developments that have had, and may continue
to have, a material adverse effect on our ability to commercialize Translarna for the treatment of nmDMD, please review the risk
factor titled, “ACT DMD did not meet its primary efficacy endpoint, and there is substantial risk that regulators will not agree
with our interpretation of the results of ACT DMD and the totality of clinical data from our trials in Translarna for the treatment
of nmDMD, which would have a material adverse effect on our business, financial performance and results of operations.”
We are currently pursuing further clinical development efforts for Translarna for the treatment of nmDMD, nonsense mutation
aniridia, and nonsense mutation CDKL5/Dravet syndrome. Each genetic disorder has unique genetic and pathophysiological
characteristics and we believe that regulators, including the FDA and the EMA, will evaluate the effectiveness of Translarna for
any given indication based on the merits of the clinical efficacy evidence available for such indication. However, because we are
developing Translarna for the treatment of multiple indications associated with genetic disorders that arise as a result of a nonsense
mutation, there is a risk that negative results in a clinical trial evaluating the efficacy of Translarna for one indication, such as the
negative results of our ACT CF trial for nonsense mutation cystic fibrosis, or nmCF, which we announced in 2017, could adversely
affect the perception of the efficacy of Translarna in a different indication. There can be no assurance that regulators, including
the FDA and the EMA, will not consider such results when making determinations with respect to our ongoing or future regulatory
submissions for marketing authorization of Translarna for any indication, including in connection with the FDA’s Complete
Response Letter to our NDA for Translarna for the treatment of nmDMD and the EMA’s annual reassessment of our marketing
authorization for Translarna for the treatment of nmDMD, which could have an adverse effect on the outcome of the applicable
regulatory review. We have submitted the safety results of ACT CF to regulators with any applicable safety updates and submissions,
including the EMA. While the safety profile of Translarna in the ACT CF study was consistent with previous studies and no new
safety signals were identified, there can be no assurance that the EMA or other regulators will agree with our interpretation of the
safety data from the trial.
If we do not successfully renew and maintain our marketing authorization and commercialize Translarna in the EEA, receive
regulatory approval in the United States for Translarna for the treatment of nmDMD and subsequently successfully commercialize
Translarna in the United States, or receive regulatory approval in other territories, including in Brazil, our ability to generate
additional revenue will be jeopardized and, consequently, our business will be materially harmed. Likewise, if we do not successfully
commercialize or maintain our marketing authorization for Emflaza for the treatment of DMD in the United States, our ability to
generate additional revenue will be jeopardized and, consequently, our business will be materially harmed.
The success of Emflaza and Translarna will depend on a number of additional factors, including the following:
•
•
•
our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms on a timely basis,
or at all;
the timing and scope of commercial launches;
the maintenance and expansion of a commercial infrastructure capable of supporting product sales, marketing and
distribution;
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•
•
•
•
•
•
•
•
•
the implementation and maintenance of marketing and distribution relationships with third parties in territories where
we do not pursue direct commercialization;
our ability to establish and maintain commercial manufacturing arrangements with third-party manufacturers;
the ability of our third-party manufacturers to successfully produce commercial and clinical supply of drug on a timely
basis sufficient to meet the needs of our commercial and clinical activities;
successful identification of eligible patients;
acceptance of the drug as a treatment for the approved indication by patients, the medical community and third-party
payors;
effectively competing with other therapies;
a continued acceptable safety profile of the drug;
the costs, timing and outcome of post-marketing studies and trials for Emflaza and Translarna, including, with respect
to Translarna, Study 041;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity, including with respect to
Emflaza, whether we are able to maintain market exclusivity periods under the Hatch-Waxman Act and Orphan Drug
Act;
• whether, with respect to Translarna, we are able to continue to satisfy our obligations under, and maintain, the marketing
authorization in the EEA for Translarna for the treatment of nmDMD, including whether the EMA determines on an
annual basis that the benefit-risk balance of Translarna supports renewal of our marketing authorization in the EEA,
on the current approved label;
• whether, and within what timeframe, we are able to advance Translarna for the treatment of nmDMD in the United
States, including, whether we will be required to perform additional clinical trials, non-clinical studies or CMC
assessments or analyses at significant cost which, if successful, may enable FDA review of an NDA submission by us
and, ultimately, may support approval of Translarna for nmDMD in the United States;
•
•
•
•
•
the successful advancement of Translarna in additional indications, in particular, nonsense mutation aniridia and
nonsense mutation Dravet syndrome/CDKL5;
the successful advancement of Emflaza in additional indications, in particular, limb-girdle 2I;
our ability to obtain additional and maintain existing reimbursed named patient and cohort EAP programs for Translarna
for the treatment of nmDMD on adequate terms;
our ability to successfully prepare and advance regulatory submissions for marketing authorizations for Translarna in
additional territories and for additional or expanded indications and whether and in what timeframe we may obtain
such authorizations;
the ability and willingness of patients and healthcare professionals to access Translarna through alternative means if
pricing and reimbursement negotiations in the applicable territory do not have a positive outcome; and
•
protecting our rights in our intellectual property portfolio.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability
to continue to commercialize Translarna or Emflaza, either of which would have a material adverse effect on our business, results
of operations and financial condition.
ACT DMD did not meet its primary efficacy endpoint, and there is substantial risk that regulators will not agree with our
interpretation of the results of ACT DMD and the totality of clinical data from our trials in Translarna for the treatment of
nmDMD, which would have a material adverse effect on our business, financial performance and results of operations.
In October 2015, we announced that the primary efficacy endpoint in the ITT population did not achieve statistical significance
in ACT DMD. We submitted our analyses of the ACT DMD data and meta-analyses of the combined ACT DMD and Phase 2b
subgroup data to the EMA to support continuation of our marketing authorization in the EEA, which is subject to annual review
and renewal by the European Commission following reassessment by the EMA of the benefit-risk balance of the authorization.
The EMA and European Commission did not approve our request for full marketing authorization of Translarna for the treatment
of nmDMD and, instead, approved the annual renewal of our conditional marketing authorization with the specific obligation to
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confirm the efficacy and safety of Translarna for the treatment of nmDMD in ambulatory patients age 5 years or older via Study
041.
Enrolling, conducting and reporting a clinical trial is a time-consuming, expensive and uncertain process that takes years to
complete, and we expect that we will incur material costs related to the implementation and conduct of Study 041. We expect that
conducting a placebo-controlled trial in nmDMD of this size will be challenging and it is probable that we will enroll patients in
territories where Translarna has already become available on a reimbursed basis, which could negatively impact growth in our
product sales. We may enroll patients in countries with a different standard of care for nmDMD patients or at clinical trial sites
that are inexperienced with clinical trials in general, or specifically with nmDMD trials. In addition, we may experience unknown
complications with Study 041 and may not achieve the pre-specified endpoint with statistical significance, which would have a
material adverse effect on our ability to maintain our marketing authorization in the EEA.
There is substantial risk that other regulators in regions where we have not yet sought or are currently seeking marketing
authorization will not agree with our interpretation of the results of ACT DMD and the totality of clinical data from our trials in
Translarna for the treatment of nmDMD, which would have a material adverse effect on our ability to generate revenue from the
sales of Translarna for the treatment of nmDMD in those applicable territories. In addition, we may not be able to maintain or
obtain marketing authorizations in areas where such authorizations are contingent upon decisions of the EMA with respect to our
marketing authorization in the EEA.
For additional information, see “Risks Related to Regulatory Approval of our Products and our Product Candidates” below.
The marketing authorization granted by the European Commission for Translarna for the treatment of nmDMD is limited to
ambulatory patients aged two years and older located in the EEA, which significantly limits an already small treatable patient
population, which reduces our commercial opportunity and is also subject to annual reassessment of the benefit-risk balance
by the EMA as well as the specific obligation to conduct Study 041, and may be varied, suspended or withdrawn by the European
Commission if we fail to satisfy those requirements.
We have obtained orphan drug designations from the EMA and from the FDA for Translarna for the treatment of nmDMD because
the number of patients who could benefit from treatment with Translarna is small. The marketing label approved by the European
Commission further limits the currently treatable patient population to ambulatory nmDMD patients aged two years and older
who have been identified through genetic testing as having a nonsense mutation in the dystrophin gene. Prevalence estimates for
rare diseases are uncertain due to the uncertainties associated with the methodologies used to derive estimates, such as epidemiology
assumptions. It can take many years of experience in rare disease market places before prevalence becomes well characterized.
We are launching the first therapy specifically aimed at nmDMD patients. Our estimates of both the number of people who have
DMD caused by a nonsense mutation, as well as the subset of people with nmDMD who are ambulatory and at least two years
old (and, therefore, satisfy the conditions for treatment under our current product label in the EEA), are based on our beliefs and
estimates derived from a variety of sources and may prove to be either incorrect or subject to additional refinement or characterization
on a country specific basis over the coming years. Prevalence estimates vary given some degree of variation in the incidence of
live male births, the incidence of DMD, the incidence of nonsense mutations and other factors. Information concerning the eligible
patient population is generally limited to certain geographies and may not employ definitive measures capable of establishing with
precision the actual number of nmDMD patients in such geography. If the market opportunities for Translarna for the treatment
of nmDMD are smaller than we believe they are, our business and anticipated revenues will be negatively impacted. Although we
intend to seek to expand the approved product label of Translarna for the treatment of nmDMD in the future, the timing of, and
our ability to generate, the necessary data or results required to obtain expanded regulatory approval is currently uncertain. Given
the small number of patients who have nmDMD, and the smaller number of patients who meet the criteria for treatment under our
current marketing authorization, our commercial opportunity is limited. It is critical to the commercial success of Translarna for
nmDMD that we successfully identify and treat these patients.
In order to continue to generate revenue from Translarna, we must maintain our marketing authorization in the EEA for Translarna
for the treatment of nmDMD in ambulatory patients aged two years and older and we also may need to receive marketing
authorizations in other territories. The marketing authorization in the EEA is conditional and subject to annual review and renewal
by the European Commission following reassessment by the EMA of the benefit-risk balance of the authorization, which we refer
to as the annual EMA reassessment, as well as the specific obligation to complete and report the results of Study 041 to the EMA.
We expect that as part of the annual EMA assessment, the EMA will consider the ongoing status of Study 041. Due to enrollment
at a slower pace in certain countries than initially expected, in our February 2019 marketing authorization renewal request, we
asked the EMA to extend the timeframe for submission of the results of Study 041 to the EMA to the end of the third quarter of
2022. There is no guarantee that the EMA will grant the extension of the date by which we are required to submit the results of
Study 041. The marketing authorization was last renewed in July 2018 and is effective, unless extended, through August 5, 2019.
Enrolling Study 041 may further reduce the number of patients available for reimbursed treatment.
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If the EMA determines in any annual renewal cycle that the balance of benefits and risks of using Translarna for the treatment of
nmDMD has changed materially or that we have not or are unable to comply with any conditions that have been or may be placed
on the marketing authorization, the European Commission could, at the EMA’s recommendation, vary, suspend, withdraw or refuse
to renew the marketing authorization for Translarna or require the imposition of other conditions or restrictions. As such, there is
ongoing risk to our ability to maintain our marketing authorization in the EEA.
If we are unable to renew our marketing authorization in the EEA during any annual renewal cycle, or if our product label is
materially restricted, we would lose all, or a significant portion of, our ability to generate revenue from sales of Translarna, whether
pursuant to a commercial or an EAP program, and in all territories, which would have a material adverse effect on our business,
results of operations and financial condition. See “Risks Related to Regulatory Approval of our Products and our Product
Candidates” below for further detail regarding conditional marketing authorizations in the EEA.
If there are delays in obtaining regulatory approval in the United States, we will not be able to commercialize Translarna for
nmDMD in that territory and our ability to generate revenue will be materially impaired. In the event that the FDA requires
us to conduct additional clinical trials in nmDMD which, if successful, may enable FDA review of an NDA submission by us,
we would expect to incur significant costs, which may have a material adverse effect on our business and results of operations.
In the first quarter of 2017, we filed our Translarna NDA for nmDMD with the FDA via the “file over protest” process that allows
a company to have its NDA filed and reviewed when there is a disagreement with regulators over the acceptability of the NDA
submission. In October 2017, the Office of Drug Evaluation I of the FDA issued a Complete Response Letter for the NDA, stating
that it was unable to approve the application in its current form. In response, we filed a formal dispute resolution request with the
Office of New Drugs of the FDA. In February 2018, the Office of New Drugs of the FDA denied our appeal of the Complete
Response Letter. In its response, the Office of New Drugs recommended a possible path forward for the ataluren NDA submission
based on the accelerated approval pathway. This would involve a re-submission of an NDA containing the current data on
effectiveness of ataluren with new data to be generated on dystrophin production in nmDMD patients’ muscles. We intend to
follow the FDA’s recommendation and will collect, using newer technologies via procedures and methods that we designed, such
dystrophin data in a new study, Study 045, which we initiated in the fourth quarter of 2018. We expect that a potential re-submission
of an NDA could occur in 2020. Additionally, should a re-submission of an NDA receive accelerated approval, the Office of New
Drugs stated that Study 041, which is currently enrolling, could serve as the confirmatory post-approval trial required in connection
with the accelerated approval framework.
While we have discussed the procedures and methods for Study 045 with the FDA, the procedures and methods have never
previously been utilized in DMD studies. In addition to us providing data showing positive results, the FDA will need to accept
the methods utilized in the study. There is a substantial risk that Study 045, or any other studies we may use to collect the dystrophin
data, will not provide the necessary data to support a marketing approval for Translarna for the treatment of nmDMD in the U.S.
or that the FDA will not accept the methods used to collect the data. Even if we are successful in resolving some or all of the
matters raised by the FDA in its denial of our appeal of the Complete Response Letter, there is significant risk that we will be
unable to obtain FDA approval of Translarna for nmDMD, on a timely basis or at all, and we may be required to perform additional
clinical trials, non-clinical studies or CMC assessments or analyses at significant cost. Even if we are able to enroll and fund any
such additional trials or studies or complete such assessments or analyses, there is substantial risk that the results would not
ultimately support the approval of a re-submission of an NDA in the United States for Translarna for nmDMD. In addition, any
such requirement for additional trials would most likely result in our inability to sell Translarna in the United States for a significant
period of time, which would have a material adverse effect on our ability to generate revenue from the sales of Translarna for the
treatment of nmDMD.
Even if we do ultimately receive approval for Translarna in the United States, if such approval is via the accelerated approval
pathway, there is a risk that the FDA would not view our completed studies as satisfying the requirement for post-approval
confirmatory studies of the product’s clinical benefit. In such an instance, we would potentially need to invest substantial time,
effort, and funds into the conduct of such a post-approval study. Moreover, if Translarna is ultimately approved through the
accelerated approval pathway, we would be subject to additional regulatory requirements, such as the pre-submission of promotional
materials to FDA and potential restrictions, such as distribution restrictions, to assure the product’s safe use. Accelerated approval
would also subject us to the risk of expedited FDA withdrawal procedures if we do not conduct required post-approval studies,
such studies do not meet FDA’s standards, such studies do not confirm the product’s clinical benefit, or FDA finds that any post
market restrictions are inadequate to assure the safe use of the product, among other circumstances. Due to these and other
uncertainties, we are unable to estimate the timing or potential for a launch of Translarna for the treatment of nmDMD in the
United States or the cost or effort required to receive FDA approval for Translarna and meet FDA’s regulatory requirements both
before and after approval. Even if we receive approval for Translarna, there is no guarantee that we would be able to maintain
such approval.
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The FDA has repeatedly disagreed with our interpretation of the study results for Translarna. In 2010, we filed a NDA for ataluren
based on our Phase 2b clinical data, which the FDA refused to file. We filed a formal dispute resolution request concerning this
decision in 2011 and, in 2012, the FDA reaffirmed its previous decision to refuse to file the 2010 NDA.
In October 2015, we announced that the primary efficacy endpoint in the ITT population did not achieve statistical significance
in ACT DMD. On the basis of our position that the totality of clinical data from ACT DMD and our prior Phase 2b trial support
the clinical benefit of Translarna for the treatment of nmDMD, in December 2015, we submitted our analyses of the ACT DMD
data and meta-analysis of the combined ACT DMD and Phase 2b subgroup data to the FDA, as part of our NDA, after commencing
our submission on a rolling basis in December 2014.
On February 22, 2016, we received a Refuse to File letter from the FDA stating that our NDA was not sufficiently complete to
permit a substantive review in particular because, in the view of the FDA, both the Phase 2b and Phase 3 ACT DMD trials were
negative and do not provide substantial evidence of effectiveness and that our NDA does not contain adequate information regarding
the abuse potential of Translarna. Additionally, the FDA stated that we had proposed a post-hoc adjustment of ACT DMD that
eliminates data from a majority of enrolled patients. In addition, the FDA noted that our NDA does not contain adequate information
regarding the abuse potential of Translarna. While other comments and requests were noted in the letter as items to be addressed
if the NDA were to be resubmitted, the FDA specified that they were not related to its refusal to file our NDA.
Following the refusal to file of our NDA, we initiated dialogue with the FDA to discuss and clarify the matters set forth in the
letter and determine our best path forward. In accordance with the formal dispute resolution process that exists within the Center
for Drug Evaluation and Research of the FDA, we filed a formal appeal of the Refuse to File letter, which was denied in October
2016. In the first quarter of 2017, we filed our Translarna NDA for nmDMD via the FDA’s file over protest regulations. We included
additional retrospective and post hoc analyses from our clinical trials with the NDA filed in 2017, including analyses of the 6-
minute walk test using alternative statistical and analytical methods and new analyses from the North Star Ambulatory Assessment
test, a functional scale designed for boys affected by DMD. Filing over protest is a procedural path permitted by FDA regulations
that allows a company to have its NDA filed and reviewed when there is a disagreement with regulators over the acceptability of
the NDA submission.
In its 2016 Refuse to File letter and in its 2017 Complete Response Letter and its denial of our appeal to the Complete Response
Letter, the FDA referenced its prior refusal to file relative to the Phase 2b data and our early discussions with the FDA, reiterating
the views previously expressed.
If clinical trials of Translarna or our product candidates fail to demonstrate safety and efficacy to the satisfaction of the EMA,
the FDA or other regulators, or do not otherwise produce favorable results, we may experience delays in completing, or ultimately
be unable to complete, the development and commercialization of Translarna or any other product candidate.
In connection with seeking marketing authorization from regulatory authorities for the sale of any product candidate, we must
complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product
candidates in humans. Clinical and preclinical testing is expensive, difficult to design and implement, can take many years to
complete and is uncertain as to outcome. This is especially true for rare and/or complicated diseases. A failure of one or more
clinical or preclinical trials can occur at any stage of testing. Preclinical and clinical studies may reveal unfavorable product
candidate characteristics, including safety concerns, or may not demonstrate product candidate efficacy. In some instances, there
can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to
numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient
populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. The
outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results
of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying
interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical
studies and clinical trials have nonetheless failed to obtain marketing authorization of their products.
The primary efficacy endpoint in the intent to treat, or ITT, population did not achieve statistical significance in the Phase 2b
(completed in 2009) or Phase 3 ACT DMD (completed in 2015) clinical trials of Translarna for the treatment of nmDMD. For a
review of recent developments that have had, and may continue to have, a material adverse effect on our ability to commercialize
Translarna for the treatment of nmDMD, please review the risk factor titled, “ACT DMD did not meet its primary efficacy endpoint,
and there is substantial risk that regulators will not agree with our interpretation of the results of ACT DMD and the totality of
clinical data from our trials in Translarna for the treatment of nmDMD, which would have a material adverse effect on our business,
financial performance and results of operations.”
If the FDA, the EMA and other regulators do not agree with our interpretation of the results of the clinical data from our trials,
and, when and if completed, Study 041 and related analyses, or otherwise do not view the results of these trials as favorable; if
we are required to conduct additional clinical trials or other testing of Translarna or any other product candidate that we develop
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beyond those that we contemplate; if we are unable to successfully complete our clinical trials or other testing; if the results of
these trials or tests are not positive or are only modestly positive; or if there are safety concerns, we may, among other things:
•
•
•
•
•
•
be unable to successfully maintain our marketing authorization in the EEA for Translarna for the treatment of nmDMD,
which is subject to annual review and renewal following reassessment of the benefit-risk balance of the authorization by
the EMA;
be delayed in or unable to obtain marketing approval in the United States for Translarna or any other product candidates,
including supplemental application approvals for any products that receive approval;
be delayed in obtaining additional marketing authorizations, or not obtain additional marketing authorizations at all, for
Translarna for the treatment of nmDMD;
be delayed in obtaining marketing authorizations, or not obtain marketing authorizations at all, for Translarna for other
indications, or for our other product candidates;
obtain approval for indications, uses or patient populations that are not as broad as intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed
warnings;
•
obtain approval with labeling that does not include claims that are necessary or desirable for the successful
commercialization of the product or product candidate;
•
•
•
be subject to additional post-marketing requirements or restrictions, such as post-approval studies or REMS;
have the product removed from markets after obtaining applicable marketing authorizations; or
not be permitted to sell Translarna under some or any reimbursed EAP programs.
If our marketing authorization request for Translarna in Brazil is unsuccessful, we may lose our ability to sell Translarna in
Brazil.
All of our sales of Translarna in Brazil to date have been to patients who have had access to Translarna via judicial authorization,
which has allowed the Brazilian authorities to purchase Translarna even though Translarna is not approved by the Agência Nacional
de Vigilância Sanitária, or ANVISA. In the fourth quarter of 2018, we filed for marketing authorization with ANVISA for
Translarna. Should ANVISA reject our marketing authorization request, patients may lose their access via judicial authorization,
as the courts may take into account ANVISA’s rejection. Our inability to sell Translarna in Brazil would have a material adverse
effect on our business, financial condition and results of operations.
If Tegsedi or Waylivra fail to obtain or maintain regulatory approval, we will not be able to commercialize them in the PTC
Territory.
Tegsedi has only received marketing authorization from the FDA, EMA and Health Canada, and Waylivra has not yet received
regulatory approval from the EMA or any other regulatory agency. We have submitted a marketing authorization request for Tegsedi
to ANVISA and it was granted priority review. Should Tegsedi or Waylivra not receive marketing authorization in the territories
in which we have obtained the rights to commercialize such product candidates, or should Tegsedi lose its marketing authorizations
that it currently has, we would not be able to commercialize Tegsedi or Waylivra, as applicable, successfully, and we would fail
to realize the anticipated benefit of our licensing rights to Tegsedi and Waylivra or those benefits may take longer to realize than
expected, any of which could have a material adverse effect on our business.
If we or our collaborators experience any of a number of possible unforeseen events in connection with clinical trials related
to our products or our product candidates, maintenance of our existing marketing authorization for our products and any
additional potential marketing authorization or commercialization of our products or our product candidates could be delayed
or prevented.
We or our collaborators may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or
prevent our ability to receive marketing authorization or commercialize our products or our product candidates, including:
•
clinical trials of our products or our product candidates may produce negative or inconclusive results for the necessary
study endpoints, our studies may fail to reach the necessary level of statistical significance, and we may decide, or
regulators may require us, to conduct additional clinical trials or abandon product development programs;
•
there may be flaws in our clinical trials’ design that may not become apparent until the clinical trials are well advanced;
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•
•
the number of patients required for clinical trials of our product and product candidates may be larger than we anticipate,
enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials
or be lost to follow-up at a higher rate than we anticipate;
patients that enroll in our studies may misrepresent their eligibility or may otherwise not comply with the clinical trial
protocol, resulting in the need to drop the patients from the study, increase the needed enrollment size for the study or
extend the study’s duration;
• we may be unable to enroll a sufficient number of patients in our clinical trials to ensure adequate statistical power to
detect any statistically significant treatment effects;
• we may enroll patients at clinical trial sites in countries that are inexperienced with clinical trials in general, or with the
indication that is the subject of the trial;
• we may enroll patients at clinical trial sites in countries that have a different standard of care for patients in general, or
with respect to the indication that is the subject of the trial. Regulatory authorities, such as the FDA, may also not accept
data generated at international clinical trial sites;
•
•
our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us
in a timely manner, or at all, or we may be required to engage in additional clinical trial site monitoring;
regulators, institutional review boards, institutional biosafety committees, or independent ethics committees may not
authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site or may
require us to submit additional data, conduct additional studies or amend our investigational new drug application, or
IND, or comparable application or protocols prior to commencing a clinical trial;
• we may fail to reach an agreement with regulators, institutional review boards, institutional biosafety committees, or
independent ethics committees regarding the scope, design, or implementation of our clinical trials. For instance, the
FDA or comparable foreign regulatory authorities may require changes to our study design that make further study
impractical or not financially prudent;
• we may have delays in reaching or may fail to reach agreement on acceptable clinical trial contracts or clinical trial
protocols with prospective trial sites and contract research organizations;
• we may have delays in adding new investigators or clinical trial sites, or we may experience a withdrawal of clinical trial
sites;
• we may have to suspend or terminate clinical trials of our products or our product candidates for various reasons, including
a finding that the participants are being exposed to unacceptable health risks;
•
•
•
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•
•
regulators, institutional review boards, institutional biosafety committees, or independent ethics committees may require
that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with
regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
the cost of clinical trials of our products or our product candidates may be greater than we anticipate or we may have
insufficient funds for a clinical trial or to pay the substantial user fees required by the FDA upon the filing of a marketing
application;
the supply or quality of our products or our product candidates or other materials necessary to conduct clinical trials of
our products or our product candidates may be insufficient or inadequate;
our products or our product candidates may have undesirable side effects or other unexpected characteristics, causing us
or our investigators, regulators, institutional review boards, institutional biosafety committees or independent ethics
committees to suspend or terminate the trials;
regulators may require us to perform additional or unanticipated clinical or preclinical trials, develop additional
manufacturing information, or make changes to our manufacturing process to obtain approval or we may be subject to
additional post-marketing testing, surveillance, or REMS requirements to maintain regulatory approval;
there may be changes in the applicable regulatory authorities’ approval policies or review, statutes, or regulations, which
may render our data insufficient to obtain marketing approval;
• we may decide that it is no longer in our business interest to continue a development program;
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•
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•
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there may be regulatory questions or disagreements regarding interpretations of data and results, or new information may
emerge regarding our product candidates;
the FDA or comparable foreign regulatory authorities may disagree with our study design, including endpoints, or our
interpretation of data from preclinical studies and clinical trials or find that a product candidate’s benefits do not outweigh
its safety risks;
the FDA or comparable regulatory authorities may disagree with our intended indications;
the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing
processes or our contract manufacturer’s manufacturing facility for clinical and future commercial supplies;
the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA or
comparable foreign regulatory authorities to support the submission of a marketing application, or other comparable
submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;
the FDA or comparable regulatory authorities may take longer than we anticipate to make a decision on our product
candidates; or
• we may not be able to demonstrate that a product candidate provides an advantage over current standards of care or
current or future competitive therapies in development.
For example, the Phase 2 Moonfish study, which was evaluating the safety and efficacy of RG7800 under our SMA collaboration,
was terminated in December 2016 following a suspension and clinical hold in the first half of 2015 to investigate an eye finding
in a 39-week study in cynomolgus monkeys. The suspension and termination of Moonfish resulted in unanticipated delays in the
advancement of the SMA program.
Our product development costs will increase if we experience delays in testing or marketing authorizations, and we may not have
sufficient funding to complete the testing and approval process for any of our product candidates. We may be required to obtain
additional funds to complete clinical trials and prepare for possible commercialization of our products and product candidates.
We do not know whether any preclinical tests or clinical trials will begin as planned, will need to be restructured or will be completed
on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the
exclusive right to commercialize Translarna, Emflaza, risdiplam or our product candidates and allow our competitors to bring
products to market before we do, or impair our ability to successfully commercialize Translarna, Emflaza, risdiplam or our product
candidates, and so may harm our business, results of operations and financial condition.
Our conclusions regarding the activity and potential efficacy of Translarna in nmDMD are primarily based on retrospective,
subgroup and meta-analyses of the results of our Phase 2b and ACT DMD clinical trials of Translarna for the treatment of
nmDMD. Other than with respect to certain of our meta-analyses, results of our analyses are expressed as nominal p-values,
which are generally considered less reliable indicators of efficacy than adjusted p-values. In addition, retrospective analyses
are generally considered less reliable than pre-specified analyses.
After determining that we did not achieve the primary efficacy endpoint with the pre-specified level of statistical significance in
our completed ACT DMD and Phase 2b clinical trials of Translarna for the treatment of nmDMD, we performed subgroup,
retrospective, and meta-analyses. We submitted these analyses to the FDA as part of our NDA, taking the position that the totality
of clinical data from these trials support the clinical benefit of Translarna for the treatment of nmDMD. In addition, after determining
that the primary efficacy endpoint did not achieve statistical significance in ACT DMD or our Phase 2b clinical trial of Translarna
for the treatment of nmDMD, we performed retrospective and subgroup analyses that we believe provide sufficient support for
concluding that Translarna was active and showed clinically meaningful improvements over placebo in these trials.
We believe that our reliance upon the additional analyses of the results of these trials was warranted, but the FDA typically does
not find a retrospective analysis performed after unblinding trial results to be persuasive because it can result in the introduction
of bias if the analysis is inappropriately tailored or influenced by knowledge of the data and actual results.
Some of our favorable statistical data from these trials also are based on nominal p-values that reflect only one particular comparison
when more than one comparison is possible. Typically, a trial result is interpreted as being statistically significant if the chance of
the same result occurring with the placebo is less than one in 20, resulting in a p-value of less than 0.05. Nominal p-values cannot
be compared to the typical significance level (p-value less than 0.05) to determine statistical significance without adjusting for
the testing of multiple dose groups, end points or analyses of subgroups. Because of these limitations, regulatory authorities
typically give greater weight to results from pre-specified analyses and adjusted p-values and less weight to results from post-hoc,
retrospective analyses and nominal p-values. A p-value is considered nominal if it is the result of one particular comparison prior
to any pre-specified multiplicity adjustment, such as when two active treatments are compared to placebo or when two or more
subgroups are analyzed. For example, the p-values in ACT DMD for change from baseline at week 48 in the 6-minute walk test,
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or 6MWT (which we also refer to as 6-minute walk distance, or 6MWD) and each secondary end point timed function test in the
pre-specified subgroup of patients with a baseline 300-400 meter 6MWD had p-values of less than 0.05. The FDA considered
these p-values to be nominal because of the sequential testing method we used.
On February 22, 2016, we received a Refuse to File, or RTF, letter from the FDA stating the FDA’s opinion that both the Phase
2b and Phase 3 ACT DMD trials were negative and did not provide substantial evidence of effectiveness and that our NDA did
not contain adequate information regarding the abuse potential of Translarna. Additionally, the FDA stated that we had proposed
a post-hoc adjustment of ACT DMD that eliminates data from a majority of enrolled patients. Our reliance on nominal p-values
for some of our statistical data and our use of retrospective analyses had a negative impact on the FDA’s interpretation of the results
of our Phase 2b trial, ACT DMD and the totality of the data from our clinical trials. The FDA reiterated this view in the Complete
Response Letter that it sent to us in October 2017 and its denial of our appeal of that letter.
Our reliance on nominal p-values for some of our statistical data and our use of retrospective analyses has also had a negative
impact on the EMA’s evaluation of our last application for continued marketing authorization for Translarna for the treatment of
nmDMD, including delays in timing of the CHMP’s opinion with respect to the annual renewal of our marketing authorization,
and could negatively impact regulatory determinations by regulators in other territories with respect to new or existing
authorizations.
An unfavorable view of our data and analyses by the FDA and EMA for Translarna has and could continue to negatively impact
our ability to obtain or maintain authorizations to market Translarna for the treatment of nmDMD. An inability to obtain new
marketing authorizations or maintain our current marketing authorization in the EEA would have a material adverse effect on our
revenue from Translarna and would materially harm our business, financial results and results of operations.
Because we are developing Translarna, Emflaza and our product candidates for the treatment of diseases in which there is
little clinical experience and, in some cases, using new endpoints or methodologies, there is increased risk that the outcome of
our clinical trials will not be favorable.
There are no marketed therapies approved to treat the underlying cause of nmDMD. In addition, there has been limited historical
clinical trial experience generally for the development of drugs to treat nmDMD and other diseases that we are studying or have
studied, including, nmCF, nmMPS I, nonsense mutation aniridia, and nonsense mutation Dravet syndrome/CDKL5. As a result,
the design and conduct of clinical trials for these diseases, particularly for drugs to address the underlying nonsense mutations
causing these diseases in some subsets of patients, is subject to increased risk.
For example, on March 2, 2017, we announced that the primary and secondary endpoints were not achieved in ACT CF, our Phase
3 clinical trial for Translarna in nmCF. As a result, we have discontinued our clinical development of Translarna for nmCF.
Prior to the Phase 2b clinical trial of Translarna for nmDMD, there was no precedent of an established trial design to evaluate the
efficacy of Translarna in nmDMD over a 48 week duration. In addition, clinical understanding of the methodologies used to analyze
the resulting data were also limited. The study design and enrollment criteria for ACT DMD were based on available natural history
data of the disease, including third-party data and results from our Phase 2b clinical trial. An evolving understanding in the DMD
community has led to a greater appreciation of the optimal window for the 6MWT in assessing physical function. We believe that
this factor may have led to the primary efficacy endpoint in the intent to treat population not achieving statistical significance in
ACT DMD.
We are faced with similar challenges in connection with the design of our studies of Translarna in nonsense mutation aniridia, and
nonsense mutation Dravet syndrome/CDKL5 and of Emflaza in limb-girdle 2I, and such similar challenges existed in our study
of nmMPS I, which study we stopped in 2017, because there is also limited historical clinical trial experience for the development
of drugs to treat the underlying cause of these disorders.
If we experience delays or difficulties in the enrollment of patients in our clinical trials, our receipt of necessary regulatory
approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our product candidates, including Study 041, our Phase 2 studies of
Translarna in nonsense mutation Dravet syndrome/CDKL5, or our studies of Emflaza in limb-girdle 2I if we are unable to locate
and enroll a sufficient number of eligible patients to participate in these trials. The studies under our SMA collaboration for risdiplam
face similar risks.
Each of the indications we are currently pursuing for Translarna, Emflaza, risdiplam and our product candidates are characterized
by relatively small patient populations, which could result in slow enrollment of clinical trial participants. The feasibility of patient
enrollment was a critical factor discussed with the EMA in connection with the specific obligation to conduct Study 041, in
particular due to factors that increase the challenges of enrollment, such as the small nmDMD patient population, the patient
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eligibility criteria for the mITT for Study 041, and the fact that Translarna is available to patients in the EEA and other limited
territories pursuant to commercial and EAP programs.
In addition, our competitors have ongoing clinical trials for product candidates that could be competitive with our product candidates.
As a result, potential clinical trial sites may elect to dedicate their limited resources to participation in our competitors’ clinical
trials and not ours, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our
competitors’ product candidates.
Patient enrollment is affected by other factors including:
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severity of the disease under investigation;
eligibility criteria for the study in question;
perceived benefits and risks of the product candidate under study;
efforts to facilitate timely enrollment in clinical trials;
patient referral practices of physicians;
the ability to monitor patients adequately during and after treatment; and
proximity and availability of clinical trial sites for prospective patients.
Enrollment delays in our clinical trials may result in increased development costs for our product candidates. Our inability to enroll
a sufficient number of patients in Study 041, our Phase 2 studies of Translarna in nonsense mutation Dravet syndrome/CDKL5,
or our studies of Emflaza in limb-girdle 2I or any of our, or our collaboration partners’, other clinical trials would result in significant
delays or may require us to abandon one or more clinical trials altogether. As the conduct of Study 041 is a specific obligation to
our marketing authorization in the EEA for Translarna for the treatment of nmDMD, any such delay or inability to enroll sufficient
patients could have a material adverse effect on our ability to maintain our authorization in the EEA and, failure to maintain such
authorization would have a material adverse effect on our business, results of operations and financial performance.
For example, we amended the study design for our proof-of-concept study for Translarna for the treatment of nmMPS I to include
patients currently on enzyme replacement therapy, which contributed to delays in site initiation and patient accrual. Despite the
protocol amendment, we continued to encounter difficulties identifying qualified patients for this study and stopped the study due
to the lack of patients.
If serious adverse side effects are identified during the development or further development of any product candidate or for
any product for which we have or may obtain marketing approval, including Translarna and Emflaza, we may need to abandon
or limit our development and/or marketing of that product or product candidate.
Our products and product candidates are in clinical or preclinical development, or further development, and their risk of failure
is high. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive
regulatory approval. If our products or our product candidates are associated with undesirable side effects or have characteristics
that are unexpected, regulatory authorities, institutional review boards, institutional biosafety committees, or independent ethics
committees may place our studies on clinical hold, withdraw or suspend study approvals, or require that we modify our protocols.
We may also need to abandon their development or limit development to certain uses or subpopulations in which the undesirable
side effects or other characteristics are less prevalent, less severe or more acceptable from a benefit-risk perspective. Adverse
events or side effects may also result in regulatory authorities denying approval of any applications we may submit for marketing
approval, limitations on the indicated use of a product, the inclusion of warnings, contraindications, or precautions on the label of
any approved products, or significant conditions imposed on any approval, including the requirement of a REMS, costly post-
marketing studies or clinical trials and surveillance to monitor the safety of the product. Many compounds that initially showed
promise in clinical or earlier stage testing have later been found to cause side effects that prevented further development of the
compound.
For example, although we did not observe a pattern of liver enzyme elevations in our Phase 2 or Phase 3 clinical trials of Translarna,
we did observe modest elevations of liver enzymes in some subjects in one of our Phase 1 clinical trials. These elevated enzyme
levels did not require cessation of Translarna administration, and enzyme levels typically normalized after completion of the
treatment phase. We did not observe any increases in bilirubin, which can be associated with serious harm to the liver, in the Phase
1 clinical trial.
In addition, in Study 009, our first Phase 3 clinical trial of Translarna for the treatment of nmCF, five adverse events in the Translarna
arm of the trial that involved the renal system led to discontinuation. As compared to the placebo group, the Translarna treatment
arm also had a higher incidence of adverse events of creatinine elevations, which can be an indication of impaired kidney function.
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In the Translarna treatment arm, more severe clinically meaningful creatinine elevations were reported in conjunction with cystic
fibrosis pulmonary exacerbations. These creatinine elevations were associated with concomitant treatment with antibiotics
associated with impaired kidney functions, such as aminoglycosides or vancomycin. This led to the subsequent prohibition of
concomitant use of Translarna and these antibiotics, which was successful in addressing this issue in the clinical trial.
In addition, we are obligated to perform certain FDA post-marketing requirements in connection with our marketing authorization
of Emflaza in the United States, including pre-clinical and clinical safety studies. If we or others identify previously unknown side
effects, whether pursuant to these post-marketing requirements, or otherwise, and in particular if such side-effects are severe, or
if known side effects are more frequent or severe than in the past then our marketing authorization for Emflaza may be restricted
or withdrawn, changes may be required to the product's label, sales may be adversely impacted, we may be required to undertake
additional studies or trials, and government investigations or litigation, including product liability claims, may be brought against
us. Additionally, if the safety warnings in our product labels are not followed, adverse medical situations in patients may arise,
resulting in negative publicity and potential lawsuits, even if our products worked as we described. Any of these occurrences would
limit or prevent us from commercializing our products, which would have a material adverse effect on our business, financial
results and operations.
Our product candidates, including our gene therapy product candidates, may be subject to marketing and distribution restrictions
that could limit our ability to successfully market and distribute those products, and limit the ability of physicians to prescribe
and administer such products.
Our product candidates, including our gene therapy product candidates, if approved, may be subject to restrictions on product
labeling, marketing, distribution, prescribing, and use, which could increase our cost to commercialize such products and decrease
our ability to generate product revenue. One such restriction may be risk evaluation and mitigation strategies, or REMS. A REMS
may be required to include various elements, such as a medication guide or patient package insert, a communication plan to educate
health care providers of the product’s risks, limitations on who may prescribe or dispense the product, or other measures that the
FDA deems necessary to assure the safe use of the product. Several gene therapy products that have been approved by FDA have
required substantial REMS. For example, Yescarta, which is a cell-based gene therapy approved by FDA in 2017 for adult patients
with certain types of large B-cell lymphoma who have not responded to or who have relapsed after at least two other kinds of
treatment, is subject to a substantial REMS program. The Yescarta REMS includes requirements for dispensing hospital and clinic
certification, training, adverse event reporting, documentation, and audits and monitoring conducted by the sponsor, among other
conditions. Similarly, also in 2017, the FDA approved Kymriah, a cell-based gene therapy for the treatment of patients up to 25
years of age with B-cell precursor ALL that is refractory or in second or later relapse. This indication was expanded in 2018 to
include adult patients with relapsed or refractory (r/r) large B-cell lymphoma after two or more lines of systemic therapy including
diffuse large B-cell lymphoma (DLBCL) not otherwise specified, high grade B-cell lymphoma and DLBCL arising from follicular
lymphoma. Like Yescarta, Kymriah was approved with a REMS that includes requirements for hospital and clinic certification,
training, adverse event reporting, documentation, and audits and monitoring conducted by the sponsor, among other conditions.
The Yescarta and Kymriah sponsors are responsible for implementing the REMS. REMS, such as these, can be expensive and
burdensome to implement, and burdensome for hospitals, clinics, and health care providers to comply with. Accordingly, should
any of our product candidates be subject to a REMS, it may materially harm our business.
Translarna for the treatment of nmDMD, Emflaza for the treatment of DMD, or any other product candidate that receives
marketing authorization, if any, may fail to achieve the degree of market acceptance by physicians, patients, third-party payors
and others in the medical community necessary for commercial success.
Although Translarna is currently authorized by the EMA for marketing for the treatment of nmDMD such marketing authorization
is subject to the specific obligation to conduct and submit the results of Study 041 to the EMA and is also subject to annual review
and renewal by the European Commission following reassessment of the benefit-risk balance of the authorization by the EMA.
Even if our marketing authorization in the EEA for Translarna for the treatment of nmDMD is maintained, or we are successful
in obtaining marketing authorization for Translarna for other indications or territories or marketing authorization for any of our
other product candidates, such product may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-
party payors and others in the medical community. In addition, Emflaza for the treatment of DMD in the United States may fail
to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. Third-party
payors may require prior authorizations or failure on another type of treatment before covering a particular drug, particularly with
respect to higher-priced drugs. Decreases in third-party reimbursement for a product or a decision by a third-party payor to not
cover a product could reduce physician usage of the product, including Emflaza or Translarna. If these products do not achieve
an adequate level of acceptance, we may not generate significant product revenues or any profits from operations.
The degree of market acceptance of our products or product candidates, if approved for commercial sale, will depend on a number
of factors, including:
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the efficacy and potential advantages compared to alternative treatments;
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the prevalence and severity of any side effects;
the limitations or warnings contained in the product’s FDA-approved labeling
the claims we may make for a product, based on the approved label;
distribution and use restrictions imposed by the FDA with respect to such product candidates or to which we agree as
part of a REMS or voluntary risk management plan
the ability to offer our products or product candidates for sale at competitive prices;
convenience and ease of administration compared to alternative treatments;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the strength of marketing and distribution support;
sufficient third-party coverage or reimbursement;
adverse publicity about our products or product candidates or favorable publicity about competitive products or product
candidates; and
•
any restrictions on concomitant use of other medications.
In addition, because we are developing Translarna for the treatment of different indications, negative results in a clinical trial
evaluating the efficacy of Translarna for one indication, such as the results from our ACT CF trial for nmCF, could have a negative
impact on the perception of the efficacy of Translarna in a different indication, which could have an adverse effect on our
commercialization efforts and financial results.
Our ability to negotiate, secure and maintain third-party coverage and reimbursement may be affected by political, economic and
regulatory developments in the United States, the European Union, Latin America and other jurisdictions. Governments continue
to impose cost containment measures, and third-party payors are increasingly challenging prices charged for medicines and
examining their cost effectiveness, in addition to their safety and efficacy. These and other similar developments could significantly
limit the degree of market acceptance of Translarna for the treatment of nmDMD, Emflaza for the treatment of DMD, or any of
our other product candidates that receive marketing authorization.
If we are unable to establish or maintain sales, marketing and distribution capabilities or enter into agreements with third
parties to market, sell and distribute our products or product candidates, we may not be successful in our continuing efforts to
commercialize our products or any other product candidate if and when they are approved.
Our ongoing commercial strategy for our products and any other product candidate that may receive marketing authorization
involves the development of a commercial infrastructure that spans multiple jurisdictions and is heavily dependent upon our ability
to continue to build an infrastructure that is capable of implementing our global commercial strategy. The establishment and
development of our commercial infrastructure will continue to be expensive and time consuming, and we may not be able to
develop our commercial organizations in all intended territories, including in the United States, in a timely manner or at all. Doing
so will require a high degree of coordination and compliance with laws and regulations in numerous territories, including in the
United States, each state, and other countries in which we do business, including restrictions on advertising practices, enforcement
of intellectual property rights, restrictions on pricing or discounts, transparency laws and regulations, and unexpected changes in
regulatory requirements and tariffs. If we are unable to effectively coordinate such activities or comply with such laws and
regulations, our ability to commercialize our products or any other product candidates that may receive marketing authorization
in the United States, the EEA, Latin America and other jurisdictions will be adversely affected. If we are unable to establish and
maintain adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able
to generate product revenue consistent with our expectations and may not become profitable.
There are risks involved with establishing our own sales and marketing capabilities and entering into arrangements with third
parties to perform these services. For example, recruiting and training an internal commercial team is expensive and time consuming
and could delay commercialization efforts. If a commercial launch for any product or product candidate for which we recruit a
commercial team and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or
unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain
or reposition such personnel.
The arrangements that we have entered into, or may enter into, with third parties to perform sales and marketing services will
generate lower product revenues or profitability of product revenues to us than if we were to market and sell any products that we
develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our
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product candidates or may be unable to do so on terms that are favorable to us. We have little control over such third parties, and
any of them may fail to devote the necessary resources and attention to sell and market our products effectively.
If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we
will not be successful in commercializing our products or product candidates.
Factors that may materially affect our efforts to commercialize our products include:
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our ability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
our ability to monitor the legal and regulatory compliance of sales and marketing personnel;
an inability to secure adequate coverage and reimbursement by government and private health plans;
reduced realization on government sales from mandatory discounts, rebates and fees, and from price concessions to
private health plans and pharmacy benefit managers necessitated by competition for access to managed formularies;
the clinical indications for which the products are approved and the claims that we may make for the products;
limitations or warnings, including distribution or use restrictions, contained in the products’ approved labeling;
any distribution and use restrictions imposed by the FDA or to which we agree as part of a mandatory REMS or voluntary
risk management plan;
liability for sales or marketing personnel who fail to comply with the applicable legal and regulatory requirements;
our ability to replace services being performed pursuant to a transition services agreement with Marathon before the
termination of such agreement;
our ability to implement third-party marketing and distribution relationships on favorable terms, or at all, in territories
where we do not pursue direct commercialization;
the ability of our commercial team to obtain access to or persuade adequate numbers of physicians to prescribe
Translarna, Emflaza or any future products;
the lack of complementary products to be offered by our commercial team, which may put us at a competitive
disadvantage relative to companies with more extensive product lines; and
•
unforeseen costs and expenses associated with creating an independent commercial organization.
Any of these factors, individually or as a group, if not resolved in a favorable manner may have a material adverse effect on our
business and results of operations. Similar risks apply in those territories where Translarna is available on a reimbursed basis under
an EAP program.
All of our sales of Translarna for the treatment of nmDMD currently occur in territories outside of the United States, which
subjects us to additional business risks that could adversely affect our revenue and results of operations.
All of our revenue from sales of Translarna to date has been generated from countries other than the United States. We have
operations in multiple European countries and other territories, including Latin America. We expect that we will continue to expand
our international operations in the future, including in emerging growth markets, pending successful completion of the applicable
regulatory processes. International operations inherently subject us to a number of risks and uncertainties, including:
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political, regulatory, compliance and economic developments that could restrict our ability to manufacture, market and
sell our products;
financial risks such as longer payment cycles, difficulty collecting accounts receivable and exposure to fluctuations in
foreign currency exchange rates;
difficulty in staffing and managing international operations;
potentially negative consequences from changes in or interpretations of tax laws;
changes in international medical reimbursement policies and programs;
unexpected changes in health care policies of foreign jurisdictions;
trade protection measures, including import or export licensing requirements and tariffs;
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our ability to develop relationships with qualified local distributors and trading companies;
political and economic instability in particular foreign economies and markets, in particular in emerging markets, for
example in Brazil;
diminished protection of intellectual property in some countries outside of the United States;
differing labor regulations and business practices; and
regulatory and compliance risks that relate to maintaining accurate information and control over sales and distributors’
and service providers’ activities that may fall within the purview of the Foreign Corrupt Practices Act, UK Bribery Act
or similar local regulation.
For example, we face risks arising out of the potential uncertainty caused by the June 2016 vote in the United Kingdom in favor
of exiting the European Union, commonly referred to as Brexit. In March 2017, the UK government initiated the exit process
under Article 50 of the Treaty of the European Union, commencing a period of up to two years for the UK and the other EU member
states to negotiate the terms of the withdrawal. Uncertainty over the terms of the UK’s withdrawal from the EU could adversely
affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in global
political institutions, regulatory agencies and financial markets. Currency exchange rates in the pound sterling and the euro with
respect to each other and the U.S. dollar have already been adversely affected by Brexit and, in the event that such foreign exchange
volatility were to continue, it could cause volatility in our quarterly financial results. In addition, if the United Kingdom were to
significantly alter its regulations affecting the pharmaceutical industry, we could face significant new regulatory costs and
challenges.
In addition, some countries in which Translarna for the treatment of nmDMD is not approved allow patients access to Translarna
through other legal mechanisms. For example, all of our sales in Brazil to date have been to patients who have had access to
Translarna via judicial authorization, which has allowed the Brazilian authorities to purchase Translarna even though Translarna
is not approved by ANVISA. Should the current political and legal framework which allows access to non-ANVISA approved
drugs in Brazil change, and Translarna does not receive approval by ANVISA, patients currently being prescribed Translarna may
have temporary interruptions in treatment in the future or may not have access to Translarna at all.
Additionally, some of the countries in which Translarna for the treatment of nmDMD is available for sale are in emerging markets.
Some countries within emerging markets, including those in Latin America, may be especially vulnerable to periods of global or
regional financial instability or may have very limited resources to spend on. We also may be required to increase our reliance on
third-party agents within less developed markets. In addition, many emerging market countries have currencies that fluctuate
substantially and if such currencies devalue and we cannot offset the devaluations, our financial performance within such countries
could be adversely affected.
In addition, in some countries, including those in Latin America, orders for named patient sales may be for multiple months of
therapy, which can lead to an unevenness in orders which could result in significant fluctuations in quarterly net product sales.
Other factors may also contribute to fluctuations in quarterly net product sales including Translarna’s availability in any particular
territory, government actions, economic pressures, political unrest and other factors. Net product sales are impacted by factors,
such as the timing of decisions by regulatory authorities, in particular the FDA and the EMA with respect to our ability to market
or sell Translarna for the treatment of nmDMD, and our ability to successfully negotiate favorable pricing and reimbursement
processes on a timely basis in the countries in which we have or may obtain regulatory approval, including the United States, EEA
and other territories.
Any of these factors may, individually or as a group, have a material adverse effect on our business and results of operations.
As we continue to expand our existing international operations, we may encounter new risks.
We face substantial competition, which may result in others discovering, developing or commercializing products before or
more successfully than we do.
The development and commercialization of new drug products is highly competitive. We face competition with respect to our
current products and product candidates and any products we may seek to develop or commercialize in the future from major
pharmaceutical companies, specialty pharmaceutical companies, and biotechnology companies worldwide.
There is currently no marketed therapy, other than Translarna in the EEA, which has received approval for the treatment of the
underlying cause of nmDMD. Sarepta Therapeutics recently received approval in the United States for a treatment addressing the
underlying cause of disease for different mutations in the DMD gene. Other biopharmaceutical companies are developing treatments
for the underlying cause of disease for different mutations in the DMD gene (Sarepta, Daiichi Sankyo, Eloxx, Nippon Shinyaku
and Solid Biosciences).
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Diacomit is marketed in the European Union by Laboratoires Biocodex for the treatment of Dravet syndrome. GW Pharmaceuticals
and Zogenix are marketing products for the treatment of Dravet syndrome in the United States. Aniridia therapeutic interventions,
such as artificial iris implantation, are being developed by HumanOptics AG. Our SMA collaboration with Roche and the SMA
Foundation also faces competition. For example, in December 2016, the FDA approved nusinersen, a drug developed by Ionis
Pharmaceuticals, Inc. and marketed by Biogen, to treat SMA. AveXis, Inc. is also evaluating a gene therapy product candidate for
the treatment of SMA. Other companies are also pursuing product candidates for the treatment of SMA, including Trophos (also
in collaboration with Roche), Kowa, Novartis Pharmaceuticals Corporation, and Cytokinetics.
Although the FDA has not approved a corticosteroid specifically for DMD in the United States other than Emflaza, we face
competition in the U.S. DMD market from prednisone/prednisolone, which, while not approved for DMD in the United States, is
generically available and has been prescribed off label for DMD patients.
Currently, no treatment options are available for the underlying cause of AADC deficiency, and care is limited to palliative options
with significant burden on caregivers. Additionally, we are not aware of any late-stage development product candidates for AADC
deficiency. While there is currently no treatment options available for FA, Voyager Therapeutics is also working on pre-clinical
studies for a potential gene therapy solution. Other gene therapy companies may in the future decide to utilize existing technologies
to address unmet needs that could potentially compete with our product candidates.
There are several pharmaceutical and biotechnology companies engaged in the development or commercialization of products
against targets that are also targets of Tegsedi and Waylivra. For example, if approved, Waylivra could face competition from drugs
like metreleptin. Metreleptin, produced by Novelion Therapeutics, Inc., is currently approved for use in generalized lipodystrophy
patients. Additionally, Tegsedi could face competition from drugs like patisiran and ALN-TTRsc02 in development by Alnylam,
tafamidis commercialized in some countries in LATAM by Pfizer and tolcapone in development by SOM Biotech. Further, Tegsedi
and Waylivra are delivered by injection, which may render them less attractive to patients than non-injectable products offered by
our current or future competitors. If Tegsedi or Waylivra cannot compete effectively with these and other products with common
or similar indications, we may not be able to generate substantial revenue from our product sales.
Our competitors may develop products that are more effective, safer, more convenient or less costly than any that we are marketing
or developing or that would render our products or product candidates obsolete or non-competitive. Our competitors may also
obtain marketing authorization for their products more rapidly than we may obtain approval for our products and product candidates,
which could result in our competitors establishing a strong market position before we are able to enter the market.
We believe that many competitors are attempting to develop therapeutics for the target indications of our products and product
candidates, including academic institutions, government agencies, public and private research organizations, large pharmaceutical
companies and smaller more focused companies.
Many of our competitors may have significantly greater financial resources and expertise in research and development,
manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than
we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being
concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large and established companies. These third parties compete
with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient
registration for clinical trials, as well as in acquiring technologies complementary to or necessary for our programs.
Even if we are able to commercialize Translarna for the treatment of nmDMD on a broad scale, commercialize Emflaza for
the treatment of DMD in the United States, or commercialize any other product candidate for which we may receive marketing
authorization, Translarna, Emflaza and any other product or product candidate may become subject to unfavorable pricing
regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.
We may not obtain adequate coverage or reimbursement for our products, including Emflaza and Translarna, or we may be required
to sell our products at an unsatisfactory price. In addition, obtaining pricing, coverage and reimbursement approvals can be a time
consuming and expensive process. Our business would be materially adversely affected if we do not receive these approvals on
a timely basis.
The regulations and practices that govern marketing authorizations, pricing, coverage and reimbursement for new drug products
vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways
that could involve additional costs and cause delays in obtaining approvals. Some countries, including almost all of the member
states of the EEA, require approval of the sale (list) price of a drug before it can be marketed. In many countries, the pricing review
period begins after marketing or product licensing approval is granted. In some foreign markets, including the European market,
prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As
a result, we might obtain marketing authorization for a product in a particular country, but then be subject to price regulations, in
some countries at national as well as regional levels, that delay our commercial launch of the product, possibly for lengthy time
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periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing
limitations may hinder our ability to recoup our investment in one or more products, including Emflaza and Translarna or other
product candidates, even following marketing authorization.
Our ability to successfully commercialize Translarna, Emflaza or any other product candidate that receives marketing authorization
will depend in large part on the extent to which coverage and reimbursement for these products and related treatments will be
available from government health administration authorities, private health insurers, managed health care organizations and other
third-party payors and organizations. Government authorities and other third-party payors, such as private health insurers and
managed health care organizations, decide which medications they will pay for and establish reimbursement conditions and rates.
A primary trend in the EU and U.S. healthcare industries and elsewhere is cost containment. Government authorities, including
the United States government and state legislatures, and other third-party payors have attempted to control costs by limiting
coverage and the amount of reimbursement for particular medications. Prices at which our products are reimbursed can be subject
to challenge, reduction or denial by the government and other payers. Increasingly, third-party payors are requiring that drug
companies provide them with discounts off the products’ sale (list) prices and are challenging the prices manufacturers charge for
medical products. We cannot be sure that coverage will be available for Translarna, Emflaza or any other product that we may
commercialize and, if coverage is available, the level of reimbursement is also uncertain.
Reimbursement levels may impact the demand for, or the price of, any product or product candidate for which we obtain marketing
authorization. Obtaining reimbursement for Emflaza and for Translarna has been and is expected to continue to be, particularly
difficult due to price considerations typically associated with drugs that are developed to treat conditions that affect a small
population of patients. In addition, third-party payors are likely to impose strict requirements for reimbursement of a higher priced
drug, such as prior authorization and the requirement to try other therapies first, or high co-payments which can result in patient
rejection. Decreases in third-party reimbursement for a product or a decision by a third-party payor to not cover a product could
reduce physician usage of the product, including Emflaza or Translarna. If reimbursement is not available or is available only on
a limited basis, we may not be able to successfully commercialize any product or product candidate for which we have obtained
or may obtain marketing authorization, including Emflaza or Translarna.
There may be significant delays in obtaining coverage for newly approved drugs, and coverage may be more limited than the
drug’s approved indications as determined by the applicable regulatory authority. Moreover, eligibility for reimbursement does
not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture,
sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and
may not be made permanent, and programs intended to provide patient assistance until coverage is established can be very costly.
Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on
reimbursement levels already set for lower cost drugs, and may be incorporated into existing payments for other services. Further,
coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement
status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and
reimbursement rates may be implemented in the future.
Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private
payors and by any future relaxation of laws, enforcement policies or administrative determinations that presently restrict the
importation of drugs into the United States from other countries where they may be sold at lower prices.
In the United States, third-party payors include federal health care programs, such as Medicare, Medicaid, TRICARE, and Veterans
Health Administration programs; managed care providers, private health insurers and other organizations. Several of the U.S.
federal health care programs require that drug manufacturers extend discounts or pay rebates to certain programs in order for their
products to be covered and reimbursed. For example, the Medicaid Drug Rebate Program requires pharmaceutical manufacturers
of covered outpatient drugs to enter into and have in effect a national rebate agreement with the federal government as a condition
for coverage of the manufacturer’s covered outpatient drug(s) by state Medicaid programs. The amount of the rebate for each
product is based on a statutory formula and may be subject to an additional discount if certain pricing increases more than inflation.
State Medicaid programs and Medicaid managed care plans can seek additional “supplemental” rebates from manufacturers in
connection with states’ establishment of preferred drug lists. A further requirement for Medicaid coverage is that the manufacturer
enter into a Federal Supply Schedule (FSS) agreement with the Secretary for Veterans Affairs to extend discounted pricing to the
Veterans Health Administration.
Similarly, in order for a covered outpatient drug to receive federal reimbursement under the Medicare Part B and Medicaid programs
or to be sold directly to U.S. government agencies, the manufacturer must extend discounts on the covered outpatient drug to
entities that are enrolled and participating in the 340B drug pricing program, which is a federal program that requires manufacturers
to provide discounts to certain statutorily-defined safety-net providers. The 340B discount for each product is calculated based
on certain Medicaid Drug Rebate Program metrics that manufacturers are required to report to CMS.
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Emflaza is also eligible for reimbursement under the Medicare Part D program. Under Part D, Medicare beneficiaries may enroll
in prescription drug plans offered by private entities, which will provide coverage of outpatient prescription drugs. Part D
prescription drug formularies are required to include drugs within each therapeutic category and class of covered Part D drugs,
though not necessarily all the drugs in each category or class. Any negotiated prices for our products covered by a Part D prescription
drug plan likely will be lower than the prices we might otherwise obtain. Further, CMS is proposing to relax Part D coverage
requirements to give plans more leverage in negotiating their formularies.
In addition, U.S. private health insurers often rely upon Medicare coverage policies and payment limitations in setting their own
coverage and reimbursement policies. Any such coverage or payment limitations may result in a similar reduction in payments
from non-governmental payors. Payment by private payors is also subject to payor-determined coverage and reimbursement
policies that vary considerably and are subject to change without notice. We expect that coverage and reimbursement of Emflaza
in the United States will vary from commercial payor to commercial payor. Many commercial payors, such as managed care plans,
manage access to prescription drugs partly to control costs to their plans, and may use drug formularies and medical policies to
limit their exposure. Exclusion from policies can directly reduce product usage in the payor’s patient population and may negatively
impact utilization in other payor plans, as well.
There has been recent negative publicity and increasing legislative and public scrutiny around pharmaceutical drug pricing in the
U.S., in particular with respect to orphan drugs and specifically with respect to Emflaza. Moreover, U.S. government authorities
and third-party payors are increasingly attempting to limit or regulate drug prices and reimbursement, often with particular focus
on orphan drugs. These dynamics may give rise to heightened attention and potential negative reactions to pricing decisions for
Emflaza and products for which we may receive regulatory approval in the future, possibly limiting our ability to generate revenue
and attain profitability.
Moreover, in 2017, the U.S. Congress modified and amended certain provisions of the 2010 U.S. healthcare reform legislation
(the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of
2010, known collectively as the Affordable Care Act), which could have an impact on coverage and reimbursement for healthcare
items and services covered by the federal and state healthcare programs as well as plans in the private health insurance market.
The so-called “individual mandate” was repealed as part of tax reform legislation adopted in December 2017. There are legal
challenges to the Affordable Care Act pending and the Trump Administration and the U.S. Congress may continue to seek to
modify, repeal, or otherwise invalidate all, or certain provisions of the Affordable Care Act. We cannot assure that the Affordable
Care Act, as currently enacted or as amended in the future, will not adversely affect our business and financial results and we
cannot predict how future federal or state legislative or administrative changes relating to healthcare reform will affect our business.
In the European Union, reference pricing systems and other measures may lead to cost containment and reduced prices with respect
to Translarna for the treatment of nmDMD and other product candidates that might receive marketing authorization in the future.
Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for our
product or any of our product candidates that may receive marketing authorization, or a reduction in coverage for payment rates
for our product or any such product candidates, could have a material adverse effect on our business, results of operations and
financial condition. In addition, in the European Union, an authorized trader, such as a wholesaler, can purchase a medicine in one
EU member state and obtain a license to import the product into another EU member state. This process is called “parallel
distribution”. As a result, a purchaser in one EU member state may seek to import Translarna from another EU member state where
Translarna is sold at a lower price. This could have a negative impact on our business, financial condition, results of operations
and growth.
Similarly, sales of Emflaza in the United States could also be reduced if deflazacort is imported into the United States from lower-
priced markets, whether legally or illegally. For example, in the United States, prices for pharmaceuticals are generally higher
than in the bordering nations of Mexico and Canada. There have been proposals to legalize the import of pharmaceuticals from
outside the United States. If such legislation were enacted, our revenues from Emflaza could be reduced, and our business, results
of operations and financial condition could be materially adversely affected.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception and based on our current commercial, research and development plans,
we expect to continue to incur significant operating expenses for the foreseeable future. We may never generate profits from
operations or maintain profitability.
Since inception, we have incurred significant operating losses. As of December 31, 2018, we had an accumulated deficit of $938.9
million. We have historically financed our operations primarily through the issuance and sale of our common stock in public
offerings, the private placements of our preferred stock, collaborations, bank debt, convertible debt financings, and grants and
clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed
by our product and product candidates. Since 2014, we have also relied on revenues generated from net sales of Translarna for
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the treatment of nmDMD in territories outside of the United States, and in May 2017, we began to recognize revenue generated
from net sales of Emflaza for the treatment of DMD in the United States. Based on our current commercial, research and development
plans, we expect to continue to incur significant operating expenses for the foreseeable future, which we anticipate will be partially
offset by revenues generated from the sale of both Translarna and Emflaza. We expect to continue to generate operating losses
through 2019 and, while we anticipate that operating losses generated in future periods should decline versus prior periods, we
may never generate profits from operations or maintain profitability. The net losses we incur may fluctuate significantly from
quarter to quarter.
On April 20, 2017, we acquired all rights to Emflaza. Upfront consideration for the acquisition was comprised of $75 million in
cash, funded through cash on hand, and 6,683,598 shares of our common stock. In addition, we expect to incur significant costs
in connection with liabilities we assumed as part of the acquisition, including the obligation to complete certain post-marketing
requirements in connection with the Emflaza marketing authorization.
On August 23, 2018, we completed our acquisition of Agilis. Upfront consideration was comprised of $49.2 million in cash
and 3,500,907 shares of our common stock. Agilis equityholders may become entitled to receive contingent payments from us
based on the achievement of certain development, regulatory and net sales milestones as well as based upon a percentage of net
sales of certain products. Additionally, we are required to pay $40.0 million of the development milestone payments no later than
the second anniversary of the closing of the acquisition, regardless of whether the applicable milestones have been achieved.
Our current ability to generate revenue from sales of Translarna is dependent upon our ability to maintain our marketing
authorization in the EEA of Translarna for the treatment of nmDMD in ambulatory patients aged two years and older. The marketing
authorization in the EEA is subject to annual review and renewal by the European Commission following reassessment by the
EMA of the benefit-risk balance of the authorization and is further subject to a specific obligation to conduct and report the results
of Study 041, a multi-center, randomized, double-blind, 18-month, placebo-controlled trial, followed by an 18-month open-label
extension, according to an agreed protocol, in order to confirm the efficacy and safety of Translarna. Enrolling, conducting and
reporting a clinical trial is a time-consuming, expensive and uncertain process that takes years to complete, and we expect that
we will incur material costs related to the implementation and conduct of Study 041. In addition, it is likely that we will enroll
patients in Study 041 in countries where Translarna for the treatment of nmDMD is currently available on a reimbursed basis,
which could negatively impact growth in our net product sales. We may experience unknown complications with Study 041 and
may not achieve the pre-specified endpoint with statistical significance, which would have a material adverse effect on our ability
to maintain our marketing authorization in the EEA.
If, in any annual renewal cycle, the EMA determines that the balance of benefits and risks of using Translarna for the treatment
of nmDMD has changed materially or that we have not or are unable to comply with the specific obligation to complete Study
041 or any other requirement that has been or may be placed on the marketing authorization, the European Commission could, at
the EMA’s recommendation, vary, suspend, withdraw or refuse to renew the marketing authorization for Translarna or impose
other specific obligations or restrictions, which would have a materially adverse effect on our business. We expect to incur significant
costs in connection with our efforts to maintain our marketing authorization in the EEA. If our marketing authorization in the EEA
is not renewed, or our product label is materially restricted, we would lose all, or a significant portion of, our ability to generate
revenue from sales of Translarna, whether pursuant to a commercial or a reimbursed early access program, or EAP program, and
throughout all territories. For additional information, see the risk factor under “Risks Related to Regulatory Approval of our
Products and our Product Candidates” titled, “Our marketing authorization in the EEA for Translarna for the treatment of nmDMD
is a “conditional marketing authorization” that requires annual review and renewal by the European Commission following
reassessment by the EMA of the benefit-risk balance of the authorization and is further conditioned upon our ability to satisfy the
specific obligation to conduct and report the results of Study 041 by September 2021, and, as such, there is ongoing risk that we
may be unable to maintain such authorization. If we are unable to obtain renewal of such marketing authorization in any future
renewal cycle, we would lose all, or a significant portion of, our ability to generate revenue from sales of Translarna, whether
pursuant to a commercial or an EAP program, and throughout all territories, which would have a material adverse effect on our
business, financial performance and results of operations."
We also expect that our efforts to advance Translarna for the treatment of nmDMD in the United States will be time-consuming
and may be expensive. For additional information, see the risk factor under “Risks Related to Development and Commercialization
of our Products and our Product Candidates” titled, “If there are delays in obtaining regulatory approval in the United States, we
will not be able to commercialize Translarna for nmDMD in that territory and our ability to generate revenue will be materially
impaired. In the event that the FDA requires us to conduct a new clinical trial in nmDMD which, if successful, may enable FDA
review of an NDA submission by us, we would expect to incur significant costs, which may have a material adverse effect on our
business and results of operations.”
We anticipate that our expenses will continue to increase in connection with our commercialization efforts in the United States,
the EEA, Latin America and other territories, including the expansion of our infrastructure and corresponding sales and marketing,
legal and regulatory, distribution and manufacturing and administrative and employee-based expenses. In addition to the foregoing,
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we expect to continue to incur significant costs in connection with Study 041 and Study 045 and our open label extension trials
of Translarna for the treatment of nmDMD as well as our studies for nonsense mutation aniridia and nonsense mutation Dravet
syndrome/CDKL5 and our FDA post-marketing requirements with respect to Emflaza in the United States and our studies for
limb-girdle 2I. We also expect to incur ongoing research and development expenses for our other product candidates, including
our gene therapy, splicing and oncology programs. In addition, we may incur substantial costs in connection with our efforts to
advance our regulatory submissions. We have begun seeking and intend to continue to seek marketing authorization for Translarna
for the treatment of nmDMD in territories outside of the EEA and we may also seek marketing authorization for Translarna for
other indications. In late 2019, we plan to submit a request for marketing authorization for PTC-AADC with the FDA followed
by a submission for marketing authorization to the EMA and we recently submitted a request for marketing authorization for
Tegsedi with ANVISA. These efforts may significantly impact the timing and extent of our commercialization expenses.
In addition, the clinical and regulatory developments noted in this risk factor may exacerbate the risks related to our
commercialization efforts set forth under the heading “Risks Related to the Development and Commercialization of our Products
and our Product Candidates,” which could increase the costs associated with our commercial activities or have a negative impact
on our revenues. For additional information, see also “Risks Related to the Regulation of our Products and our Product Candidates”
“Commercialization of Translarna has been in, and is expected to continue to take place in, countries that tend to impose strict
price controls, which may adversely affect our revenues. Failure to obtain and maintain acceptable pricing and reimbursement
terms for Translarna for the treatment of nmDMD in the EEA and other countries where Translarna is available would delay or
prevent us from marketing our product in such regions, which would adversely affect our anticipated revenue, growth and business.”
We may seek to continue to expand and diversify our product pipeline through opportunistically in-licensing or acquiring the
rights to products, product candidates or technologies and we may incur expenses, including with respect to transaction costs,
subsequent development costs or any upfront, milestone or other payments or other financial obligations associated with any such
transaction, which would increase our future capital requirements.
With respect to our outstanding 3.00% convertible senior notes due August 15, 2022, or the Convertible Notes, cash interest
payments are payable on a semi-annual basis in arrears, which will require total funding of $4.5 million annually. Additionally,
under the terms of our credit and security agreement with MidCap Financial Trust, cash interest payments are payable monthly
in arrears.
In addition, our expenses will increase if and as we:
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seek to integrate Agilis's operations and employees into our business and seek to satisfy contractual and regulatory
obligations we assumed in connection with the Agilis acquisition;
seek to satisfy contractual and regulatory obligations in conjunction with the Akcea Agreement, including the potential
commercialization of Tegsedi and Waylivra in Latin America and the Caribbean, or the PTC Territory;
execute our strategy for Emflaza in the United States, including commercialization efforts;
satisfy contractual and regulatory obligations that we assumed through the Emflaza acquisition;
are required to complete any additional clinical trials, non-clinical studies or CMC assessments or analyses in order to
advance Translarna for the treatment of nmDMD in the United States or elsewhere;
are required to take other steps, in addition to Study 041, to maintain our current marketing authorization in the EEA
for Translarna for the treatment of nmDMD or to obtain further marketing authorizations for Translarna for the treatment
of nmDMD or other indications;
initiate or continue the research and development of Translarna and Emflaza for additional indications and of our other
product candidates, including for our gene therapy, splicing and oncology programs;
seek to discover and develop additional product candidates;
seek to expand and diversify our product pipeline through strategic transactions;
• maintain, expand and protect our intellectual property portfolio; and
•
add operational, financial and management information systems and personnel, including personnel to support our
product development and commercialization efforts.
Our ability to generate profits from operations and become and remain profitable depends on our ability to successfully develop
and commercialize drugs that generate significant revenue. This will require us to be successful in a range of challenging activities,
including:
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commercializing and marketing Emflaza for the treatment of DMD in the United States;
negotiating, securing, and maintaining adequate pricing, coverage and reimbursement terms, on a timely basis, with
third-party payors for Emflaza for the treatment of DMD in the United States and for Translarna for the treatment of
nmDMD in the EEA and other territories outside of the United States;
• maintaining orphan exclusivity for Emflaza and successfully completing all FDA post-marketing requirements with
respect to Emflaza;
• maintaining the marketing authorization of Translarna for the treatment of nmDMD in the EEA, including successfully
obtaining annual renewals of the marketing authorization, fulfilling the specific obligation to conduct and report the
results of Study 041 to the EMA, and meeting any ongoing requirements related to the marketing authorization;
•
advancing Translarna for the treatment of nmDMD in the United States, including, whether we will be required to
perform additional clinical trials, non-clinical studies or CMC assessments or analyses at significant cost which, if
successful, may enable FDA review of an NDA submission by us and, ultimately, may support approval of Translarna
for nmDMD in the United States;
•
expanding the territories in which we are approved to market Translarna for the treatment of nmDMD;
• minimizing the enrollment impact of Study 041 on commercialization efforts for Translarna for nmDMD;
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commercializing and marketing Tegsedi and Waylivra in the PTC Territory;
developing Translarna and Emflaza for the treatment of additional indications, including nonsense mutation aniridia,
nonsense mutation Dravet syndrome/CDKL5 and limb-girdle 2I and successfully advancing our other programs and
collaborations, including our gene therapy, splicing and oncology programs;
establishing a global commercial infrastructure, including the sales, marketing and distribution capabilities to effectively
market and sell Translarna for the treatment of nmDMD in the EEA and other parts of the world;
implementing marketing and distribution relationships with third parties in territories where we do not pursue direct
commercialization;
launching commercial sales of Translarna for the treatment of nmDMD in accordance with our estimated timeline;
identifying patients eligible for treatment with our products and product candidates;
obtaining approval to market Translarna and Emflaza for the treatment of other indications;
expanding the approved product label of Translarna for the treatment of nmDMD;
successfully developing or commercializing any product candidate or product that we may in-license or acquire;
protecting our rights to our intellectual property portfolio related to Translarna; and
contracting for the manufacture and distribution of commercial quantities of Translarna, Emflaza and other product
candidates.
We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to generate
profits from operations. Even if we do generate profits from operations, we may not be able to sustain or increase profitability on
a quarterly or annual basis. Our failure to generate profits from operations and remain profitable would decrease the value of our
company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify
our product offerings or continue our operations. A decline in the value of our company could also cause our stockholders to lose
all or part of their investment in our company.
We may need additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate
our product development programs or commercialization efforts.
As noted in the prior risk factor, we expect to incur significant expenses related to our clinical, regulatory, commercial, legal,
research and development, and other business efforts. We believe that our cash flows from product sales, together with existing
cash and cash equivalents, including the net proceeds from our term loan facility with MidCap Financial, our Convertible Note
offering, public offerings of common stock, marketable securities and research funding that we expect to receive under our
collaborations, will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next twelve
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months. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner
than we currently expect.
Our future capital requirements will depend on many factors, including:
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our ability to commercialize and market Emflaza for the treatment of DMD in the United States;
our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms, on a timely basis,
with third-party payors for Emflaza for the treatment of DMD in the United States and for Translarna for the treatment
of nmDMD in the EEA and other territories outside of the United States;
our ability to maintain orphan exclusivity for, and successfully complete all FDA post-marketing requirements with
respect to, Emflaza;
our ability to maintain the marketing authorization in the EEA for Translarna for the treatment of nmDMD, including
whether the EMA determines on an annual basis that the benefit-risk balance of Translarna supports renewal of our
marketing authorization in the EEA, on the current approved label;
the costs, timing and outcome of Study 041;
the costs, timing and outcome of our efforts to advance Translarna for the treatment of nmDMD in the United States,
including, whether we will be required to perform additional clinical trials, non-clinical studies or CMC assessments
or analyses at significant cost which, if successful, may enable FDA review of an NDA submission by us and,
ultimately, may support approval of Translarna for nmDMD in the United States;
our ability to commercialize and market Tegsedi and Waylivra in the PTC Territory;
the progress and results of our open label extension clinical trials of Translarna for the treatment of nmDMD as well
as our studies for nonsense mutation aniridia and nonsense mutation Dravet syndrome/CDKL5 and activities under
our gene therapy and oncology programs;
the scope, costs and timing of our commercialization activities, including product sales, marketing, legal, regulatory,
distribution and manufacturing, for both Emflaza for the treatment of DMD and Translarna for the treatment of
nmDMD, for Tegsedi, for Waylivra and for any of our other product candidates that may receive marketing
authorization or any additional indications or territories in which we receive authorization to market Translarna;
the costs, timing and outcome of regulatory review of our other product candidates, including those in our gene
therapy and oncology programs, and Translarna in other territories or for indications other than nmDMD;
our ability to satisfy our obligations under the terms of the Credit Agreement with MidCap Financial;
the timing and scope of growth in our employee base;
the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for Translarna
and Emflaza for additional indications and for our other product candidates, including those in our gene therapy and
oncology programs;
revenue received from commercial sales of Translarna, Emflaza, Tegsedi, Waylivra, or any of our other product
candidates;
our ability to obtain additional and maintain existing reimbursed named patient and cohort EAP programs for
Translarna for the treatment of nmDMD on adequate terms, or at all;
the ability and willingness of patients and healthcare professionals to access Translarna through alternative means
if pricing and reimbursement negotiations in the applicable territory do not have a positive outcome;
the costs of preparing, filing and prosecuting patent applications, maintaining, and protecting our intellectual property
rights and defending against intellectual property-related claims;
the extent to which we acquire or invest in other businesses, products, product candidates, and technologies, including
the success of any acquisition, in-licensing or other strategic transaction we may pursue, and the costs of subsequent
development requirements and commercialization efforts, including with respect to our acquisition of Emflaza, our
acquisition of Agilis, and our licensing of Tegsedi and Waylivra; and
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our ability to establish and maintain collaborations, including our collaborations with Roche and the SMA Foundation,
and our ability to obtain research funding and achieve milestones under these agreements.
Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete,
and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales for
certain product candidates or indications. In addition, our products and product candidates, if approved, may not achieve commercial
success, including Translarna for the treatment of nmDMD and Emflaza for the treatment of DMD.
To date almost all of our product revenue has been attributable to sales of Translarna for the treatment of nmDMD in territories
outside of the United States. We are continuing to engage in significant commercialization efforts for this product. In order to
continue sales and our commercial launch of Translarna, we must maintain our marketing authorization in the EEA and secure
market access through commercial programs following the conclusion of pricing and reimbursement terms at sustainable levels
in the member states of the EEA or through EAP programs in the EEA and other territories. Although we have begun to
commercialize and market Emflaza in the United States, to date, we have not generated significant revenue from Emflaza. Our
ability to generate product revenue from Emflaza will largely depend on the coverage and reimbursement levels set by governmental
authorities, private health insurers and other third-party payors.
Other commercial revenue, if any, would be derived from product acquisitions or, if none, from sales of products that we are not
planning to have commercially available for several years, if at all. If our marketing authorization for Translarna in the EEA is
not renewed, or our product label is materially restricted, we would lose all, or a significant portion of, our ability to generate
revenue from sales of Translarna for the treatment of nmDMD, whether pursuant to a commercial or an EAP program and throughout
all territories. Likewise, if we fail to maintain our marketing authorization for Emflaza in the United States or lose the non-patent
market exclusivity for Emflaza, we will be unable to commercialize and generate revenue from sales of that product.
Accordingly, we may need to continue to rely on additional financing in connection with our continuing operations and to achieve
our business objectives. In addition, we may seek additional capital due to favorable market conditions or based on strategic
considerations, even if we believe that we have sufficient funds for our current or future operating plans. Additional financing
may not be available to us on acceptable terms or at all. If we are unable to raise capital when needed or on attractive terms, we
could be forced to delay, reduce or eliminate our research and development programs or our commercialization efforts.
Our indebtedness resulting from our credit and security agreement with MidCap Financial Trust could adversely affect our
financial condition or restrict our future operations.
On May 5, 2017, we entered into a credit and security agreement with Midcap Financial Trust, a Delaware statutory trust, or
MidCap Financial, as administrative agent and MidCap Financial and other certain institutions as lenders thereto, or the Credit
Agreement, that provides for a senior secured term loan facility of $60 million, of which $40 million was drawn by us on May 5,
2017. Our ability to draw on the remaining $20 million under the senior secured term loan facility expired on December 31, 2018.
The maturity date of the Credit Agreement is May 1, 2021, unless terminated earlier.
Borrowings under the Credit Agreement bear interest at a rate per annum equal to LIBOR (with a LIBOR floor rate of 1.00%)
plus 6.15%. The Credit Agreement requires us to not have less than $100 million of net revenue for the prior twelve months to be
measured on the last day of each fiscal quarter beginning on December 31, 2017.
Additionally, subject to customary exceptions and exclusions, all obligations under the Credit Agreement are secured pursuant to
the terms of the Credit Agreement, a Pledge Agreement between us, certain of our subsidiaries, and Midcap Financial, or the
Pledge Agreement, and an Intellectual Property and Security Agreement between us and Midcap Financial, or the IP Security
Agreement, each dated May 5, 2017. Under the Credit Agreement, the Pledge Agreement, and the IP Security Agreement, we
provided to Midcap Financial and the other lenders (i) a perfected, first-priority security interest in all of our personal property,
(ii) a perfected, first-priority security interest in all of our intellectual property (except that this security interest will not be perfected
in intellectual property located outside the United States unless our cash position falls below a pre-specified threshold), and (iii)
a perfected, first-priority pledge of 65% of the equity ownership interests directly held by us in our wholly owned subsidiary, PTC
Therapeutics Holdings (Bermuda) Corp. Limited.
A failure to comply with the conditions of our Credit Agreement could result in an event of default. An event of default under the
Credit Agreement includes, among other things, a failure to pay any amount due under the Credit Agreement as well as the
occurrence of events that could reasonably be expected to result in a material adverse effect, including if we were to fail to maintain
our marketing authorization for Translarna for the treatment of nmDMD in the EEA or if the FDA were to withdraw any of our
products from the market, including Emflaza for the treatment of DMD in the United States.
In the event of an acceleration of amounts due under our Credit Agreement as a result of an event of default, we may not have
sufficient funds or may be unable to arrange for additional financing to repay the term loans or to make any accelerated payments,
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and the lenders could seek to enforce security interests in the collateral securing the term loans, which would have a material
adverse effect on our business, financial condition and results of operations.
In addition, our indebtedness under the Credit Agreement could have significant adverse consequences, including, among other
things:
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requiring us to dedicate a substantial portion of cash and cash equivalents and marketable securities to the payment of
interest on, and principal of, the term loans, which will reduce the amounts available to fund working capital, capital
expenditures, product development efforts and other general corporate purposes;
obligating us to negative covenants restricting our activities, including limitations on dispositions, mergers or acquisitions,
encumbering our intellectual property, incurring indebtedness or liens, paying dividends, making investments and
engaging in certain other business transactions;
limiting our flexibility in planning for, or reacting to, changes in our business and our industry;
placing us at a competitive disadvantage compared to our competitors who have less debt or competitors with comparable
debt at more favorable interest rates; and
limiting our ability to borrow additional amounts for working capital, capital expenditures, research and development
efforts, acquisitions, debt service requirements, execution of our business strategy and other purposes.
Any of these factors could materially and adversely affect our business, financial condition and results of operations.
We may engage in strategic transactions to acquire assets, businesses, or rights to products, product candidates or technologies
or form collaborations or make investments in other companies or technologies that could harm our operating results, dilute
our stockholders’ ownership, increase our debt, or cause us to incur significant expense.
As part of our business strategy, we may engage in additional strategic transactions to expand and diversify our product pipeline,
including through the acquisition of assets, businesses, or rights to products, product candidates or technologies or through strategic
alliances or collaborations, similar to our acquisitions of Agilis and Emflaza and our collaboration and license agreement with
Akcea. We may not identify suitable strategic transactions, or complete such transactions in a timely manner, on a cost-effective
basis, or at all. Moreover, we may devote resources to potential opportunities that are never completed or we may incorrectly
judge the value or worth of such opportunities. Even if we successfully execute a strategic transaction, we may not be able to
realize the anticipated benefits of such transaction, may incur additional debt or assume unknown or contingent liabilities in
connection therewith, and may experience losses related to our investments in such transactions. Integration of an acquired company
or assets into our existing business may not be successful and may disrupt ongoing operations, require the hiring of additional
personnel and the implementation of additional internal systems and infrastructure, and require management resources that would
otherwise focus on developing our existing business. Even if we are able to achieve the long-term benefits of a strategic transaction,
our expenses and short-term costs may increase materially and adversely affect our liquidity. Any of the foregoing could have a
detrimental effect on our business, results of operations and financial condition.
In addition, future strategic transactions may entail numerous operational, financial and legal risks, including:
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incurrence of substantial debt, dilutive issuances of securities or depletion of cash to pay for acquisitions;
exposure to known and unknown liabilities, including possible intellectual property infringement claims, violations of
laws, tax liabilities and commercial disputes;
higher than expected acquisition and integration costs;
difficulty in integrating operations and personnel of any acquired business;
increased amortization expenses or, in the event that we write-down the value of acquired assets, impairment losses;
impairment of relationships with key suppliers or customers of any acquired business due to changes in management and
ownership;
inability to retain personnel, customers, distributors, vendors and other business partners integral to an in-licensed or
acquired product, product candidate or technology;
potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or
challenges;
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entry into indications or markets in which we have no or limited direct prior development or commercial experience and
where competitors in such markets have stronger market positions; and
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other challenges associated with managing an increasingly diversified business.
If we are unable to successfully manage any strategic transaction in which we may engage, our ability to develop new products
and continue to expand and diversify our product pipeline may be limited.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to
our technologies or product candidates.
Until such time, if ever, as we can generate enough product revenues to cover our expenses, we expect to supplement our cash
needs through a combination of equity offerings; debt financings; collaborations; strategic alliances; grants and clinical trial support
from governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed by our product
candidates; and marketing, distribution or licensing arrangements.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, our shareholders’ ownership
interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the
rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring additional debt, entering into agreements involving licenses to our
intellectual property, making capital expenditures or declaring dividends.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with
third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product
candidates; or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or
debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future
commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and
market ourselves.
Our ability to use our net operating losses and certain other tax attributes to offset potential taxable income and related income
taxes that would otherwise be due is subject to limitation under the provisions of Sections 382 and 383 of the Code as a result
of ownership changes of the Company and could be subject to further annual limitations under such provisions. In addition,
we may not generate sufficient future taxable income to use our net operating losses and certain other tax attributes.
If a corporation undergoes an “ownership change” within the meaning of Sections 382 and 383 of the Internal Revenue Code, or
Sections 382 and 383, the corporation’s ability to utilize any net operating losses, or NOLs, and certain tax credits and other tax
attributes generated before such an ownership change, is limited. We believe that we have in the past experienced ownership
changes within the meaning of Sections 382 and 383 that have resulted in limitations under Sections 382 and 383 (and similar
state provisions) on the use of our NOLs and other tax attributes.
Sections 382 and 383 of the Code are extremely complex provisions with respect to which there are many uncertainties, and we
have not requested a ruling from the IRS to confirm our analysis of the ownership change limitations related to the NOLs generated
by us. Therefore, we have not established whether the IRS would agree with our analysis regarding the application of Section 382
and 383 of the Code. Our public offerings of common stock in April 2018 and January 2019 (including the shares issued in February
2019 upon exercise by the underwriter of its option to purchase additional shares) and the common shares issued to Agilis as a
result of being acquired by us in August 2018 may put us closer to another ownership change for purposes of Section 382. We
continue to fully evaluate the impact of a Section 382 limitation on the use of our NOLs and other tax attributes.
Moreover, our ability to use these NOLs to offset potential future taxable income and related income taxes that would otherwise
be due is dependent upon our generation of future taxable income. In addition, under the 2017 Tax Cuts and Jobs Act (the 2017
Tax Act) enacted on December 22, 2017, the deductibility of federal net operating losses incurred in 2018 and in future years
generally is limited to 80% of taxable income for each taxable year, although such losses may be carried forward indefinitely.
Therefore, we cannot predict with certainty when, or whether the Company will generate sufficient taxable income to use all of
our NOLs.
Changes in our effective income tax rates and the 2017 Tax Act and future changes to U.S. and non-U.S. tax laws could
adversely affect our results of operations.
We are subject to income taxes in the Unites States and various foreign jurisdictions. Taxes will be incurred as income is earned
among these different jurisdictions. Various factors may have favorable or unfavorable effects on our effective income tax rate.
These factors include, but are not limited to, interpretations of existing tax laws, changes in tax laws and rates, the accounting for
stock options and other share-based compensation, changes in accounting standards, future levels of research and development
spending, changes in the mix and level of pre-tax earnings by taxing jurisdiction, the outcome of examinations by the U.S. Internal
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Revenue Service and other jurisdictions, the accuracy of our estimates for unrecognized tax benefits, the realization of deferred
tax assets, or by changes to our ownership or capital structure. The impact on our income tax provision resulting from the above-
mentioned factors and others may be significant and could adversely affect our results of operations.
In October 2015, the OECD published “final reports” and launched a global dialogue among member and non-member countries
on measures to limit harmful tax competition. These measures are largely directed at counteracting the effects of preferential tax
regimes in countries around the world. The measures have, among other things, resulted in the development of a multilateral
instrument, or MLI, to incorporate and facilitate changes to tax treaties. In June 2017, a number of countries signed the MLI. In
addition, in January 2016, the EU Commission announced an Anti-Tax Avoidance Package containing measures to regulate certain
elements of tax planning further and to boost tax transparency for consideration by the European Parliament and Council. In July
2016, the Economic and Financial Affairs Council adopted a Council Directive forming part of the EU Anti-Tax Avoidance Package
and building upon the OECD BEPS recommendations. EU Member States are required to implement the directive into their
domestic laws by December 31, 2018 (or December 31, 2019 in the case of provisions on exit taxation). Further changes, including
to the directive, have been proposed as part of an EU corporate tax reform package published in October 2016.
Changes arising from any proposals introduced in connections with the possible new OECD and EU measures could have material
adverse consequences on our effective tax rate, the amount of tax we pay and on our financial position and results of operations.
Additionally, in the United States, the 2017 Tax Act was enacted on December 22, 2017, making significant changes to the U.S.
corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21%, the elimination or
reduction of certain domestic deductions and credits and limitations on the deductibility of interest expense and executive
compensation. The 2017 Tax Act also transitions international taxation from a worldwide system to a modified territorial system
and includes base erosion prevention measures on non-U.S. earnings, which has the effect of subjecting certain earnings of our
foreign subsidiaries to U.S. taxation as global intangible low-taxed income (GILTI). These changes became effective in January
2018. The U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly
impact how we will apply the law. The effect of the 2017 Tax Act will differ across the states. Many states have enacted new
legislation in response to the federal tax reform law. As a result of the reduction in the U.S. corporate income tax rate, we revalued
our ending net deferred tax assets as of December 31, 2017. In the fourth quarter of 2018, we completed our analysis to determine
the effect of the Tax Act and recorded no further adjustments.
Although we monitor actual and potential changes to the tax laws in the United States and other jurisdictions, it is very difficult
to assess to what extent these changes may impact the way in which we conduct our business or our effective tax rate due to the
unpredictability and interdependency of these changes. Changes in tax laws and related regulations and practices could have a
material adverse effect on our business operations, cash flows, effective tax rate, financial position and results of operations.
Risks Related to Regulatory Approval of our Products and our Product Candidates
Our marketing authorization in the EEA for Translarna for the treatment of nmDMD is a “conditional marketing authorization”
that requires annual review and renewal by the European Commission following reassessment by the EMA of the benefit-risk
balance of the authorization and is further conditioned upon our ability to satisfy the specific obligation to conduct and report
the results of Study 041 by September 2021, and, as such, there is ongoing risk that we may be unable to maintain such
authorization. If we are unable to obtain renewal of such marketing authorization in any future renewal cycle, we would lose
all, or a significant portion of, our ability to generate revenue from sales of Translarna, whether pursuant to a commercial or
an EAP program and throughout all territories, which would have a material adverse effect on our business, financial
performance and results of operations.
Conditional marketing authorizations based on incomplete clinical data, including our marketing authorization for Translarna for
the treatment of nmDMD, may be granted in the EEA for a limited number of listed medicinal products for human use, including
products designated as orphan medicinal products under EU law, if (1) the EMA determines that the benefit-risk balance of the
product is positive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data,
(3) unmet medical needs will be fulfilled and (4) the benefit to public health of the immediate availability on the market of the
medicinal product outweighs the risk inherent in the fact that additional data are still required. Specific obligations or conditions,
including with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data,
may be specified in the conditional marketing authorization. Conditional marketing authorizations are only valid for one year, and
must be renewed annually by the European Commission after an assessment by the EMA of the ongoing positive benefit-risk
balance in favor of continued authorization and the need for additional or modified conditions.
We received initial marketing authorization for Translarna for the treatment of nmDMD in ambulatory patients aged five years
and older from the European Commission in August 2014 as a “conditional marketing authorization.” In July 2018, the European
Commission approved a label-extension request to our marketing authorization for Translarna in the EEA to include patients from
two to up to five years of age. The marketing authorization is subject to annual review and renewal by the European Commission
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following reassessment by the EMA of the benefit-risk balance of the authorization and is further conditioned upon our satisfaction
of the specific obligation to conduct and submit the results of Study 041 by September 2021 to the EMA. Due to enrollment at a
slower pace in certain countries than initially expected, in our February 2019 marketing authorization renewal request, we asked
the EMA to extend the timeframe for submission of the results of Study 041 to the EMA to the end of the third quarter of 2022.
We expect that as part of the annual EMA assessment, the EMA will consider the ongoing status of Study 041. We are also required
to implement measures, including pharmacovigilance plans, which are detailed in the risk management plan.
Our marketing authorization was previously conditioned upon our submission to the EMA of the final efficacy and safety report
from ACT DMD during 2015. Although we have fulfilled the condition to submit the ACT DMD report to the EMA, that trial did
not meet the primary efficacy endpoint of change from baseline at week 48 in distance walked in the 6-minute walk test. The EMA
and European Commission did not approve our request for full marketing authorization of Translarna for the treatment of nmDMD
and, instead, approved the renewal of our conditional marketing authorization with the specific obligation to confirm the efficacy
and safety of Translarna for the treatment of nmDMD in ambulatory patients aged 5 years or older via Study 041.
Enrolling, conducting and reporting a clinical trial is a time-consuming, expensive and uncertain process that takes years to
complete, and we expect that we will incur material costs related to the implementation and conduct of Study 041. We expect that
conducting a placebo-controlled trial in nmDMD of this size will be challenging and it is probable that we will enroll patients in
territories where Translarna has already become available on a reimbursed basis. We may enroll patients in countries with a different
standard of care for nmDMD patients or at clinical trial sites that are inexperienced with clinical trials in general, or specifically
with nmDMD trials. In addition, we may experience unknown complications with Study 041 and may not achieve the pre-specified
endpoint with statistical significance, which would have a materially adverse effect on our ability to maintain our marketing
authorization in the EEA.
If we fail to satisfy our obligations under the marketing authorization, or if it is determined in any annual renewal cycle that the
balance of benefits and risks of using Translarna has changed materially, the European Commission could, at the EMA’s
recommendation, vary, suspend, withdraw or refuse to renew the marketing authorization for Translarna. The EMA may also
impose other new conditions to our marketing authorization (in addition to Study 041), and may make other recommendations,
including new label restrictions. In the event that we do secure annual renewal of the marketing authorization for any given annual
renewal cycle, the EMA could nevertheless later determine that we have not complied, or are unable to comply, with any conditions
that have been or may be placed on the marketing authorization, including those related to Study 041, which could result in the
withdrawal of our marketing authorization or other outcome that would have a materially adverse effect on our business, results
of operations and financial condition.
If our marketing authorization in the EEA is not renewed, or our product label is materially restricted, we would lose all, or a
significant portion of, our ability to generate revenue from sales of Translarna, whether pursuant to a commercial or an EAP
program and throughout all territories, which would have a material adverse effect on our business, results of operations and
financial condition.
If we are not able to comply with applicable laws and regulations for our products or product candidates, we will not be able
to obtain or maintain product approvals and commercialize our product or product candidates, and our ability to generate
revenue will be materially impaired.
Translarna, Emflaza, and our product candidates, and the activities associated with their development and commercialization,
including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion,
sale and distribution, are subject to comprehensive regulation by the FDA and EMA (and/or by EEA member state authorities)
and by comparable authorities in other countries, including ANVISA where we have recently submitted marketing authorization
requests for Translarna and Tegsedi. Failure to obtain or renew marketing authorization for Translarna, Tegsedi or any product
candidate, or maintain our marketing authorization for Emflaza in the United States will prevent us from commercializing such
product or product candidate.
As noted in the foregoing risk factors, we may not receive necessary approvals from the FDA, the EMA, ANVISA or other
regulators to further commercialize Translarna for nmDMD, to commercialize Translarna or Emflaza for any other indication, to
commercialize Tegsedi or to commercialize any product candidate in any market. The approval procedures vary among countries,
can involve additional testing, and the time for approval may materially differ. Approval by the FDA does not ensure approval by
regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does
not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. However, the failure to obtain
approval in one jurisdiction may compromise our ability to obtain approval elsewhere.
We have not proven our ability to successfully obtain marketing authorizations to sell our product or product candidates, other
than with respect to the marketing authorization granted by the European Commission in August 2014 for Translarna for the
treatment of nmDMD, which is subject to annual review and renewal following reassessment of the benefit-risk balance of the
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authorization by the EMA and satisfaction of any conditions that may be imposed by the EMA, including the specific obligation
to conduct and report the results of Study 041 and our marketing authorizations in Chile, Israel and South Korea (which are largely
contingent upon continued EMA approval). We have begun seeking and intend to continue to seek marketing authorization for
Translarna for the treatment of nmDMD in territories outside of the EEA, including in Brazil where we have submitted a marketing
authorization request to ANVISA. There is substantial risk that regulators in the applicable territories will not agree with our
interpretation of the results of ACT DMD and the totality of clinical data from our trials, which would have a material adverse
effect on our ability to generate revenue, or may prevent us from generating any revenue, from the sales of Translarna for the
treatment of nmDMD in those territories.
Securing marketing authorization requires the timely preparation and submission of extensive preclinical and clinical data and
supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and
efficacy. In response to changes in the regulatory environment or requests from regulators, we may elect, or be obliged, to postpone
a regulatory submission to include additional analyses, including those intended to strengthen our submission or facilitate regulator
review, which could cause delays in getting our products to market and substantially increase our costs. Securing marketing
authorization also requires the submission of information about the product manufacturing process to, and inspection of
manufacturing facilities by, the regulatory authorities. Regulatory authorities may determine that Translarna or any of our other
product candidates are not effective or are only moderately effective, or have undesirable or unintended side effects, toxicities,
safety profiles or other characteristics that preclude us from obtaining marketing authorization or that prevent or limit commercial
use.
The process of obtaining marketing authorizations is expensive, may take many years, if approval is obtained at all, and can vary
substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved.
Changes in marketing authorization policies during the development period, changes in or the enactment of additional statutes or
regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection
of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application
or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition,
varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing authorization
of a product candidate. Any marketing authorization we ultimately obtain may be limited or subject to restrictions or post-approval
commitments that render the approved product not commercially viable. For example, the marketing authorization granted on a
conditional basis by the EMA in the EEA for Translarna is limited to ambulatory nmDMD patients aged two years and older who
have been identified through genetic testing and is subject to the specific obligation to conduct Study 041 and annual reassessment
by the EMA of the benefit-risk analysis. Additionally, we are obligated to complete certain post-marketing requirements in
connection with the FDA's approval of Emflaza, including pre-clinical and clinical safety studies.
In addition, marketing authorizations in countries outside the United States do not ensure pricing approvals in those countries or
in any other countries, and marketing authorizations and pricing approvals do not ensure that reimbursement will be obtained.
We may not be able to obtain orphan drug exclusivity for our products or product candidates in either the United States or the
EU. If our competitors are able to obtain orphan drug designations for their products in the United States and those products
are determined by the FDA to be the “same drug” as our products or product candidate(s) under applicable FDA standards,
we may not be able to obtain approval for a significant period of time. Similarly, if our competitors are able to obtain orphan
drug designations for their products in the EU and those products can be classified as a “similar medicinal product” within
the meaning of EU law, we may not be able to obtain approval by the applicable regulatory authority for a significant period
of time.
Regulatory authorities in some jurisdictions, including the European Union and the United States, may designate drugs for relatively
small patient populations as orphan drugs. We have obtained orphan drug designations from the EMA and from the FDA for PTC-
AADC and for Translarna for the treatment of nmDMD, Becker muscular dystrophy (in the EU), and nonsense mutation aniridia.
The FDA has also granted an orphan drug designation to risdiplam, PTC-FA and PTC-AS. We may also seek orphan drug exclusivity
for other product candidates, if we believe that the product candidate may qualify. We, however, may not be able to obtain orphan
drug designation in the future for any of our other product candidates. Obtaining orphan drug exclusivity, both in the European
Union and in the United States, may be important to a product candidate’s future success.
In the EU, if a product with an orphan drug designation subsequently receives the first marketing authorization for the indication
for which it has received such a designation, the product is entitled to 10 years of market exclusivity, which, subject to certain
exceptions, precludes the EMA from accepting another marketing application for a similar medicinal product. The EU exclusivity
period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation, including if the drug is
sufficiently profitable so that market exclusivity is no longer justified. However, in the European Union, generic medicinal products
that rely on the independently generated data submitted as part of a full marketing authorization application dossier of an authorized
medicinal product, a “reference product”, may not be placed on the market for 10 years from the granting of the initial marketing
authorization for the reference product.
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In the European Union, a “similar medicinal product” is a medicinal product containing a similar active substance or substances
as contained in a currently authorized orphan medicinal product, and which is intended for the same therapeutic indication.
In the United States, if a product with an orphan drug designation subsequently receives the first marketing authorization for the
indication for which it has such designation, the product is entitled to seven years of market exclusivity which precludes the FDA
from approving another marketing application for the “same drug” for the same indication for that time period. When determining
whether a drug is the “same drug” as an orphan designated product, the FDA looks to the products’ molecular features and use.
The specific sameness criteria, however, varies based on whether the product is composed of small or large molecules.
Obtaining orphan drug designation, however, does not guarantee that we will be able to receive ultimate marketing approval.
Orphan drug designation neither shortens the development time or regulatory review time of a product candidate nor gives the
product candidate any advantage in the regulatory review or approval process. Moreover, the FDA may grant orphan drug
designation to multiple products that are considered to be the “same drug” for the same indication. If a competitor obtains an
orphan drug designation for and approval of a product with orphan drug exclusivity for the same indication as one of our product
candidates before we do and if the competitor’s product is the same drug, in the United States or a similar medicinal product, in
the EU, as ours, we could be excluded from the market for a period of time.
We also may not be able to maintain any orphan drug designations or exclusivities. For instance, orphan drug designations may
be revoked if the FDA finds that the request for designation contained an untrue statement of material fact or omitted material
information, or if the FDA finds that the product candidate was not eligible for designation at the time of the submission of the
request. Even if we are able to receive and maintain orphan drug designations, we may ultimately not receive any period of
regulatory exclusivity if our product candidates are approved. For instance, we may not receive orphan product regulatory
exclusivity if the indication for which we receive FDA approval is broader than the orphan drug designation. Orphan exclusivity
may also be lost for the same reasons that designation may be lost. Orphan exclusivity may further be lost if we are unable to
assure a sufficient quantity of the product to meet the needs of patients with the rare disease or condition.
Further, even if we do receive orphan drug exclusivity upon approval of a product candidate, this exclusivity is not absolute. For
example, if a competitive product that is the same drug or a similar medicinal product as Translarna or another product candidate
that has been granted orphan drug exclusivity is shown to be “clinically superior” to our product candidate as determined by the
FDA or EMA, respectively, any orphan drug exclusivity we have obtained will not block the approval of such competitive product.
Orphan exclusivity also would not block FDA from approving a drug that is the same as our product candidates for different
indications or products that are different from ours for the same indication. Moreover, marketing exclusivity would not prevent
a provider from prescribing or using another drug off-label and third-party payors may reimburse for products off-label even if
not indicated for the orphan condition
The respective orphan designation and exclusivity frameworks in the United States and in the EU are subject to change, and any
such changes may affect our ability to obtain, or the impact of obtaining, EU or United States orphan designations in the future.
We rely on non-patent market exclusivity periods under the Hatch-Waxman Act and the Orphan Drug Act to commercialize
Emflaza for the approved indication in the United States and failure to maintain either exclusivity period would have a material
adverse effect on our ability to commercialize Emflaza, which in turn would have a material adverse effect on our business,
financial statements and results of operations.
As we presently have no patent rights to protect the approved use of Emflaza, we rely on non-patent market exclusivity periods
under the Orphan Drug Act of 1983, or the Orphan Drug Act, and the Drug Price Competition and Patent Term Restoration Act
of 1984, or the Hatch-Waxman Act, to commercialize Emflaza in the United States.
As noted in the foregoing risk factor, generally, if a product with an orphan drug designation subsequently receives the first
marketing authorization for the indication for which it has such designation, the product is entitled to a period of market exclusivity,
which, subject to certain exceptions, precludes the FDA from approving another marketing application for the same drug for the
same indication for that time period. As previously discussed, however, the protection provided by orphan drug exclusivity is
limited and orphan drug exclusivity may be withdrawn.
Emflaza has a seven-year exclusive marketing period in the United States for the approved orphan indication, which commenced
on February 9, 2017 (the date of FDA approval), under the Orphan Drug Act as well as a concurrent five-year exclusive marketing
period in the United States for the active ingredient in Emflaza under the provisions of the Hatch-Waxman Act. The FDA awarded
an orphan drug designation to Emflaza for the treatment of patients with DMD and later approved Emflaza as the first corticosteroid
approved in the United States for the treatment of patients with DMD, granting Emflaza orphan drug exclusivity for this disease
as of the date of approval.
Under the Orphan Drug Act, during the seven-year exclusivity period, the FDA may not approve any other applications to market
any drug considered the “same drug” as the drug with the orphan drug exclusivity for the same rare disease or condition, except
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in limited circumstances, such as if the second applicant demonstrates the clinical superiority of its product to the product with
orphan drug exclusivity through a demonstration of superior safety, superior efficacy, or a major contribution to patient care. In
addition, if a company seeks orphan drug designation for a drug considered the “same drug” as a drug previously approved for
the orphan indication at issue, the FDA will not designate the “same drug” as an orphan drug unless the company articulates a
plausible hypothesis of the clinical superiority of its drug to the approved drug, and, following such designation, if the previously
approved drug has unexpired orphan drug exclusivity, the FDA will not approve the subsequent drug unless the sponsor demonstrates
clinical superiority over the previously approved drug prior to approval. As a result, in the event that a competitive product that
is the “same drug” as Emflaza is shown to be “clinically superior” to Emflaza as determined by the FDA, our orphan drug exclusivity
will not block the approval of such competitive product. In addition, orphan drug exclusivity does not prevent the FDA from
approving a different drug for the same disease or condition, or the same drug for a different disease or condition.
In addition, we can lose any periods of granted orphan drug exclusivity under certain circumstances, such as if the FDA finds that
the request for designation contained an untrue statement of material fact or omitted material information, or if the FDA finds that
the product candidate was not eligible for designation at the time of the submission of the request. Orphan exclusivity may further
be lost if we are unable to assure the availability of sufficient quantities of Emflaza to meet the needs of patients.
Under the Hatch-Waxman Act, a five-year period of exclusivity is granted to NDAs for products, such as Emflaza, containing
active moieties never previously approved by the FDA either alone or in combination with another drug substance. The active
moiety is the molecule or ion, excluding certain appended portions and other noncovalent derivatives, responsible for the
physiological or pharmacological action of the drug substance. During the five-year exclusivity period, third parties may not
submit certain types of applications to the FDA, except that such applications may be submitted after four years if they contain a
certification of patent invalidity or non-infringement with respect to any patents of the exclusivity holder covering the drug product
that are listed in FDA’s list of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the
Orange Book. The two types of applications prevented by Hatch-Waxman exclusivity are 505(b)(2) applications and abbreviated
new drug applications, or ANDAs. A 505(b)(2) application allows the FDA to rely for approval of an NDA on data not developed
by or for the applicant such as published literature or the FDA’s finding of safety and effectiveness of a previously approved drug,
and for which the applicant has not obtained a right of reference or use. An ANDA is an application that contains information to
show that the proposed product is identical in active ingredient, dosage form, strength, route of administration, labeling, and
conditions of use, among other things to a previously approved application (known as the reference listed drug). Certain differences,
however, between the reference listed drug and ANDA product may be permitted pursuant to a suitability petition. Certain labeling
differences may also be permitted if information in the reference listed drug’s label is protected by patent or exclusivities. ANDAs
do not generally contain clinical studies as required in full NDAs but are required to contain information establishing bioequivalence
to the reference listed drug, allowing the FDA to use this bioequivalence information to rely on the prior finding of safety and
efficacy for the reference listed drug and may face competition from 505(b)(2) and ANDA products sooner than anticipated.
Exclusivity under the Hatch-Waxman Act does not prevent the submission, filing and approval of a full NDA containing full
reports of investigations of safety and effectiveness either owned by the applicant or to which the applicant has obtained a right
of reference. Moreover, Hatch-Waxman Act exclusivity does not prevent physicians from prescribing and third-party payors from
reimbursing products off-label for the same use as any of our products. It is also possible that we may not receive any anticipated
periods of regulatory exclusivity for our product candidates that are not yet approved. As a result, it is possible that we will not
realize the full period of market exclusivity under the Hatch-Waxman Act.
Further, each of the Orphan Drug Act and the Hatch-Waxman Act is subject to change, and any such changes may affect our ability
to maintain the respective market exclusivity period under those laws. Any reduction or limitation to the marketing exclusivity
periods for Emflaza would materially limit our ability to commercialize the product, which in turn would have a material adverse
effect on our business, financial statements and results of operations.
All pharmaceutical products for which marketing authorization has been granted, including Translarna for the treatment of
nmDMD in the EEA and Emflaza for the treatment of DMD in the United States, are subject to extensive and rigorous
governmental regulation and could be subject to restrictions or withdrawal from the market. We may also be subject to penalties
if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if
any of them are approved, as well as our product candidates during development.
We, Translarna, Emflaza, our product candidates, our operations, our facilities, our suppliers and our contract manufacturers,
distributors, contract research organizations, clinical trial sites and contract testing laboratories are subject to extensive regulation
by governmental authorities in the EEA, the United States, and other territories, with regulations differing from country to country.
We are not permitted to market our product candidates in the EEA, the United States, or other territories until we have received
requisite regulatory approvals. In order to receive and maintain such approvals, and to be compliant with regulatory authority
requirements, we and our third-party service providers must comply on a continuous basis with a broad array of regulations and
requirements. Depending on the stage of product development and whether a product is approved these requirements may relate
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to establishment registration and product listing, the payment of user fees, manufacturing processes, risk management measures,
quality and pharmacovigilance systems (including reporting of manufacturing deviations and adverse events), pre- and post-
approval clinical and pre-clinical data, labeling, packaging, advertising, marketing and promotional activities (including product
sampling), record keeping, distribution, storage, and import and export of pharmaceutical products. Any regulatory approval of
any of our products or product candidates, once obtained, may be withdrawn. For example, our marketing authorization for
Translarna for the treatment of nmDMD in the EEA is subject to annual review and renewal by the European Commission following
reassessment by the EMA of the benefit-risk balance of the authorization, as well as the specific obligation to conduct and report
the results of Study 041. After approving a drug, the FDA may withdraw product approval if compliance with regulatory standards
is not maintained or if safety problems occur after the product reaches the market. Requirements for additional clinical trials and
studies to confirm safety and effectiveness may be imposed as a condition of marketing approval. In addition, the FDA requires
surveillance programs to monitor approved products that have been commercialized, as well as REMS, and the agency has the
power to require changes in labeling or to prevent further marketing and distribution of a product. We are obligated to perform
certain FDA post-marketing requirements in connection with our marketing authorization for Emflaza in the United States, including
pre-clinical and clinical safety studies, and there is no guarantee that the post-marketing trial and studies will not result in changes
to Emflaza’s labeling or that they will support the continued approval of Emflaza in the United States. Commencement of the
post-marketing trial and studies is pending feedback from the FDA. There is no guarantee that we will be able to complete our
post-marketing obligations in accordance with the established timetables. Failure to complete the required studies in accordance
with the established timetables or failure to provide the requisite periodic reports on the status of post-marketing studies in the
absence of good cause could result in an enforcement action. Accordingly, we and others with whom we work must continue to
expend time, money, and effort in all areas of regulatory compliance, including manufacturing and distribution.
For additional information with respect to the risks related to renewal of our marketing authorization in the EEA, see the foregoing
risk factor titled “Our marketing authorization in the EEA for Translarna for the treatment of nmDMD is a “conditional marketing
authorization” that requires annual review and renewal by the European Commission following reassessment by the EMA of the
benefit-risk balance of the authorization and is further conditioned upon our ability to satisfy the specific obligation to conduct
and report the results of Study 041 by September 2021, and, as such, there is ongoing risk that we may be unable to maintain such
authorization. If we are unable to obtain renewal of such marketing authorization in any future renewal cycle, we would lose all,
or a significant portion of, our ability to generate revenue from sales of Translarna, whether pursuant to a commercial or an EAP
program and throughout all territories, which would have a material adverse effect on our business, financial performance and
results of operations.”
We are required to submit safety and other post-market information and reports, implement pharmacovigilance plans, and comply
with current good manufacturing practice, or cGMP, requirements related to manufacturing including, quality control, quality
assurance and complaints and corresponding maintenance of records and documents, requirements regarding the distribution of
samples to healthcare professionals and recordkeeping, among other things, in connection with the marketing authorizations for
Translarna for the treatment of nmDMD and for Emflaza for the treatment of DMD described above. Application holders must
further notify the FDA, and depending on the nature of the change, obtain FDA pre-approval for product and manufacturing
changes.
Regulatory authorities, including the EMA and local regulatory authorities in EEA member states, subject a marketed product, its
manufacturer and the manufacturing facilities to ongoing review and periodic inspections and the EMA is responsible for
coordinating inspections, undertaken by the competent authorities of applicable member states, of our manufacturing facilities to
assess whether our manufacturing, and other procedures, comply with cGMP. Similar regulatory and inspection requirements
apply in other jurisdictions including those imposed by the FDA in the United States. The FDA will typically inspect a manufacturer,
including contract manufacturer organizations and clinical research sites, following acceptance of an NDA or BLA, which can
delay FDA approval, especially if unsatisfactory inspection results are observed. Following approval, product sponsors and their
contractors are subject to periodic unannounced FDA inspections to monitor and ensure compliance with FDA’s regulatory
requirements, including cGMPs. If an FDA inspection were to occur and compliance issues at our facilities or at the facilities of
our contract manufacturers or research organizations were identified, it could also result in disruption of production or distribution
of a product or product candidate, disruption, cancellation, or suspension of a study, or require substantial resources to correct.
Even if marketing authorization of a product candidate is granted, the approval may be subject to limitations on the indicated uses
for which the product may be marketed, the product may have labeling that includes significant restrictions, warnings, including
black box warnings, and contraindications, the regulatory authorities may not approve label claims necessary for successful product
marketing, or the approval may be subject to significant conditions of approval, including the requirement of a REMS. A regulatory
authority also may impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety
or efficacy of the product. In addition, the competent authorities of each EU member state and the FDA closely regulate the post-
approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance
with the provisions of the approved labeling and regulatory requirements. Such regulatory authorities can impose stringent
restrictions on our communications regarding off-label use and if we do not comply with the laws governing promotion of approved
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drugs, we may be subject to enforcement action for off-label promotion. For example, violations of the Federal Food, Drug, and
Cosmetic Act relating to the promotion of prescription drugs may lead to civil and criminal penalties, investigations alleging
violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or
manufacturing processes, or failure to comply with regulatory requirements, both before and after product approval, may yield
various results which could negatively affect our business, including:
•
•
restrictions on such products, manufacturers or manufacturing processes;
changes to or restrictions on the labeling or marketing of a product;
• modifications to promotional pieces;
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issuance of corrective information;
clinical holds or termination of clinical trials;
changes in the way a product is administered;
liability for harm caused to patients or subjects;
adverse publicity, reputational harm, or the product becoming less competitive;
regulatory authority issuance of safety alerts, Dear Healthcare Provider letters, press releases, or other communications
containing warnings or other safety information about the product;
restrictions on product distribution or use;
requirements to implement a REMS;
requirements to conduct post-marketing studies or clinical trials;
• warning, cyber or untitled letters;
• withdrawal of the products from the market or marketing suspensions;
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refusal to approve pending applications or supplements to approved applications that we submit;
recall of products;
fines, restitution or disgorgement of profits or revenues;
suspension or withdrawal of marketing authorizations;
refusal to permit the import or export of our products;
product seizure or detention;
injunctions;
the imposition of civil or criminal penalties; or
FDA debarment, suspension and debarment from government contracts, and refusal of orders under existing government
contracts, exclusion from federal healthcare programs, consent decrees, or corporate integrity agreements.
Non-compliance with regulatory requirements regarding safety monitoring or pharmacovigilance, and with requirements related
to the development of products for the pediatric population, can also result in significant financial penalties. Similarly, failure to
comply with regulatory requirements regarding the protection of personal information can also lead to significant penalties and
sanctions.
Not only will we be responsible for our own conduct, but we will also be responsible for the conduct of our employees, independent
contractors, consultants, commercial partners, manufacturers, investigators, and contract research organizations. To the extent
that any of these third parties engage in intentional, reckless, negligent, or unintentional failures to comply applicable legal and
regulatory requirements, we may be subject to regulatory enforcement action, legal actions and liability, and serious harm to our
reputation. Moreover, it is possible for a whistleblower to pursue a False Claims Act case against us as a result of such misconduct,
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even if the government considers the claim unmeritorious and declines to intervene, which could require us to incur costs defending
against such a claim.
Any of the above events could prevent us from achieving or maintaining market acceptance of the particular product candidate,
if approved, or could substantially increase the costs and expenses of developing and commercializing such product, which in turn
could delay or prevent us from generating significant revenues from its sale. Any of these events could further have other material
and adverse effects on our operations and business and could adversely impact our stock price and could significantly harm our
business, financial condition, results of operations, and prospects.
We are also subject to laws and license and registration requirements covering the distribution of marketed products. If we fail to
comply with any of these requirements, we may be subject to action by regulatory agencies, which could negatively affect our
business. Regulatory agencies may also change existing requirements or adopt new requirements or policies. We may be slow to
adapt or may not be able to adapt to these changes or new requirements. Any new requirements could further prevent, limit or
delay regulatory approval of product candidates, could limit marketability of approved products, or could impose additional
burdensome and costly regulatory obligations.
Commercialization of Translarna has been in, and is expected to continue to take place in, countries that tend to impose strict
price controls, which may adversely affect our revenues. Failure to obtain and maintain acceptable pricing and reimbursement
terms for Translarna for the treatment of nmDMD in the EEA and other countries where Translarna is available would delay
or prevent us from marketing our product in such regions, which would adversely affect our business, results of operations,
and financial condition.
In some countries, particularly the member states of the EEA, the pricing of prescription pharmaceuticals is subject to strict
governmental control. Each country in the EEA has its own pricing and reimbursement regulations and may have other regulations
related to the marketing and sale of pharmaceutical products in the country. We generally will not be able to commence commercial
sales of Translarna for the treatment of nmDMD pursuant to the conditional marketing authorization granted by the European
Commission in any particular member state of the EEA until we conclude the applicable pricing and reimbursement negotiations
and comply with any licensing, employment or related regulatory requirements in that country. In some countries we may be
required to conduct additional clinical trials or other studies of our product, including trials that compare the cost-effectiveness
of our product to other available therapies in order to obtain reimbursement or pricing approval. We may not be able to conclude
pricing and reimbursement negotiations or comply with additional regulatory requirements in the countries in which we seek to
commercialize Translarna on a timely basis, or at all.
The pricing and reimbursement process varies from country to country and can take a substantial amount of time from initiation
to complete. Pricing negotiations may continue after reimbursement has been obtained. We cannot predict the timing of Translarna’s
commercial launch in countries where we are awaiting pricing and reimbursement guidelines. While we have submitted pricing
and reimbursement dossiers with respect to Translarna for the treatment of nmDMD in many EEA countries, we have only received
both pricing and reimbursement approval on terms that are acceptable to us in a limited number of countries.
The price that is approved by governmental authorities in any country pursuant to commercial pricing and reimbursement processes
may be significantly lower than the price we are able to charge for sales under our reimbursed EAP programs and various forms
of national “market access agreements” may need to be entered into to achieve reimbursement. In some instances, reimbursement
may be subject to challenge, reduction or denial by the government and other payors.
For example, in France, EAP and commercial sales of a product can begin while pricing and reimbursement rates are under
discussion with the applicable government health programs. In the event that the negotiated price of the product is lower than the
amount reimbursed for sales made prior to the conclusion of price negotiations, we may become obligated to repay such excess
amount to the applicable government health program. We will make such retroactive reimbursement, if any, following the conclusion
of price negotiations with the applicable government health authority.
Further, based on unsustainable economics imposed by the arbitration board in Germany upon the conclusion of an arbitration
process in 2016 with us and the German Federal Association of the Statutory Health Insurances, we delisted Translarna from the
German pharmacy ordering system, effective April 1, 2016. While some patients and healthcare professionals in Germany have
been able to access Translarna through a reimbursed importation pathway possible under German law, there can be no assurance
that other patients or healthcare professionals in Germany will be successful doing so or, if initially successful, that any or all will
continue to be successful. We were required to reimburse payors in Germany the difference between the commercial price of
Translarna and the price established by the arbitration board in Germany for sales made in Germany after December 2015, other
than sales made pursuant to the reimbursed importation pathway.
Political, economic and regulatory developments may further complicate pricing and reimbursement negotiations and there can
be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost
containment measures. For example, these factors influenced the length of our pricing and reimbursement negotiations in England,
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which took place between mid-2014 to mid-2016, and culminated in a five-year managed access agreement between us, National
Health Services England, the National Institute for Health and Care Excellence, or NICE, NorthStar clinical network and the
patient organizations Muscular Dystrophy UK and Action Duchenne. The managed access agreement establishes the clinical details
surrounding the use of Translarna, including the terms and conditions of a confidential financial arrangement and the collection
of further data on the efficacy of Translarna for the treatment of nmDMD with NICE guidance to be reviewed again at the end of
the five-year period, before future funding decisions are taken.
In addition, adverse clinical and regulatory developments may exacerbate these risks, including the developments noted in the
foregoing risk factor titled, “ACT DMD did not meet its primary efficacy endpoint, and there is substantial risk that regulators
will not agree with our interpretation of the results of ACT DMD and the totality of clinical data from our trials in Translarna for
the treatment of nmDMD, which would have a material adverse effect on our business, financial performance and results of
operations.”
Reference pricing used by various EU member states and parallel distribution, or arbitrage between low-priced and high-priced
member states, can further reduce prices and revenues. Publication of discounts by third-party payors or authorities may lead to
further pressure on prices or reimbursement levels within the country of publication and other countries.
If we fail to successfully secure and maintain pricing and reimbursement coverage for Translarna or are significantly delayed in
doing so or if burdensome conditions are imposed by private payers, government authorities or other third-party payors on such
reimbursement, planned launches in the affected countries will be delayed and our business, results of operations and financial
condition could be adversely affected.
Our relationships with customers, healthcare providers and professionals, patients, patient organizations, and third-party
payors are or will be subject to applicable anti-kickback, fraud and abuse, transparency and other healthcare laws and
regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and
diminished profits and future earnings.
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any products
or product candidates, including Translarna and Emflaza, for which we have obtained or may obtain marketing approval. Our
arrangements with customers, healthcare providers and professionals and third-party payors may expose us to broadly applicable
fraud and abuse, transparency and other healthcare laws and regulations that may constrain the business or financial arrangements
and relationships through which we market, sell and distribute our products for which we obtain marketing authorization.
Failure to maintain a comprehensive and effective compliance program, and to integrate the operations of any acquired businesses
into a combined comprehensive and effective compliance program on a timely basis, could subject us to a range of regulatory
actions that could adversely affect our ability to commercialize our products and could harm or prevent sales of the affected
products, or could substantially increase the costs and expenses of commercializing and marketing our products.
Restrictions and reporting requirements under applicable U.S. federal and state healthcare laws and regulations, and equivalent
laws and regulations in the European Union and other countries in which we operate, include, and are not limited to, the following:
• Anti-corruption and anti-bribery laws and regulations, such as the U.S. Foreign Corrupt Practices Act, or FCPA, the
UK Bribery Act of 2010, or Bribery Act, and similar statutes which have been adopted, or may be adopted in the future,
by other countries in which we operate and with which we are or may be required to comply.
• Anti-kickback laws and regulations, including those applicable in the United States, the United Kingdom and other
countries where we operate, which generally prohibit, among other things, persons from knowingly and willfully
soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward
either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which
payment may be made under government funded healthcare programs. The U.S. federal statute imposes criminal
penalties and has been broadly interpreted to apply to manufacturer arrangements with prescribers, purchasers and
formulary managers, among others and many states have enacted equivalent state laws that apply not only to government
payors but to commercial payors as well.
•
False claim laws and regulations, including the U.S. False Claims Act and similar state laws, which may permit civil
whistleblower or qui tam actions and may impose civil liability and criminal penalties on individuals and entities who
submit, or cause to be submitted, false or fraudulent claims for payment to the government. Federal enforcement
agencies have also showed increased interest in pharmaceutical companies' product and patient assistance programs,
including reimbursement and co-pay support services, and a number of investigations into these programs have resulted
in significant civil and criminal settlements.
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•
Federal price reporting laws, including the Medicaid drug rebate statute, which requires manufacturers of covered
outpatient drugs to calculate and submit complex pricing information that is used as the basis for reimbursement of
certain drugs by, and payment of rebates to, the Medicaid program; the Medicare Modernization Act, which requires
manufacturers to calculate and report a drug’s Average Sales Price used to reimburse providers for physician-
administered drugs under Medicare Part B; and the Veterans Health Care Act of 1992, which requires, manufacturers
of covered drugs (including all drugs approved under an NDA) to calculate and report a Federal Ceiling Price and offer
their covered drugs for sale at no more than that price to the Department of Veterans Affairs, the Department of Defense,
and other agencies. The Veterans Health Care Act also requires manufacturers to enter into pricing agreements with
the Department of Health and Human Services to charge no more than a different ceiling price (derived from the
Medicaid rebate percentage) to covered entities participating in the 340B drug discount program. Failure to accurately
report drug pricing or provide the mandatory discounts may subject the manufacturer to specific civil monetary penalties.
Failure to comply with the Veterans Health Care Act also jeopardizes payment by Medicaid for the manufacturer’s
drugs. Certain states have also enacted drug price transparency laws that require reporting of pricing information.
• Laws and regulations related to the privacy, security and transmission of individually identifiable health information,
including the U.S. Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health
Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and similar state laws. For example,
HIPAA, as amended by HITECH, along with its implementing regulations, which impose obligations, including
mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually
identifiable health information, and may impose criminal and civil liability for violations of these obligations. In
addition, international data protection laws including the European General Data Protection Regulation, and
supplementary member state legislation may apply to some or all of the clinical or other protected data obtained,
transmitted, or stored outside of the United States. Furthermore, certain privacy laws and genetic testing laws may
apply directly to our operations and/or those of our collaborators and may impose restrictions on our use and
dissemination of individuals’ health information.
• HIPAA also imposes liability, including criminal liability, for, among other actions, knowingly and willfully executing,
or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations
or promises, any of the money or property owned by, or under the custody or control of, a healthcare benefit program,
regardless of whether the payor is public or private, in connection with the delivery or payment for health care benefits,
knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal
investigation of a health care offense and knowingly and willfully falsifying, concealing, or covering up by any trick
or device a material fact or making any materially false statements in connection with the delivery of, or payment for,
healthcare benefits, items, or services relating to healthcare matters. Notably, the ACA amended the intent requirement
of certain of these criminal statutes under HIPAA so that a person or entity no longer needs to have actual knowledge
of the statute, or the specific intent to violate it, to have committed a violation.
• Laws and regulations governing the advertising and promotion of medicinal products, interactions with physicians and
patients, misleading and comparative advertising and unfair commercial practices. For example, legislation adopted
by individual EU member states that may apply to the advertising and promotion of medicinal products require that
promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product
Characteristics, or SmPC, as approved by the competent authorities. The SmPC is the document that provides
information to physicians concerning the safe and effective use of the medicinal product. Promotion of indications not
covered by the SmPC is specifically prohibited.
• Laws and regulations regulating off-label promotion of medicinal products, which is prohibited in the European Union.
The applicable laws at European Union level and in the individual EU member states also prohibit the direct-to-
consumer advertising of prescription-only medicinal products. Violations of the rules governing the promotion of
medicinal products in the European Union could be penalized by administrative measures, fines and imprisonment.
These laws may further limit or restrict the advertising and promotion of our products to the general public and may
also impose limitations on our promotional activities with health care professionals.
• Laws and regulations in the United States, including the Federal Food, Drug and Cosmetic Act and other laws and
regulations, that prohibit us from promoting any of our FDA approved products for off-label uses and that require
compliance with FDA’s advertising and promotional requirements. For example, the FDA requires that all product
advertising and promotion be consistent with the FDA approved label, be truthful and non-misleading, be adequately
substantiated, and have fair balance between product benefit claims and risks, among other requirements. This means,
for example, that we cannot make claims about the use of our marketed products or their relative benefits compared
to other treatments outside of their FDA approved indications and label and without adequate comparative studies, and
we would not be able to discuss or provide information on off-label uses or safety benefits of such products in a
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promotional context. While physicians may choose to prescribe products for uses that are not described in the product’s
labeling and for uses that differ from those tested in clinical studies and approved by the regulatory authorities, we are
prohibited from marketing and promoting the products for indications and uses that are not specifically approved by
the FDA. Should the FDA or other regulatory authorities determine that our activities constituted the promotion of off-
label use or a violation of its other promotional and marketing standards, we could face significant enforcement action
and substantial penalties, including, but not limited to action to prevent us from distributing those products for the off-
label use and could impose fines and penalties on us and our executives, and such a determination could also trigger
civil or criminal liability under other applicable laws in the United States.
• Laws and regulations requiring that we disclose publicly payments made to physicians, including in certain EU member
states and the United States. For example, in the United States, under the federal Physician Payments Sunshine Act
requirements, manufacturers of drugs, devices, biologics and medical supplies must report information related to
payments and other transfers of value made to or at the request of covered recipients, such as physicians and teaching
hospitals, as well as physician ownership and investment interests in such manufacturers. A number of U.S. states and
other countries have enacted their own transparency requirements that obligate manufacturers to report different types
of spending related to physicians, certain hospitals, and other covered recipients.
In addition, interactions between pharmaceutical companies and physicians are also governed by industry self-regulation codes
of conduct and physicians’ codes of professional conduct. In the United States, some state laws require pharmaceutical companies
to comply with these industry and physician codes and the relevant compliance guidance promulgated by the federal government.
The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement,
purchase, supply, order or use of medicinal products is prohibited in the European Union. The provision of benefits or advantages
to physicians is also governed by the national laws of the EU member states, as well as codes of conduct issued by self-regulatory
industry bodies. Moreover, agreements with physicians must often be the subject of prior notification and approval by the physician’s
employer, their competent professional organization, and the competent authorities of the individual EU member states. These
requirements are provided in the national laws, industry codes, or professional codes of conduct, applicable in the EU member
states.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws, regulations,
transparency requirements and self-regulatory codes have and will continue to involve substantial costs. We cannot guarantee that
we, our employees, our consultants, our third-party contractors, or the physicians or other providers or entities with whom we
expect to do business, are or will be in compliance with all federal, state and foreign regulations and codes. It is possible that
governmental authorities could conclude that our business practices may not comply with current or future statutes, regulations
or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil,
criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare
and Medicaid, reputational harm, and the curtailment or restructuring of our operations. Exclusion, suspension and debarment
from government funded healthcare programs would adversely affect, perhaps materially, our ability to commercialize, sell or
distribute any drug. Even if we were not determined to have violated these laws, government investigations into these issues
typically require the expenditure of significant resources and generate negative publicity, which could also have an adverse effect
on our business, financial condition and results of operations.
Legislative and regulatory changes affecting the pharmaceutical industry or the healthcare system more broadly may increase
the difficulty and cost for us to obtain or maintain marketing authorization of and commercialize our products and product
candidates and affect the coverage and reimbursement we may obtain.
Our industry is highly regulated and changes in law may adversely impact our business, operations, or financial results. In the
United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes
regarding the healthcare system that could prevent or delay marketing authorization of Translarna or any of our other product
candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any products or product candidates,
including Translarna and Emflaza, for which we have obtained, or may obtain, marketing authorization.
Certain provisions of enacted or proposed legislative changes may negatively impact coverage and reimbursement of healthcare
items and services. For example, in the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of
2003, or Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. Cost reduction
initiatives and other provisions of this legislation could decrease the coverage and reimbursement that we receive for any approved
products. While the Medicare Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often
follow Medicare coverage policy and payment limitations in setting their own policies. Therefore, any restrictions to coverage or
reductions in reimbursement that result from the Medicare Modernization Act may result in a similar coverage restriction or
reimbursement reduction from private payors. In addition, private payors may implement coverage restrictions or payment
reductions independently from federal programs such as Medicare.
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Similarly, in the United States, the Affordable Care Act contains provisions that may reduce the profitability of drug products.
However, the current Presidential Administration and U.S. Congress have expressed a desire to modify, repeal or otherwise
invalidate all, or certain provisions of, the Affordable Care Act, and there are pending lawsuits challenging the Affordable Care
Act, which has contributed to the uncertainty of the ongoing implementation and impact of the Affordable Care Act and also
underscores the potential for additional reform going forward. We cannot assure that the Affordable Care Act, as currently enacted
or as amended in the future, will not adversely affect our business and financial results.
Promulgated and proposed regulatory changes could also affect coverage or reimbursement of our products. For example, CMS
recently reduced the payment rate for certain hospitals purchasing outpatient drugs at the 340B program discounted price, and in
2016, CMS issued a final rule regarding the Medicaid drug rebate program, which among other things, revises the manner in which
the “average manufacturer price” is to be calculated by manufacturers participating in the program and implements certain
amendments to the Medicaid rebate statute created under the ACA. Similarly, 340B program guidance regulations on civil monetary
penalties for statutory violations, which was finalized in early 2017, recently went into effect. In October 2018, CMS issued an
advance notice of proposed rulemaking paving the way for a proposed rule in 2019 that would significantly reduce the price of
drugs paid by Medicare Part B by basing reimbursement on the average prices among other industrialized countries, and in January
2019, CMS proposed eliminating the Anti-Kickback Act safe harbor for rebates typically provided to PBMs and health plans that
are included in their cost effectiveness determinations.
We anticipate that the U.S. Congress, state legislatures and the private sector will continue to consider and may adopt healthcare
policies intended to curb rising healthcare costs. These cost containment measures may include:
controls on government funded reimbursement for drugs;
caps on mandatory discounts under certain government sponsored programs;
controls on healthcare providers;
challenges to the pricing of drugs or limits on prohibitions on reimbursement or specific products through other
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reform of drug importation laws;
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healthcare for a fixed cost per person; and
expansion of use of managed care systems in which the healthcare providers contract to provide comprehensive
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prohibition on direct-to-consumer advertising or drug marketing practices.
We are unable to predict what additional legislation, regulations or policies, if any, relating to the healthcare industry or third-
party coverage and reimbursement may be enacted in the future or what effect such legislation, regulations or policies would have
on our business. Any cost containment measures, including those listed above, or other healthcare system reforms that are adopted,
could significantly decrease the available coverage and the price we might establish for our products, which would have an adverse
effect on our net revenues and operating results.
In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize
Translarna and our product candidates. In addition to continuing pressure on prices and cost containment measures, legislative
developments at the European Union or member state level may result in significant additional requirements or obstacles that may
increase our operating costs. We cannot predict how future changes relating to healthcare reform in the European Union, the United
States, or other territories, will affect our business.
Legislative and regulatory proposals have also been made to expand post-approval requirements, limit regulatory exclusivity
periods or the applicability of such exclusivity periods, and restrict sales and promotional activities for pharmaceutical products.
We cannot be sure whether additional legislative or regulatory changes will be enacted in any territory in which we are authorized,
or become authorized, to market Translarna, Emflaza, or any of our other product candidates, or whether applicable regulations,
guidance or interpretations will be changed, or what the impact of such changes on the marketing authorizations of our products
or product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process or by
comparable foreign bodies overseeing regulatory authorities in other territories may significantly delay or prevent marketing
authorization, as well as subject us to more stringent product labeling and post-marketing testing and other requirements. We
cannot predict how future changes relating to pre- and post-marketing approval and requirements will affect our business.
Risks Related to Our Business
We may fail to realize the anticipated benefits of our acquisition of Agilis Biotherapeutics, Inc., or Agilis, those benefits may
take longer to realize than expected, and we may encounter significant integration difficulties.
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On August 23, 2018, we completed the acquisition of Agilis pursuant to an agreement and plan of merger, dated July 19, 2018, or
the Merger Agreement.
Our ability to realize the anticipated benefits of our acquisition of Agilis will depend, to a large extent, on our ability to integrate
Agilis’s operations and employees into our business and realize anticipated growth opportunities and synergies. Prior to our
acquisition of Agilis, we had no substantial experience developing or manufacturing large molecules including gene therapy. The
development and manufacture of these product candidates will be more complex and is subject to additional and/or different
regulatory requirements as compared to the small molecule products that we have historically developed and/or commercialized.
Accordingly, we may ultimately not be successful in developing and manufacturing the gene therapy product candidates.
We will be required to devote significant management attention and resources to integrating Agilis’s operations and employees
into our business and any product candidates acquired from Agilis into our development and commercialization efforts and business
strategy. The process may be disruptive to our business and the expected benefits may not be achieved within the anticipated time
frame, or at all. The failure to meet the challenges involved and to realize the anticipated benefits of the transaction could cause
an interruption of, or a loss of momentum in, our development and commercialization efforts and could adversely affect our
business, financial condition and results of operations.
Our ability to realize the anticipated benefits of the transaction is expected to entail numerous material potential difficulties,
including, among others:
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the diversion of management attention to integration matters;
difficulties in achieving anticipated business opportunities and growth prospects from our acquisition of Agilis;
challenges related to public and market perception of our acquisition of Agilis and gene therapy and increased regulatory
scrutiny of gene therapy;
difficulties in managing the expanded operations of a larger and more complex company following our acquisition of
Agilis;
difficulties in assimilating employees and in attracting and retaining key personnel; and
potential unknown liabilities, adverse consequences, unforeseen increased expenses or other unanticipated problems
associated with the transaction.
Many of these factors are outside of our control, and any one of them could result in increased costs, decreased expected revenues
and further diversion of management time and energy, which could materially impact our business, financial condition and results
of operations.
All of these factors could decrease or delay the expected accretive effect of the transaction and negatively impact our stock price.
As a result, it cannot be assured that our acquisition of Agilis will result in the full realization of the benefits anticipated from the
transaction within the anticipated timeframes or at all.
Upfront consideration for our acquisition of Agilis was comprised of $49.2 million in cash and 3,500,907 shares of our common
stock. In addition, pursuant to the Merger Agreement, Agilis equityholders will be entitled to receive contingent payments from
us based on (i) the achievement of certain development milestones up to an aggregate maximum amount of $60.0 million, (ii) the
achievement of certain regulatory approval milestones together with a milestone payment following the receipt of a priority review
voucher up to an aggregate maximum amount of $535.0 million, (iii) the achievement of certain net sales milestones up to an
aggregate maximum amount of $150.0 million, and (iv) a percentage of annual net sales of Friedreich ataxia and Angelman
Syndrome products during specified terms, ranging from 2-6%. Under the Merger Agreement, we are required to pay $40.0 million
of the development milestone payments no later than August 23, 2020, regardless of whether the applicable milestones have been
achieved. There is no guarantee that we will be able to make these milestone payments through cash on hand and expected cash
flows and we may be required to raise additional capital in order to fund these payments.
Following completion of the acquisition, we became responsible for Agilis’s liabilities and obligations, including with respect to
certain agreements, financial, regulatory and compliance matters, in addition to the expenses we expect to incur based on our
current commercial, regulatory, research and development plans for PTC-AADC and the other assets acquired from Agilis. These
expenses and obligations will result in additional cost and investment by us and, if we have underestimated the amount of these
costs and investments or if we fail to satisfy any such obligations, we may not realize the anticipated benefits of the transaction.
Further, it is possible that there may be undisclosed, contingent or other liabilities or problems that may arise in the future, the
existence and/or magnitude of which we were previously unaware. Any such liabilities or problems could have an adverse effect
on our business, financial condition or results of operations.
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The issuance of our common stock to complete this transaction was dilutive to our existing stockholders and because we have
limited financial resources, by investing in this transaction, we may forego or delay pursuit of other opportunities that may have
proven to have greater commercial potential.
We may expend our limited resources to pursue a particular product, product candidate or indication and fail to capitalize on
product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on products, research programs and product candidates for
specific indications. As a result, we may forgo or delay pursuit of opportunities with other product candidates or for other indications
that later prove to have greater commercial potential.
For example, in connection with our acquisition of Agilis, we paid upfront consideration comprised of $49.2 million in cash and
3,500,907 shares of our common stock. Agilis equityholders may become entitled to receive contingent payments from us based
on the achievement of certain development, regulatory and net sales milestones as well as based upon a percentage of net sales
of certain products. Additionally, we are required to pay $40.0 million of the development milestone payments no later than the
second anniversary of the closing of the acquisition, regardless of whether the applicable milestones have been achieved. We may
never realize the anticipated benefits of the acquisition of Agilis and by investing our limited resources in this product, we may
be required to forgo or delay other opportunities.
In addition, we initiated separate Phase 2 clinical trials of Translarna for the treatment of hemophilia in 2009 and the metabolic
disorder methylmalomic acidemia in 2010, but then suspended these clinical trials to focus on the development of Translarna for
nmDMD and nmCF when we found variability in the assays used in these trials and preliminary data from these trials did not
indicate definitive evidence of activity. We also initiated a Phase 2 clinical trial of Translarna for treatment of mucopolysaccharidosis
type I caused by nonsense mutation in 2015, but in the third quarter of 2017 we stopped enrollment and began to wind down this
study due to difficulties identifying qualified patients. In March 2017, we discontinued our clinical development of Translarna for
nmCF based on the negative outcome of a Phase 3 clinical trial. Our resource allocation decisions may cause us to fail to capitalize
on viable commercial products or profitable market opportunities. Our spending on current and future research and development
programs and product candidates for specific indications may not yield any commercially viable products.
Until our recent acquisition of a gene therapy platform, historically, we have based our research and development efforts on small-
molecule drugs that target post-transcriptional control processes. Notwithstanding our large investments to date and anticipated
future expenditures in proprietary technologies for both small-molecule and gene therapy drug discovery, to date we have only
been granted marketing authorization in the EEA to treat nmDMD under a restricted label that is subject to the specific obligation
to conduct Study 041 as well as annual renewal and reassessment requirements and we may never realize a return on investment.
We may not be able to successfully renew or satisfy the ongoing requirements of our current marketing authorization for nmDMD
in the EEA and we may never successfully develop any other marketable drugs or indications using our scientific approach. As a
result of pursuing the development of product candidates using our proprietary technologies, we may fail to develop product
candidates or address indications based on other scientific approaches that may offer greater commercial potential or for which
there is a greater likelihood of success. Research programs to identify new product candidates require substantial technical, financial
and human resources. These research programs may initially show promise in identifying potential product candidates, yet fail to
yield product candidates for clinical development.
If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish
valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would
have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
We contract with third parties for the manufacture and distribution of our products and our product candidates, which may
increase the risk that we will not have sufficient quantities of our products or product candidates, such quantities may not meet
the applicable regulatory quality standards, or such quantities at an acceptable cost, which could delay, prevent or impair our
commercialization or development efforts.
We do not own or operate manufacturing or distribution facilities for the production or distribution of clinical or commercial
supplies of our products or product candidates. We have limited personnel with experience in drug manufacturing and lack the
resources and the capabilities to manufacture any of our products or product candidates on a clinical or commercial scale. We
currently rely on third parties for supply of the active pharmaceutical ingredients used in Translarna, Emflaza and all of our product
candidates. We outsource all manufacturing, packaging, labeling and distribution of our products and product candidates to third
parties, including our commercial supply of Translarna and Emflaza. We anticipate taking steps to increase our manufacturing
capabilities for our gene therapy platform, although we currently rely on third-party manufacturers to be capable of providing
sufficient quantities of our program materials to meet anticipated clinical trial and commercial scale demands.
We do not directly control the manufacturing of our products and product candidates, and we are completely dependent on, our
contract manufacturers for compliance with current good manufacturing practice, or cGMP, or good distribution practice, or GDP,
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or similar regulatory requirements outside the European Union and the United States for manufacture of both active drug substances
and finished drug products. Should our contract manufacturers fail to comply with these requirements, we and they could face
significant regulatory and commercial consequences. For example, the FDA regularly inspects manufacturing and other drug/
biologic facilities. Our manufacturers must also be approved by the FDA pursuant to inspections that will be conducted after we
submit our marketing applications to the agency and will be subject to continuing FDA and other regulatory authority inspections
should we receive marketing approval. If our contract manufacturers cannot successfully manufacture material that conforms to
our specifications and the strict regulatory requirements of the EU member state regulatory authorities, FDA, or other foreign
regulatory agencies, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities, and we
would not be able to secure and/or maintain, or may be delayed in securing regulatory approval of marketing applications or
supplements for the applicable products or product candidates. In addition, third-party manufacturers or distributors may not be
able to comply with current good manufacturing practice, or cGMP, or good distribution practice, or GDP, or similar regulatory
requirements outside the European Union and the United States. Our failure, or the failure of our third-party manufacturers or
distributors, over whom we have no direct control, to comply with applicable regulations could result in sanctions being imposed
on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, clinical holds or termination of
clinical studies, warning or untitled letters, regulatory communications warning the public about safety issues with a product,
import or export refusals, license revocation, seizures, detentions, or recalls of product candidates or product, operating restrictions,
criminal prosecutions or debarment, suits under the civil False Claims act, corporate integrity agreements, or consent decrees any
of which could significantly and adversely affect supplies of Translarna, Emflaza or our product candidates and our business,
results of operations and financial condition could be materially adversely affected.
In addition, we have no direct control over the ability of our contract manufacturers to maintain adequate quality control, quality
assurance and qualified personnel. Furthermore, all of our contract manufacturers are engaged with other companies to supply
and/or manufacture materials or products for such companies, which exposes our manufacturers to regulatory risks for the
production of such other materials and products. As a result, failure to meet the regulatory requirements for the production of
those materials and products may generally affect the regulatory status of our contract manufacturers’ facilities. If the FDA, EU
member state regulatory authorities or a comparable foreign regulatory agency do not approve these facilities for the manufacture
of our product candidates or if it withdraws its approval in the future, we may need to find alternative manufacturing facilities,
which would negatively impact our ability to develop, obtain regulatory approval for or market our products or product candidates,
if approved. There is also no guarantee that we would be able to find alternative manufacturing facilities or enter into agreements
with alternative manufacturers on favorable terms. There may be limited manufacturers who would have the ability to manufacture
our products and product candidates, especially our gene therapy product candidates. Moreover, any alternative manufacturers
would need to be approved by FDA, which approval is not guaranteed. We, accordingly, may not be able to make alternative
manufacturing arrangements, which could adversely affect our products, product candidates, and our business, results of operations
and financial condition.
We currently rely on a single source for the production of some of our raw materials and we obtain our supply of the drug substance
for Translarna from two third-party manufacturers and the drug substance for our oncology program through another third-party
manufacturer. We engage two separate manufacturers to provide bulk drug product for Translarna. We have a relationship with
three manufacturers that are capable of providing fill and finish services for our finished commercial and clinical Translarna
product, although we are still in the process of finalizing arrangements with one of these manufacturers with respect to commercial
product services.
We do not currently have any agreements with third-party manufacturers for the long-term commercial supply of Translarna or
any of our product candidates, although we may seek to establish such arrangements in the future. In the event that we are unable
to procure supply from a validated manufacturer, we would seek to identify and qualify replacement suppliers, however this process
would likely delay our ability to supply Translarna to patients or advance our clinical trials. We may be unable to conclude
agreements for commercial or clinical supply of Translarna with third-party manufacturers, or we may be unable to do so on
acceptable terms.
We currently have a contract with a pharmacy and hospital distributor in the European Union that distributes Translarna for clinical
programs and limited commercial and EAP programs. We have engaged with third-party logistic providers, or 3PLs, which distribute
Translarna for the majority of our commercial and EAP programs on our behalf. We intend to engage additional distributors if and
when, if ever, we become authorized to make Translarna available for purchase in such additional geographies.
We obtain our supply of the drug substance for Emflaza through a third-party manufacturer that is currently the only third-party
manufacturer qualified to provide Emflaza drug substance. All of our drug product manufacturing, processing and packaging needs
for Emflaza tablet and suspension product are fulfilled through two different exclusive supply agreements that we assumed in
connection with our acquisition of Emflaza. We expect to fulfill all of our requirements for Emflaza tablets as well as secondary
packaging of pre-filled Emflaza oral suspension bottles pursuant to one of these agreements, which has an initial term of five
years. We expect to fulfill all of our requirements for Emflaza suspension product pursuant to the other agreement. Through the
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seventh year anniversary of FDA approval of Emflaza, we are obligated to pay to the manufacturer of the Emflaza suspension
product royalty payments, on a quarterly basis, based on a percentage (ranging from low to middle-low double digits) of, or a
fixed payment with respect to, our annual net sales of suspension product in the United States, subject to reduction in accordance
with the terms of the agreement. The royalty payments for the suspension product are subject to a minimum aggregate annual
payment ranging from €0.5 million to €1.5 million per year.
If our drug substance provider or either of our drug product manufacturers becomes unable to provide drug substance or manufacture
Emflaza product in sufficient quantities to meet projected demand, future sales could be adversely affected, which in turn could
have a detrimental impact on our ability to maintain our marketing authorization in the United States and on our ability to
commercialize Emflaza, which in turn would have a material adverse effect on our business, financial results and results of
operations. Further, as we presently have no patent rights to protect the approved use of Emflaza, we expect to rely upon market
exclusivity periods available to us under the Orphan Drug Act and Hatch-Waxman Act to commercialize Emflaza for DMD in the
United States. As the holder of orphan exclusivity, we are required to assure the availability of sufficient quantities of Emflaza to
meet the needs of patients. Failure to do so could result in loss of the drug's orphan exclusivity in the United States, which would
have a material adverse effect on our ability to generate revenue from sales of Emflaza.
We utilize third parties for the commercial distribution of Emflaza, including a 3PL to warehouse Emflaza as well as a specialty
pharmacy to sell and distribute Emflaza to patients. The specialty pharmacy provides us with third-party call center services to
provide patient support and financial services, prescription intake and distribution, reimbursement adjudication, and ongoing
compliance support. If we are unable to effectively manage this distribution process, the continuance of our commercial launch and
sales of Emflaza may be delayed or compromised.
Even if we are able to establish and maintain arrangements with third-party manufacturers and distributors, reliance on such service
providers as well as the use of specialty pharmacies and a call center entails additional risks, including:
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reliance on the third party for regulatory compliance and quality assurance;
the possible breach of the manufacturing agreement by the third party;
the possible misappropriation of our proprietary information, including our trade secrets and know-how;
the possibility of commercial supplies of Translarna or Emflaza not being distributed to commercial vendors or end
users in a timely manner, resulting in lost sales;
the possibility of clinical supplies not being delivered to clinical sites on time, leading to clinical trial interruptions;
the possibility of third-party resources not being devoted in the manner necessary to satisfy our requirements within
the expected time frame;
the possibility of third parties not providing us with accurate or timely information regarding their inventories, the
number of patients who are using Emflaza, or serious adverse events and/or product complaints regarding Emflaza;
the possibility of third parties being unable to satisfy their financial obligations to us or to others; and
the possible termination or nonrenewal of a critical agreement by the third party at a time that is costly or inconvenient
to us.
Many additional factors could cause production or distribution interruptions with the manufacture and distribution of Translarna
or Emflaza and any of our product candidates, including human error, natural disasters, labor disputes, acts of terrorism or war,
equipment malfunctions, contamination, or raw material shortages.
Our products and our product candidates and any other products that we may develop may compete with other product candidates
and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP
regulations and that might be capable of manufacturing for us. In addition, changes in cGMP regulations could negatively impact
the ability of our contract manufacturers to complete the manufacturing process of our products and our product candidates in a
compliant manner on the schedule we require for commercial and clinical trial use, respectively.
If the third parties that we engage to manufacture product for our commercial sales, preclinical tests and clinical trials should,
prior to the time that we have validated alternative providers, cease to continue to do so for any reason, we likely would experience
delays in our ability to supply Translarna or Emflaza to patients or in our ability to advance our clinical trials while we identify
and qualify replacement suppliers and we may be unable to obtain replacement supplies on terms that are favorable to us. In
addition, if we are not able to obtain adequate supplies of Translarna, Emflaza or our product candidates or the drug substances
used to manufacture them, we will lose commercial sales revenue and it will be more difficult for us to develop our product
candidates and compete effectively.
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Manufacturers may also encounter other impediments or difficulties that could adversely affect our products, product candidates,
and our business, results of operations and financial condition. For example, manufacturers may experience shortages in raw
materials and components, not be able to scale up their manufacturing capacities to support more advanced clinical trials or product
commercialization, may not be able to qualify or validate their facilities, equipment, and processes, or may not be able to obtain
or develop the necessary technological capabilities, either through knowledge transfer or independent development. To the extent
that any contract manufacturers develop proprietary manufacturing processes or procedures, should we need to change
manufacturers, we may not be able to transfer such know-how to a new manufacturer. In such a case, the new manufacturer would
need to invest substantial time, money, and effort to develop its own processes and procedures, which would require FDA approval.
Third parties might illegally distribute and sell counterfeit or unfit versions of our products that do not meet our rigorous
manufacturing and testing standards. A patient who receives a counterfeit or unfit drug may be at risk for a number of dangerous
health consequences. Our reputation and business could suffer harm as a result of counterfeit or unfit drugs sold under our brand
name. In addition, thefts of inventory at warehouses, plants or while in-transit, which are not properly stored and which are sold
through unauthorized channels, could adversely impact patient safety, our reputation and our business.
Our current and anticipated future dependence upon others for the manufacture and distribution of Translarna, Emflaza and our
product candidates may adversely affect our business, financial condition, results of operations and limit our ability to grow
including our ability to develop product candidates and commercialize our products that receive regulatory approval on a timely
and competitive basis.
We rely on third parties to conduct our preclinical and clinical trials, and those third parties may not perform satisfactorily,
including failing to meet deadlines for the completion of such trials.
We do not independently conduct preclinical or clinical trials for our products or product candidates. We rely on third parties, such
as contract research organizations, clinical data management organizations, medical institutions and clinical investigators, to
perform this function. While we have agreements governing the activities of such third parties, we have limited influence and
control over their actual performance and activities. For instance, our third-party service providers are not our employees, and
except for remedies available to us under our agreements with such third parties we cannot control whether or not they devote
sufficient time and resources to our ongoing clinical, non-clinical, and preclinical programs. If these third parties do not successfully
carry out their contractual duties, meet expected deadlines or conduct our preclinical studies or clinical trials in accordance with
regulatory requirements or our stated protocols, if they need to be replaced or if the quality or accuracy of the data they obtain is
compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our trials may be repeated,
extended, delayed, or terminated, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our
product candidates, we may not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates,
or we or they may be subject to regulatory enforcement actions. As a result, our results of operations and the commercial prospects
for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. To
the extent we are unable to successfully identify and manage the performance of third-party service providers in the future, our
business may be materially and adversely affected. Further, any of these third parties may terminate their engagements with us at
any time. If we need to enter into alternative arrangements, it would delay our product development activities.
Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve
us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance
with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly
referred to as Good Clinical Practices, or GCP, for conducting, recording and reporting the results of clinical trials to assure that
data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected.
We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored
database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal
sanctions. In addition, we will be required to report certain financial interests of our third-party investigators if these relationships
exceed certain financial thresholds or meet other criteria. The FDA or comparable foreign regulatory authorities may question the
integrity of the data from those clinical trials conducted by investigators who may have conflicts of interest. We must further
ensure that our preclinical trials are conducted in accordance with good laboratory practices, or GLPs, as appropriate. Regulatory
authorities enforce these requirements through periodic inspections of trial sponsors, clinical and preclinical investigators, and
trial sites. Similar GCP and transparency requirements apply in the European Union. Failure to comply with the applicable regulatory
requirements, including with respect to clinical trials conducted outside the European Union and United States, can also lead
regulatory authorities to refuse to accept into account clinical trial data submitted as part of a marketing application, as well as
other regulatory consequences, as further described above
For example, in the first half of 2013 inspectors acting at the request of the EMA conducted GCP inspections of selected clinical
sites from our completed Phase 2b clinical trial of Translarna for the treatment of nmDMD and our clinical trial site relating to
our then pending marketing authorization application for approval of Translarna for the treatment of nmDMD. Following these
inspections, we received inspection reports containing a combination of critical and major findings. These findings related to
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waivers we granted to admit patients to our Phase 2b clinical trial of Translarna for the treatment of nmDMD in advance of formal
approval of protocol amendments that would have established their eligibility for the trial, as well as our oversight of our trial
sites and the completeness or sufficiency of clinical trial documentation. In response to these findings, we described to the EMA
the enhanced internal procedures and controls we have implemented, and the internal quality assurance department we have
established, since the conclusion of our Phase 2b clinical trial of Translarna for the treatment of nmDMD. In addition, we proposed
corrective action plans to address the inspectors’ specific findings. If we do not meet our commitment to the corrective actions
we proposed to the EMA, we may face additional consequences, including rejection of data or other direct action by national
regulatory authorities, which could require us to conduct additional clinical trials or other supportive studies to maintain our
marketing authorization in the EEA for Translarna for the treatment of nmDMD or to obtain full approval from the EMA.
Furthermore, third parties that we rely on for our clinical development activities may also have relationships with other entities,
some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected
deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to
obtain, or may be delayed in obtaining, marketing authorizations for our product candidates and will not be able to, or may be
delayed in our efforts to, successfully commercialize our product candidates. Our product development costs will increase if we
experience delays in testing or obtaining marketing authorizations.
We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part
of our distributors could delay clinical development or marketing authorizations of our products or product candidates or
commercialization of our products, producing additional losses and depriving us of potential product revenue.
We may rely on third parties to perform many essential services for any products that we commercialize, including services
related to warehousing and inventory control, distribution, government price reporting, customer service, accounts receivable
management, cash collection, and pharmacovigilance and adverse event reporting. If these third parties fail to perform as
expected or to comply with legal and regulatory requirements, our ability to commercialize our product candidates will be
significantly impacted and we may be subject to regulatory sanctions.
We may retain third-party service providers to perform a variety of functions related to the sale and distribution of our product
candidates, key aspects of which will be out of our direct control. These service providers may provide key services related to
warehousing and inventory control, distribution, customer service, accounts receivable management, and cash collection. If we
retain a service provider, we would substantially rely on it as well as other third-party providers that perform services for us,
including entrusting our inventories of products to their care and handling. If these third-party service providers fail to comply
with applicable laws and regulations, fail to meet expected deadlines, or otherwise do not carry out their contractual duties to us,
or encounter physical or natural damage at their facilities, our ability to deliver product to meet commercial demand would be
significantly impaired and we may be subject to regulatory enforcement action.
In addition, we may engage third parties to perform various other services for us relating to pharmacovigilance and adverse event
reporting, safety database management, fulfillment of requests for medical information regarding our product candidates and
related services. If the quality or accuracy of the data maintained by these service providers is insufficient, or these third parties
otherwise fail to comply with regulatory requirements, we could be subject to regulatory sanctions.
Additionally, we may contract with a third party to calculate and report pricing information mandated by various government
programs. If a third party fails to timely report or adjust prices as required, or errors in calculating government pricing information
from transactional data in our financial records, it could impact our discount and rebate liability, and potentially subject us to
regulatory sanctions or False Claims Act lawsuits.
We currently depend, and expect to continue to depend, on collaborations with third parties for the development and
commercialization of some of our product candidates. If those collaborations are not successful, we may not be able to capitalize
on the market potential of these product candidates.
For each of our product candidates, we plan to evaluate the merits of retaining commercialization rights for ourselves or entering
into selective collaboration arrangements with leading pharmaceutical or biotechnology companies, such as our collaborations
with Roche and the SMA Foundation, for our spinal muscular atrophy program. We have entered into arrangements with certain
third parties to market or distribute Translarna for the treatment of nmDMD in certain countries and, as we continue to implement
our commercialization plans for Translarna, we anticipate that we will engage additional third parties to perform these functions
for us in other countries. We generally plan to seek collaborators for the development and commercialization of product candidates
that have high anticipated development costs, are directed at indications for which a potential collaborator has a particular expertise,
or involve markets that require a large sales and marketing organization to serve effectively. Our likely collaborators for any
marketing, distribution, development, licensing or broader collaboration arrangements may include: large and mid-size
pharmaceutical companies, regional and national pharmaceutical companies and/or biotechnology companies.
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We will have limited control over the amount and timing of resources that our collaborators dedicate to the development or
commercialization of our product candidates and our collaborators will be subject to the same product development and
commercialization risks that we are subject to. Our ability to generate revenues from these arrangements will depend on our
collaborators’ desire and ability to successfully perform the functions assigned to them in these arrangements. In particular, the
successful development of a product candidate from our spinal muscular atrophy program will depend on the success of our
collaborations with the SMA Foundation and Roche, including whether Roche continues clinical development of risdiplam or
pursues clinical development of any other compounds identified under the collaborations.
Collaborations involving our product candidates, including our collaborations with the SMA Foundation and Roche, pose the
following risks to us:
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collaborators have significant discretion in determining the efforts and resources that they will apply to these
collaborations;
collaborators may not pursue development and commercialization of our product candidates or may elect not to continue
or renew development or commercialization programs, based on clinical trial results, changes in the collaborators’
strategic focus or available funding, or external factors such as an acquisition that diverts resources or creates competing
priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or
abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate
for clinical testing;
collaborators could independently develop, or develop with third parties, products that replace or compete directly or
indirectly with our products or product candidates if the collaborators believe that competitive products are more likely
to be successfully developed or can be commercialized under terms that are more economically attractive than ours;
collaborators may fail to comply with the applicable regulatory requirements, subjecting them or us to potential
regulatory enforcement action;
a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to
the marketing and distribution of such product or products;
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information
in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information
or expose us to potential litigation;
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential
liability;
disputes may arise between the collaborator and us as to the ownership of intellectual property arising during the
collaboration;
• we may grant exclusive rights for our products or product candidates to our collaborators, which would prevent us
from collaborating with others, or from using our products or product candidates ourselves;
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disputes may arise between the collaborators and us that result in the delay or termination of the collaboration, which
may include ending research, development or commercialization activities for our products or product candidates or
that result in costly litigation or arbitration that diverts management attention and resources; and
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further
development or commercialization of the applicable product candidates.
Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner
or at all. If a collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product
development or commercialization program could be delayed, diminished or terminated.
Our business and operations would suffer in the event of computer system failures, cyber-attacks or a deficiency in our, or our
collaborators’ or third-party vendors’, cyber-security.
We collect, store and transmit large amounts of confidential information, including personal information, operational and financial
transactions and records, clinical trial data and information relating to intellectual property, on internal information systems and
through the information systems of collaborators and third-party vendors with whom we contract. Despite our implementation of
security measures, these information systems are vulnerable to damage from computer viruses, malware, natural disasters, terrorism,
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war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet or other mechanisms, attachments
to emails, persons inside our organization, or persons with access to systems inside our organization. No such security measures
can eliminate the possibility of the information systems' improper functioning or the improper access or disclosure of confidential
or personally identifiable information such as in the event of cyber-attacks. The risk of a security breach or disruption, particularly
through cyber-attacks or cyber-intrusion, including by computer hackers, criminals, foreign governments, and cyber terrorists,
has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have
increased. Additionally, outside parties may attempt to fraudulently induce employees, collaborators, or other third-party vendors
to disclose sensitive information or take other actions, including making fraudulent payments or downloading malware, by using
“spoofing” and “phishing” emails or other types of attacks. If such an event were to occur and cause interruptions in our operations,
it could result in a material disruption of our clinical and commercialization activities and business operations, in addition to
possibly requiring substantial expenditures of resources to remedy. For example, the loss of clinical trial data from completed or
ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to
recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage to our data
or applications, or inappropriate disclosure of confidential or proprietary information, we could incur material legal claims and
liability, damage to our reputation, suffer loss or harm to our intellectual property rights, face significant financial exposure,
including incurring significant costs to remediate possible injury to the affected parties and the further research, development and
commercial efforts of our products and product candidates could be delayed.
Product liability lawsuits against us could cause us to incur substantial liabilities and to limit clinical trials or commercialization
of any current or future products.
We face an inherent risk of product liability exposure related to the commercialization of Translarna, Emflaza and any other product
that we may market or commercialize, and in connection with the human clinical trials testing of our products and product
candidates. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we
will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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reduced resources of our management to pursue our business strategy;
decreased demand for our products or any product candidates that we may develop;
injury to our reputation and significant negative media attention;
the inability to continue current clinical trials or begin planned clinical trials;
• withdrawal or reduced enrollment of clinical trial participants;
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significant costs to defend the related claims/litigation;
increased insurance costs, or an inability to maintain appropriate insurance coverage;
substantial monetary awards to trial participants, patients and/or their families;
loss of revenue;
the inability to commercialize or to continue commercializing any products or product candidates;
initiation of investigations and enforcement actions by regulators; and
the withdrawal of products from the market, product recalls, or the cessation of development or regulatory disapproval
of product candidates or withdrawal of approvals, as well as labeling, marketing, or promotional restrictions.
We have product liability insurance that covers our commercial sales, sales pursuant to reimbursed EAP programs and clinical
trials up to a $25.0 million annual aggregate limit, and subject to a per claim deductible. Our insurance limits may not be adequate
to cover all liabilities and defense costs that we may incur. We may need to further increase our insurance coverage as we
commercialize Translarna and Emflaza, or as and when we begin commercializing any other product candidate that receives
marketing authorization. The cost of insurance coverage is highly variable, based on a wide range of factors. We may not be able
to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability or defense costs that may
arise.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties
or incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures
and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations currently, and may in
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the future, involve the use of hazardous and flammable materials, including chemicals and medical and biological materials, and
produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and wastes, we cannot
eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use
of hazardous materials or disposal of hazardous wastes, we could be held liable for any resulting damages, and any liability could
exceed our resources.
Although we maintain workers’ compensation insurance to cover us for costs and expenses, we may incur due to injuries to our
employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential
liabilities. We also maintain liability insurance for some of these risks, but our liability policy excludes pollution and has an
aggregate coverage limit of $11.0 million.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and
regulations. These current or future laws and regulations may impair our research, development or manufacturing and distribution
efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain
and motivate qualified personnel.
We are highly dependent on Dr. Stuart W. Peltz, our co-founder and Chief Executive Officer, and the other principal members of
our executive and scientific teams. Although we have formal employment agreements with each of our executive officers, these
agreements do not prevent our executives from terminating their employment with us at any time. We do not maintain “key person”
insurance on any of our executive officers. The loss of the services of any of these persons might impede the achievement of our
research, development and commercialization objectives.
Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our
success. Additionally, because the field of gene therapies is new, we might face a shortage of skilled individuals with substantial
gene therapy experience. As a result, competition for skilled personnel, including in gene therapy research and vector manufacturing,
is intense and the turnover rate can be high. We may not be able to attract and retain these personnel on acceptable terms given
the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience
competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on
consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and
commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments
under consulting or advisory contracts with other entities that may limit their availability to us.
We are in the process of expanding our development, regulatory, and sales and marketing capabilities, and as a result, we may
encounter difficulties in managing our growth, which could disrupt our operations.
In connection with our commercialization plans and business strategy, including our continued commercialization of Translarna
and Emflaza, our regulatory and, if approved, commercial plans for PTC-AADC, Tegsedi and Waylivra and other product
candidates, we have experienced and may to continue to experience significant growth in our employee base for sales, marketing,
operational, managerial, financial, human resources, drug development, quality, regulatory and medical affairs and other areas.
This growth has imposed and will continue to impose significant added responsibilities on members of management, including
the need to recruit, hire, retain, motivate and integrate additional employees, including employees who joined us in connection
with our acquisition of Agilis. Also, our management may have to divert a disproportionate amount of its attention away from our
day-to-day activities and devote a substantial amount of time to managing these growth activities, including the integration of
Agilis. To manage our recent and anticipated future growth, we must continue to implement and improve our managerial, operational
and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited
financial resources and the limited experience of our management team in managing a company with such growth, we may not
be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. In addition, we
may need to adjust the size of our workforce as a result of changes to our expectations for our business, which can result in diversion
of management attention, disruptions to our business, and related expenses. For example, following our receipt of the Refuse to
File letter from the FDA in 2016, we implemented a reorganization of our operations in March 2016 that resulted in a one-time
charge for the related work-force reduction. The physical expansion of our operations may lead to significant costs and may divert
our management and business development resources. Any inability to manage growth could delay the execution of our business
plans or disrupt our operations.
Risks Related to our Intellectual Property
If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection
is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours,
and our ability to successfully commercialize our technology and products may be adversely affected.
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Our success depends in large part on our ability to obtain and maintain patent protection or other intellectual property rights in
the United States and other countries with respect to our proprietary technology and products. One primary way that we seek to
protect our proprietary position is by filing patent applications in the United States and in certain foreign jurisdictions related to
our novel technologies, product and product candidates that are important to our business. This process is expensive and time-
consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in
a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before
it is too late to obtain patent protection. Moreover, if we license technology or product candidates from third parties in the future,
these license agreements may not permit us to control the preparation, filing and prosecution of patent applications, or to maintain
or enforce the patents, covering this intellectual property. These agreements could also give our licensors the right to enforce the
licensed patents without our involvement, or to decide not to enforce the patents at all. Therefore, in these circumstances, these
patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and
factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability
and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents
being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing
competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States
and other countries may diminish the value of our patents or narrow the scope of our patent protection.
The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, patent
law in many countries restricts the patentability of methods of treatment of the human body more than U.S. law does. In addition,
we may not pursue or obtain or be able to pursue or obtain patent protection in all major markets. Assuming the other requirements
for patentability are met, currently, the first to file a patent application is generally entitled to the patent. However, prior to March 16,
2013, in the United States, the first to invent was entitled to the patent. Publications of discoveries in the scientific literature often
lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published
until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to
make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of
such inventions. In addition, the Leahy-Smith America Invents Act of 2011 (the “Act”), which reformed certain patent laws in the
U.S., may create additional uncertainty. The significant changes engendered by the Act include switching from a “first-to-invent”
system to a “first-to-file” system, and the implementation of new procedures that permit competitors to challenge our patents in
the USPTO after grant, including inter partes review and post grant review.
Moreover, we may be subject to a third party anonymously submitting prior art to a patent office or may become involved in
addressing patentability objections based on third-party submission of references, or may become involved in oppositions,
derivation proceedings, reexamination, inter partes review, post grant review, interference proceedings or other patent office
proceedings or litigation, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse
determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow
third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our
inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or
strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating
with us to license, develop or commercialize our product or current or future product candidates.
Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection,
prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be
able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing
manner. In addition, other companies may attempt to circumvent any regulatory data protection or market exclusivity that we
obtain under applicable legislation, which may require us to allocate significant resources to prevent such circumvention. Legal
and regulatory developments in the European Union and elsewhere may also result in clinical trial data and other information,
that would ordinarily be treated as trade secret, submitted as part of a marketing authorization application becoming publicly
available. The EMA Policy on publication of clinical data and other such information, as well as the current application of European
Union freedom of information regulations, could impact our proprietary information (comprising both clinical and non-clinical
data and other information) that would normally be maintained by a regulatory body as commercially confidential. Such
developments could enable other companies to circumvent our intellectual property rights and use our clinical trial data or other
information to obtain marketing authorizations in the European Union and in other jurisdictions where we have not been able to
obtain any intellectual property or regulatory protection, resulting in loss of market share. Such developments may also require
us to allocate significant resources or engage in litigation to prevent other companies from circumventing or violating our intellectual
property rights. Our attempts to prevent third parties from circumventing our intellectual property and other rights may ultimately
be unsuccessful. We may also fail to take the required actions or pay the necessary fees to maintain our patents.
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For example, during 2015, we were notified by the EMA that it had received from another pharmaceutical company a request
under Regulation (EC) No 1049/2001 seeking access to aspects of our marketing authorization for Translarna for the treatment
of nmDMD. Following the decision of the EMA to release such documentation with only minimal redactions we initiated litigation
before the General Court of the European Union to prevent disclosure of this information. In the first quarter of 2018, the Court
ruled in favor of the EMA, allowing the EMA to release the documentation. We have appealed the General Court’s decision to
the Court of Justice of the European Union and the EMA has confirmed that it will not release the documents while the matter is
still subject to the appeal process. However, there can be no assurance that we will be successful in the appeal and we may not
ultimately succeed in preventing disclosure of the data in our marketing authorization for Translarna for the treatment of nmDMD.
An issued patent may be challenged as to its inventorship, scope, validity or enforceability, and our owned and licensed patents
may be challenged on such a basis in the courts or patent offices in the United States and abroad. Such challenges may result in
loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in
part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or
limit the duration of the patent protection of our technology and products. Given the amount of time required for the development,
testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after
such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others
from commercializing products similar or identical to ours.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive,
time consuming and unsuccessful.
Competitors may infringe our patents, trademarks, copyrights, trade secrets or other intellectual property. To counter infringement
or unauthorized use, we may be required to file a lawsuit and claims for damages, which can be expensive and time consuming.
Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we
infringe their intellectual property or defenses, such that they do not infringe our intellectual property or that our intellectual
property is invalid or unenforceable. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is
invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or may refuse to stop the other party from
using the technology at issue on the grounds that our patents do not cover the technology in question.
Third parties may initiate legal proceedings alleging that our patents are invalid and unenforceable or that we are infringing
their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the
success of our business.
Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell
our products and our product candidates and use our proprietary technologies without infringing the intellectual property and other
proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical
industries, and we may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual
property rights with respect to our products and technology, including interference or derivation proceeding, inter partes review
or post-grant review proceedings before the U.S. Patent and Trademark Office. The risks of being involved in such litigation and
proceedings may also increase as our product candidates are disclosed while approaching commercialization, and as we gain
greater visibility as a public company. Third parties may assert infringement claims against us based on existing or future intellectual
property rights. We may not be aware of all such intellectual property rights potentially relating to our product and our product
candidates. Since patent applications in the United States and other jurisdictions are typically not published until 18 months after
filing, or in some cases not at all, with new publications occurring continuously, there may be patents or patent applications relating
to our product or our product candidates that we are unaware of. There may also be pending or future patent applications that, if
issued, would block us from commercializing Translarna, Emflaza, PTC-AADC, Tegsedi. Waylivra or risdiplam. Thus, we do not
know with certainty whether Translarna, Emflaza, PTC-AADC, Tegsedi, Waylivra, risdiplam or any of our other product candidates,
or our commercialization thereof, would or would not infringe any third party’s intellectual property.
If we are found to infringe a third party’s intellectual property rights, or in order to avoid or settle litigation, we could be required
to obtain a license to continue developing and marketing our products and technology. However, we may not be able to obtain
any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive,
thereby giving our competitors access to the same technologies licensed to us, and could require us to make substantial payments.
We could be forced, including by court order, to cease commercializing an alleged infringing technology or product. In addition,
we could be found liable for monetary damages, including treble damages and attorney’s fees if we are found to have willfully
infringed a patent or other intellectual property right. A finding of infringement could prevent us from commercializing our product
or our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims
that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact
on our business.
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For example, it is possible that one or more third parties might bring a patent infringement or other legal proceeding against us
regarding Translarna or Emflaza. In order to successfully challenge the validity of any issued U.S. patent that may allegedly include
ataluren or deflazacort within the scope of a granted claim, we would need to overcome that patent’s presumption of validity in
district court or prove unpatentability by a preponderance of the evidence before the USPTO. There is no assurance that a court
or the USPTO would find these claims to be invalid or unpatentable, respectively. In addition, we believe that the public notice
given by our testing of ataluren in clinical trials for the purpose of seeking FDA approval would be a valid defense against any
infringement claims in the United States prior to commercialization based on the availability of any statutory research exemptions.
However, there can be no assurance that our interpretation of the exemption would be upheld.
We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property,
or claiming ownership of what we regard as our own intellectual property.
Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including
our competitors or potential competitors. Although we try to ensure that our employees do not use the proprietary information or
know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual
property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be
necessary to defend against these claims.
In addition, while we typically require our employees and contractors who may be involved in the development of intellectual
property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement
with each party who in fact develops intellectual property that we regard as our own. Our and their assignment agreements may
not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may
bring against us, to determine the ownership of what we regard as our intellectual property.
If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in
substantial costs and be a distraction to management.
Intellectual property litigation could cause us to spend substantial resources and could distract our personnel from their normal
responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur
significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition,
there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common
stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for
development, sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately
conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings
more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation
of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
Without patent protection, our marketed products may face generic competition.
Certain of the products we market have no or limited patent protection and, as a result, potential competitors face fewer regulatory
barriers in introducing competing products. Without patent protection or other regulatory exclusivity, we may not be able to exclude
others from, among other things, selling or importing similar products in any jurisdiction. In some instances, we may rely on trade
secrets and other unpatented proprietary information to protect our commercial position with respect to such products, although
we may be unable to provide adequate protection for our commercial position via these means. In other instances, we may need
to rely on regulatory exclusivity to protect our commercial position.
Furthermore, generic competition against a branded product often results in decreases in the prices at which the branded product
can be sold, particularly when there is more than one generic product available in the marketplace. Third-party companies could
also develop products that are similar, but not identical, to our marketed products, such as an alternative formulation of our product
or an alternative formulation combined with a different delivery technology, and seek approval in the United States by referencing
our products and relying, to some degree, on the FDA’s finding that our products are safe and effective in their approved indications.
In addition, legislation enacted in the United States allows for, and in a few instances, in the absence of specific instructions from
the prescribing physician, mandates the dispensing of generic products rather than branded products where a generic version is
available.
On February 9, 2017, the FDA approved the corticosteroid Emflaza (deflazacort) for the treatment of patients 5 years and older
with DMD. Although approved for other indications outside of the United States, this was the first approval for deflazacort in the
United States and the first approval in the United States for the use of a corticosteroid to treat DMD.
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We rely on regulatory exclusivity for Emflaza and currently have no issued patents that could prevent a third-party company from
seeking to introduce a generic Emflaza formulation in the United States for the treatment of DMD or another indication, and we
may never be able to obtain such patent protection. Such third-party companies may also obtain patents covering a new deflazacort
formulation or method of use, and attempt to assert such patents against us.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patents and regulatory exclusivity for some of our technology and products, we also rely on trade secrets,
including unpatented know-how, technology and other proprietary information, to maintain our competitive position. More
particularly, we may rely on trade secrets and other unpatented proprietary information to protect our competitive position related
to Translarna and Emflaza, especially when patent protection is not obtainable. We seek to protect these trade secrets, in part, by
entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate
collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors, partners and other third parties. We
also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. However, we
cannot guarantee that we have executed these agreements with each party that may have or have had access to our trade secrets
or that the agreements we have executed will provide adequate protection. Any party with whom we have executed such an
agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be
able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade
secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside
the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or
independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from
using that technology or information to compete with us. If any of our trade secrets were to be obtained or independently developed
by a competitor, our competitive position would be harmed. If our employees, corporate collaborators, outside scientific
collaborators, contract manufacturers, employees, consultants, advisors, partners and other third parties develop new inventions
or processes related to Translarna or Emflaza independently, or jointly with us, that may be applicable to our products under
development, disputes may arise about ownership or proprietary rights to those inventions and processes. Enforcing a claim that
a third party illegally obtained and is using any of our inventions or trade secrets is expensive and time-consuming, and the outcome
is unpredictable. In addition, courts outside of the United States are sometimes less willing to protect trade secrets. Moreover, our
competitors may independently develop equivalent knowledge, methods and know-how.
We have not yet registered our trademarks in all of our potential markets, and failure to secure those registrations could
adversely affect our business.
Our trademark applications may be refused registration, and our registered trademarks may not be maintained or may be found
to be unenforceable. During trademark examination proceedings, our trademark applications may be rejected. Although we are
given an opportunity to respond to those rejections, we may not be able to overcome them. In addition, in the U.S. Patent and
Trademark Office and Trademark Offices in many foreign jurisdictions, third parties are given an opportunity to oppose pending
trademark applications or to seek cancellation of registered trademarks. Opposition or cancellation proceedings may be filed
against our trademarks, and our trademarks may not survive such proceedings. In addition, if we do not secure registrations for
our trademarks, we may encounter difficulty enforcing our trademark rights against third parties in the jurisdictions where we do
not have registered rights.
If we are not able to obtain adequate trademark protection or regulatory approval for our brand names, including Translarna
and Emflaza, we may be required to re-brand affected products, which could cause delays in getting such products to market
and substantially increase our costs.
To protect our rights in any trademark we intend to use for our products or our product candidates, including Translarna and
Emflaza, we may seek to register such trademarks. Trademark registration is territory-specific and we must apply for trademark
registration in the United States as well as any other country where we intend to commercialize our product or product candidates.
Failure to obtain trademark registrations may place our use of the trademarks at risk or make them subject to legal challenges,
which could force us to choose alternative names for our product or product candidates. In addition, the FDA, and other regulatory
authorities outside the United States, conduct an independent review of proposed product names for pharmaceuticals, including
an evaluation of the potential for confusion with other pharmaceutical product names for medications, which could result in
medication errors in prescribing, dispensing and consumption. These regulatory authorities may also object to a proposed product
name if they believe the name inappropriately makes or implies a therapeutic claim. If the FDA or other regulatory authorities
outside the United States object to any of our proposed product names, we may be required to adopt alternative names for our
product or product candidates. If we adopt alternative names, either because of our inability to obtain a trademark registration or
because of objections from regulatory authorities, we would lose the benefit of our existing trademark applications and the rights
attached thereto. Consequently, we may be required to expend significant additional resources in an effort to adopt a new product
name that would be registrable under applicable trademark laws, not infringe the existing rights of third parties and be acceptable
to the FDA and other regulatory authorities, which could cause delays in getting our products to market and substantially increase
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our costs. Furthermore, we may not be able to build a successful brand identity for a new trademark in a timely manner or at all,
which would limit our ability to commercialize our product or our product candidates.
Our rights to develop and commercialize PTC-AADC and our other potential gene therapy product candidates are subject, in
part, to the terms and conditions of licenses granted to us by others.
We depend upon the intellectual property rights granted to us under licenses from third parties that are important or necessary to
the development of PTC-AADC for the treatment of AADC deficiency and our other potential gene therapy product candidates.
In particular, we have in-licensed certain intellectual property rights and know-how from the National Taiwan University, or NTU,
relevant to PTC-AADC for the treatment of AADC deficiency. Any termination of these licenses could result in the loss of
significant or all rights licensed to us and could harm or prevent our ability to commercialize PTC-AADC for the treatment of
AADC deficiency and our other potential gene therapy product candidates. Each of our existing gene therapy licensing agreements
are exclusive but are limited to particular fields, such as AADC deficiency and are subject to certain retained rights. In addition,
absent an amendment or additional agreement, we may not have the right to use intellectual property in-licensed for one of our
programs for use in another program.
Our current gene therapy license agreements, including our agreement with NTU pursuant to which we have in-licensed certain
intellectual property rights and know-how relevant to PTC-AADC for the treatment of AADC deficiency, or the License
Agreement, impose various obligations, including certain payment obligations, including contingent payments to be made upon
reaching certain development and regulatory milestones. If we fail to satisfy our obligations, the licensor may have the right to
terminate the agreement. Disputes may arise between us and any of our licensors regarding intellectual property subject to such
agreements and other issues. Such disputes over intellectual property that we have licensed or the terms of our license agreements,
including with respect to PTC-AADC for the treatment of AADC deficiency, may prevent or impair our ability to maintain our
current arrangements on acceptable terms, or at all, or may impair the value of the arrangement to us. Any such dispute could have
a material adverse effect on our business and our ability to realize the anticipated benefits of our acquisition of Agilis. If we cannot
maintain a necessary license agreement, including with respect to PTC-AADC for the treatment of AADC deficiency, or if the
agreement is terminated, we may be unable to successfully develop and commercialize the affected product candidates.
If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, we
could lose rights that are important to our business.
We are a party to a number of license agreements and expect to enter into additional licenses in the future. Our existing licenses
impose, and we expect that future licenses will impose, various diligence, milestone payment, royalty, insurance and other
obligations on us. If we fail to comply with these obligations, the licensor may have the right to terminate the license, in which
event we might not be able to market any product that is covered by these agreements, which could materially adversely affect
the value of the product candidate being developed under such license agreement. Termination of these license agreements or
reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable
terms, or cause us to lose rights in important intellectual property or technology.
We have also received grant funding for some of our development programs from philanthropic organizations and patient advocacy
groups pursuant to agreements that impose development and commercialization diligence obligations on us. If we fail to comply
with these obligations, the applicable organization could require us to grant to the organization exclusive rights under certain of
our intellectual property, which could materially adversely affect the value to us of product candidates covered by that intellectual
property even if we are entitled to a share of any consideration received by such organization in connection with any subsequent
development or commercialization of the product candidates.
Some of our patented technology was developed with U.S. federal government funding. When new technologies are developed
with U.S. government funding, the government obtains certain rights in any resulting patents, including a nonexclusive license
authorizing the government to use the invention for non-commercial purposes. These rights may permit the government to disclose
our confidential information to third parties and to exercise “march-in” rights to use or allow third parties to use our patented
technology. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve
practical application of the U.S. government-funded technology, because action is necessary to alleviate health or safety needs,
to meet requirements of federal regulations or to give preference to U.S. industry. In addition, U.S. government-funded inventions
must be reported to the government and U.S. government funding must be disclosed in any resulting patent applications.
Furthermore, our rights in such inventions are subject to government license rights and certain restrictions on manufacturing
products outside the United States.
Risks Related to our Common Stock
Servicing the Convertible Notes requires a significant amount of cash. We may not have sufficient cash flow from our business
to make payments on our debt, and we may not have the ability to raise the funds necessary to settle conversions of, or to
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repurchase, the Convertible Notes upon a fundamental change, which could adversely affect our business, financial condition
and results of operations.
In August 2015, we incurred indebtedness in the amount of $150.0 million in aggregate principal with additional accrued interest
under the Convertible Notes, for which interest is payable semi-annually in arrears on February 15 and August 15 of each year,
beginning on February 15, 2016. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance the
Convertible Notes depends on our future performance, which is subject to economic, financial, competitive and other factors
beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt, including
the Convertible Notes. If we are unable to generate cash flow, we may be required to adopt one or more alternatives, such as selling
assets, restructuring debt or obtaining additional equity capital on terms that may be unfavorable to us or highly dilutive. Our
ability to refinance our indebtedness will depend on the capital markets and our financial condition at the time we seek to refinance
such indebtedness. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which
could result in a default on our debt obligations.
In addition, upon conversion of the Convertible Notes unless we elect to deliver solely shares of our common stock to settle such
conversion (other than paying cash in lieu of delivering any fractional shares), we will be required to make cash payments in
respect of the Convertible Notes being converted. However, we may not have enough available cash or be able to obtain financing
at the time we are required to repurchase Convertible Notes, to pay the Convertible Notes at maturity or to pay cash upon conversions
of Convertible Notes. In addition, our ability to repurchase Convertible Notes or to pay cash upon conversions of Convertible
Notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase
Convertible Notes at a time when the repurchase is required by the indenture, to make interest payments on the Convertible Notes
when due under the indenture or to pay any cash payable on future conversions of the Convertible Notes as required by the indenture
would constitute a default under the indenture. An event of default under the indenture governing the Convertible Notes or the
fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the repayment of
any such related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds
to repay the indebtedness, repurchase the Convertible Notes, make interest payments on the Convertible Notes or make cash
payments upon conversions of the Convertible Notes.
In addition, even if holders of the Convertible Notes do not elect to convert their Convertible Notes, we could be required under
applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather
than long-term liability, which would result in a material reduction of our net working capital. Any of these factors could materially
and adversely affect our business, financial condition and results of operations.
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be
beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current
management.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in
control of us that stockholders may consider favorable, including transactions in which our stockholders might otherwise receive
a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares
of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is
responsible for appointing our management team, these provisions may frustrate or prevent any attempts by our stockholders to
replace or remove our current management by making it more difficult for stockholders to replace members of our board of
directors. Among other things, these provisions:
•
•
•
•
•
•
•
provide for a classified board of directors such that not all members of the board are elected at one time;
allow the authorized number of our directors to be changed only by resolution of our board of directors;
limit the manner in which stockholders can remove directors from the board;
establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and
nominations to our board of directors;
require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our
stockholders by written consent;
limit who may call stockholder meetings;
authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute
a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing
acquisitions that have not been approved by our board of directors; and
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•
require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to
amend or repeal certain provisions of our charter or bylaws.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General
Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining
with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding
voting stock, unless the merger or combination is approved in a prescribed manner.
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers
of our common stock and lawsuits against us and our officers and directors.
Our stock price has been and will likely continue to be volatile. The stock market in general and the market for smaller pharmaceutical
and biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating
performance of particular companies. As a result of this volatility, our stockholders may not be able to sell their common stock at
or above the price at which they purchased it. The market price for our common stock may be influenced by many factors, including:
•
•
•
•
•
•
•
•
•
•
our ability to realize the anticipated benefits of our acquisition of Agilis, including our ability to obtain marketing
approval for PTC-AADC;
any developments related to our ability or inability to execute our strategy for Emflaza for the treatment of DMD in
the United States, in particular with respect to our commercialization efforts;
our ability to resolve the matters set forth in the FDA's denial of our appeal to the Complete Response Letter we received
from the FDA in connection with our NDA for Translarna for the treatment of nmDMD, and our ability to perform
additional clinical trials, non-clinical studies or CMC assessments or analyses at significant cost;
our ability to maintain our marketing authorization for Translarna for the treatment of nmDMD in the EEA, which is
subject to the specific obligation to conduct Study 041 and is also subject to annual review and renewal by the European
Commission following reassessment of the benefit-risk balance of the authorization by the EMA;
our ability to commercialize Tegsedi and Waylivra in the PTC Territory;
any developments related to Study 041, including with respect to design, timing, conduct, and enrollment, and
developments with respect to any clinical or non-clinical trial required by other regulatory agencies, including the FDA
for Translarna for the treatment of nmDMD;
results of clinical trials of Translarna and any other product candidate that we develop;
announcements by us or our competitors of significant acquisitions, licenses, strategic collaborations, joint ventures,
collaborations or capital commitments;
negative publicity around our products or product candidates;
other developments concerning our regulatory submissions;
• whether regulators in other territories agree with our interpretation of the results of ACT DMD;
•
•
•
•
•
•
•
•
•
our ability to advance the commercialization of Translarna for the treatment of nmDMD;
the success of competitive products or technologies;
the development and regulatory status of risdiplam and our SMA program with Roche and the SMA Foundation;
results of clinical trials of product candidates of our competitors;
regulatory or legal developments in the United States and other countries;
developments or disputes concerning patent applications, issued patents or other proprietary rights;
the recruitment or departure of key personnel;
the level of expenses related to any of our products, product candidates or clinical development programs;
actual or anticipated changes in estimates as to financial results, development timelines or recommendations by
securities analysts;
•
variations in our financial results or those of companies that are perceived to be similar to us;
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•
changes in the structure of healthcare payment systems;
• market conditions in the pharmaceutical and biotechnology sectors;
•
•
general economic, industry and market conditions; and
the other factors described in this “Risk Factors” section.
Companies that have experienced volatility in the market price of their stock have frequently been the subject of securities class
action and shareholder derivative litigation. For example, in 2018 we settled a securities class action lawsuit initiated against us
and certain of our current and former executive officers during 2016, as well as derivative lawsuits brought against us, as a nominal
defendant, certain of our current and former executive officers and certain of our current and former directors during 2017. We
could be the target of other such litigation in the future. Class action and derivative lawsuits, whether successful or not, could
result in substantial costs, damage or settlement awards and a diversion of our management’s resources and attention from running
our business, which could materially harm our reputation, financial condition and results of operations.
We are currently incurring and expect to continue to incur increased costs as a result of operating as a public company,
including compliance with Section 404 of the Sarbanes-Oxley Act of 2002, and our management is and will continue to be
required to devote substantial time to compliance initiatives. In addition, the failure to establish and maintain adequate finance
infrastructure and accounting systems and controls could impair our ability to comply with the financial reporting and internal
controls requirements for publicly traded companies.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In
addition, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act, the listing requirements of The Nasdaq Global Select Market and
other applicable securities rules and regulations impose various requirements on public companies, including establishment and
maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel
have and will need to continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and
regulations have and will continue to increase our legal and financial compliance costs and will continue to make some activities
more time-consuming and costly. For example, these rules and regulations have made it more difficult and more expensive for us
to obtain director and officer liability insurance.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by our management
on the effectiveness of our internal control over financial reporting and an attestation report on internal control over financial
reporting issued by our independent registered public accounting firm. Compliance with Section 404, including documentation
and evaluation of our internal control over financial reporting, is both costly and challenging. If we are not able to comply with
the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner each year, we could be subject to sanctions or
investigations by the Securities and Exchange Commission, the Nasdaq Stock Market or other regulatory authorities which would
require additional financial and management resources and could adversely affect the market price of our common stock.
Furthermore, if we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be
harmed and investors could lose confidence in our reported financial information.
Because we do not anticipate paying any cash dividends on our capital in the foreseeable future, capital appreciation, if any,
will be our stockholders sole source of gain.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any,
to finance the development and growth of our business. In addition, the terms of any future debt agreements may preclude us from
paying dividends. As a result, capital appreciation, if any, of our common stock will be our stockholders sole source of gain for
the foreseeable future.
Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could significantly
reduce the market price of our common stock.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our
common stock.
We have issued a significant number of equity awards under our equity compensation plans or as inducement grants to new hire
employees pursuant to Nasdaq rules. The shares underlying these awards are or, with respect to certain option grants, will be
registered on a Form S-8 registration statement. As a result, upon vesting these shares can be freely exercised and sold in the public
market upon issuance, subject to volume limitations applicable to affiliates. The exercise of options and the subsequent sale of
the underlying common stock or the sale of restricted stock upon vesting could cause a decline in our stock price. These sales also
might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
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Certain of our employees, executive officers and directors have entered or may enter into Rule 10b5-1 plans providing for sales
of shares of our common stock from time to time. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters
established by the employee, director or officer when entering into the plan, without further direction from the employee, officer
or director. A Rule 10b5-1 plan may be amended or terminated in some circumstances. Our employees, executive officers and
directors may also buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic
information.
In connection with our acquisition of Agilis, we issued to the Agilis equityholders 3,500,907 shares of our common stock. Following
the acquisition, we registered these shares under the Securities Act, and such registration was terminated following the six-month
anniversary of the acquisition pursuant to the Agilis Merger Agreement. Any shares that have not yet been sold are currently
restricted as a result of securities laws. Following expiration of applicable holding periods, the shares will be able to be freely sold
in the public market subject to any requirements and restrictions, including any applicable volume limitations, imposed by Rule
144 under the Securities Act. The sale or resale of these shares in the public market, or the market’s expectation of such sales, may
result in an immediate and substantial decline in our stock price. Such a decline will adversely affect our investors and also might
make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal facilities consist of approximately 126,000 square feet of research and office space located at 100, 200, 250 and 400
Corporate Court, Middlesex Business Center, South Plainfield, New Jersey, that we occupy under leases that expire in 2024, with
two consecutive five-year renewal options to renew the leases after 2024 and at 4041 Hadley Road, South Plainfield New Jersey
that we occupy under a lease that will expire in 2022, with one three-year renewal option to renew the lease after 2022. We lease
approximately 6,500 square feet of office space in Dublin, Ireland, that we occupy under a lease that expires in 2024. Additionally,
we lease approximately 5,000 square feet of office space in Sao Paulo, Brazil, that we occupy under a lease that expires in 2022.
We also lease office space in other countries to support our operations as a global organization, but these leases are not material
to us.
Item 3. Legal Proceedings
From time to time in the ordinary course of our business, we are subject to claims, legal proceedings and disputes, including as a
result of patients seeking to participate in our clinical trials or otherwise gain access to our product candidates. We are not currently
aware of any material legal proceedings which we are a party to or of which any of our property is the subject.
Item 4. Mine Safety Disclosures
None.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities
Market Information
Our common stock has been publicly traded on the Nasdaq Global Select Market under the symbol “PTCT” since June 20, 2013.
Prior to that time, there was no public market for our common stock.
Holders
As of February 25, 2019, there were 84 holders of record of our common stock. This number does not include beneficial owners
whose shares are held in street name.
Recent Sales of Unregistered Securities
Inducement stock option awards
Pursuant to the Nasdaq inducement grant exception, during the quarter ended December 31, 2018, we issued options to purchase
an aggregate of 237,150 shares of common stock to certain new hire employees at a weighted-average exercise price of $35.51
per share. The shares underlying these option awards have been registered on a Form S-8 registration statement.
Purchase of Equity Securities
We did not purchase any of our registered equity securities during the period covered by this Annual Report on Form 10-K.
Item 6. Selected Financial Data
The following table sets forth certain financial data with respect to our business. The selected consolidated financial data is derived
from, and should be read in conjunction with, our Consolidated Financial Statements and related Notes and Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”, and other information contained elsewhere in this
Annual Report on Form 10-K.
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Statement of Operations Data:
Revenues:
Net product revenue
Collaboration and grant revenue
Total revenues
Operating expenses:
Year ended December 31,
2018
2017
2016
2015
2014
(In thousands, except per share data)
$
263,005
$
174,066
$
81,447
$
33,696
$
1,729
264,734
20,326
194,392
1,258
82,705
3,070
36,766
717
24,528
25,245
—
—
79,838
44,820
—
124,658
(99,413)
1,180
(213)
(98,446)
4,693
Cost of product sales, excluding amortization of
acquired intangible asset
Amortization of acquired intangible asset
Research and development
Selling, general and administrative
Change in the fair value of deferred and contingent
consideration
Total operating expenses
Loss from operations
Interest (expense) income, net
Other income (expense), net
Loss before income tax benefit (expense)
Income tax benefit (expense)
12,670
22,877
171,984
153,548
19,340
380,419
(115,685)
(12,554)
129
(128,110)
29
4,577
15,380
117,456
121,271
—
258,684
(64,292)
(12,094)
(1,279)
(77,665)
(1,335)
—
—
—
—
117,633
97,130
121,816
82,080
—
214,763
(132,058)
(8,276)
(1,207)
(141,541)
(569)
—
203,896
(167,130)
(2,367)
(465)
(169,962)
(485)
Net loss attributable to common stockholders
$ (128,081) $
(79,000) $ (142,110) $ (170,447) $
(93,753)
Net loss attributable to common stockholders per
share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
$
$
(2.75) $
(2.75) $
(2.02) $
(2.02) $
(4.17) $
(4.17) $
(5.07) $
(5.07) $
(2.97)
(2.97)
46,576,313
39,183,073
34,044,584
33,626,248
31,565,310
46,576,313
39,183,073
34,044,584
33,626,248
31,565,310
2018
2017
2016
2015
2014
As of December 31,
(In thousands)
Balance Sheet Data:
Cash, cash equivalents, and marketable securities
$
227,586
$
191,246
$
231,666
$
338,925
$
315,241
Working Capital
Total assets*
Total debt*
Accumulated deficit
Total stockholders’ equity
154,061
1,119,222
153,014
(938,923)
350,727
167,015
391,653
144,971
(814,108)
156,437
211,662
269,345
98,216
(735,108)
119,583
310,563
365,281
91,848
(592,998)
226,001
291,096
333,219
—
(422,551)
298,467
* Reclassified debt issuance costs of $2.8 million related to the Convertible Notes as of December 31, 2015 from Total
Assets and Long-term debt in connection with the adoption of ASU 2015-03.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with our financial
statements and the notes to those financial statements appearing elsewhere in this Annual Report on Form 10-K. This discussion
contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set
forth in Part I, Item 1A. Risk Factors, of this Annual Report on Form 10-K, our actual results may differ materially from those
anticipated in these forward-looking statements.
We are a science-led global biopharmaceutical company focused on the discovery, development and commercialization
of clinically-differentiated medicines that provide benefits to patients with rare disorders. Our ability to commercialize products
is the foundation that drives our continued investment in a robust pipeline of transformative medicines and our mission to provide
access to best-in-class treatments for patients who have an unmet medical need. Our strategy is to bring best-in-class therapies
with differentiated clinical benefit to patients affected by rare disorders and to leverage our global commercial infrastructure to
maximize value for our patients and other stakeholders.
We have two products, Translarna™ (ataluren) and Emflaza™ (deflazacort), for the treatment of Duchenne muscular
dystrophy, or DMD, a rare, life threatening disorder. Translarna received marketing authorization from the European Commission
in August 2014 for the treatment of nonsense mutation Duchenne muscular dystrophy, or nmDMD, in ambulatory patients
aged five years and older in the 31 member states of the European Economic Area, or EEA. In July 2018, the European Commission
approved a label-extension request to our marketing authorization for Translarna in the EEA to include patients from two to up to
five years of age. During the year ended December 31, 2018, we recognized $171.0 million in sales of Translarna. Translarna is
currently available for the treatment of nmDMD in over 40 countries on a commercial basis or through a reimbursed early access
program, or EAP program. We hold worldwide commercialization rights to Translarna for all indications in all territories. Emflaza
is approved in the United States for the treatment of DMD in patients five years and older. During the year ended December 31,
2018, Emflaza achieved net sales of $92.0 million.
Our marketing authorization for Translarna in the EEA is subject to annual review and renewal by the European
Commission following reassessment by the European Medicines Agency, or EMA, of the benefit-risk balance of the authorization,
which we refer to as the annual EMA reassessment. In July 2018, the European Commission renewed our marketing authorization,
making it effective, unless extended, through August 5, 2019. In February 2019, we submitted a marketing authorization renewal
request to the EMA. This marketing authorization is further subject to a specific obligation to conduct and submit the results of
a18-month, placebo-controlled trial, followed by an 18-month open-label extension, which we refer to together as Study 041. The
final report on the trial and open-label extension is to be submitted by us to the EMA by the end of the third quarter of 2021. Due
to enrollment at a slower pace in certain countries than initially expected, in our February 2019 marketing authorization renewal
request, we asked the EMA to extend the timeframe for submission of the results of Study 041 to the EMA to the end of the third
quarter of 2022.
Each country, including each member state of the EEA, has its own pricing and reimbursement regulations. In order to
commence commercial sale of product pursuant to our Translarna marketing authorization in any particular country in the EEA,
we must finalize pricing and reimbursement negotiations with the applicable government body in such country. As a result, our
commercial launch will continue to be on a country-by-country basis. We also have made, and expect to continue to make, product
available under EAP programs, both in countries in the EEA and other territories. Our ability to negotiate, secure and maintain
reimbursement for product under commercial and EAP programs can be subject to challenge in any particular country and can
also be affected by political, economic and regulatory developments in such country.
There is substantial risk that if we are unable to renew our EEA marketing authorization during any annual renewal cycle,
or if our product label is materially restricted, or if Study 041 does not provide the data necessary to maintain our marketing
authorization, we would lose all, or a significant portion of, our ability to generate revenue from sales of Translarna in the EEA
and other territories.
Translarna is an investigational new drug in the United States. During the first quarter of 2017, we filed a New Drug
Application, or NDA, for Translarna for the treatment of nmDMD over protest with the United States Food and Drug Administration,
or FDA. In October 2017, the Office of Drug Evaluation I of the FDA issued a Complete Response Letter for the NDA, stating
that it was unable to approve the application in its current form. In response, we filed a formal dispute resolution request with the
Office of New Drugs of the FDA. In February 2018, the Office of New Drugs of the FDA denied our appeal of the Complete
Response Letter. In its response, the Office of New Drugs recommended a possible path forward for the ataluren NDA submission
based on the accelerated approval pathway. This would involve a re-submission of an NDA containing the current data on
effectiveness of ataluren with new data to be generated on dystrophin production in nmDMD patients’ muscles. We intend to
follow the FDA’s recommendation and will collect, using newer technologies via procedures and methods that we designed, such
dystrophin data in a new study, Study 045, which we initiated in the fourth quarter of 2018. We expect that a potential re-submission
of an NDA could occur in 2020. Additionally, should a re-submission of an NDA receive accelerated approval, the Office of New
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Drugs stated that Study 041, which is currently enrolling, could serve as the confirmatory post-approval trial required in connection
with the accelerated approval framework.
There is substantial risk that Study 045, or any other studies we may use to collect the dystrophin data, will not provide
the necessary data to support a marketing approval for Translarna for the treatment of nmDMD in the U.S.
We have a pipeline of gene therapy product candidates for rare monogenic diseases that affect the central nervous system,
or CNS, including PTC-AADC for the treatment of Aromatic L-Amino Acid Decarboxylase, or AADC, deficiency, or AADC
deficiency, a rare CNS disorder arising from reductions in the enzyme AADC that result from mutations in the dopa decarboxylase
gene. We are preparing a biologics license application, or BLA, for PTC-AADC for the treatment of AADC deficiency in the
United States, which we anticipate submitting to the U.S. Food and Drug Administration, or FDA, in late 2019, with an anticipated
commercial launch in the United States in 2020. We are also preparing a marketing authorization application, or MAA, for PTC-
AADC for the treatment of AADC deficiency in the European Union, or EU, for submission to the European Medicines Agency,
or EMA, which will follow our BLA submission to the FDA.
We hold the rights for the commercialization of Tegsedi™ (inotersen) and Waylivra™ (volanesorsen) for the treatment
of rare diseases in countries in Latin America and the Caribbean pursuant to our Collaboration and License Agreement with Akcea
Therapeutics, Inc., or Akcea. Tegsedi has received marketing authorization in the United States, EU and Canada for the treatment
of stage 1 or stage 2 polyneuropathy in adult patients with hereditary transthyretin amyloidosis, or hATTR amyloidosis, and was
recently granted priority review by ANVISA, the Brazilian health regulatory authority. Waylivra is currently under regulatory
review in the EU for the treatment of familial chylomicronemia syndrome, or FCS.
We also have a spinal muscular atrophy, or SMA, collaboration with F. Hoffman-La Roche Ltd. and Hoffman-La
Roche Inc., which we refer to collectively as Roche, and the Spinal Muscular Atrophy Foundation, or SMA Foundation. Currently,
our collaboration has two pivotal clinical trials ongoing to evaluate the safety and effectiveness of risdiplam (RG7916, RO7034067),
the lead compound in the SMA program. Roche is preparing an NDA and a MAA for risdiplam for the treatment of SMA in the
United States and the EU, respectively, which Roche anticipates submitting to the FDA and the EMA in the second half of 2019.
In addition, we have a pipeline of product candidates and discovery programs that are in early clinical, pre-clinical and
research and development stages focused on the development of new treatments for multiple therapeutic areas, including rare
diseases and oncology.
Overview—Funding
The success of Translarna, Emflaza and any other product candidates we may develop, depends largely on obtaining and
maintaining reimbursement from governments and third-party insurers. During 2018, our revenues were generated from sales of
Translarna for the treatment of nmDMD in territories where we are permitted to distribute Translarna under our EAP programs
and in countries in the EEA where we were able to obtain acceptable commercial pricing and reimbursement terms, and from sales
of Emflaza for the treatment of DMD in the United States.
See “Item 1. Business—Commercial Matters—Market Access Considerations” for additional information and “Item 1A.
Risk Factors—Commercialization of Translarna has been in, and is expected to continue to take place in, countries that tend to
impose strict price controls, which may adversely affect our revenues. Failure to obtain and maintain acceptable pricing and
reimbursement terms for Translarna for the treatment of nmDMD in the EEA and other countries where Translarna is available
would delay or prevent us from marketing our product in such regions, which would adversely affect our business, results of
operations, and financial condition.”
On April 20, 2017, we completed our acquisition of all rights to Emflaza, or the Transaction, for total upfront consideration
comprised of $75.0 million in cash, funded through cash on hand, and 6,683,598 shares of our common stock, which was determined
by dividing $65.0 million by the volume weighted average price per share of our common stock on the Nasdaq Stock Market for
the 15 trading-day period ending on the third trading day immediately preceding the closing.
On May 5, 2017, we entered into a credit and security agreement, or the Credit Agreement, with MidCap Financial Trust,
or MidCap Financial, as administrative agent and MidCap Financial and other certain institutions as lenders thereto, that provides
for a senior secured term loan facility of $60 million, of which $40 million was drawn by us on May 5, 2017. Our ability to draw
on the remaining $20.0 million under the senior secured term loan facility expired on December 31, 2018. The maturity date of
the Credit Agreement is May 1, 2021, unless terminated earlier.
In April 2018, we closed an underwritten public offering of our common stock pursuant to a registration statement on
Form S-3. We issued and sold an aggregate of 4,600,000 shares of common stock under the registration statement at a public
offering price of $27.04 per share, including 600,000 shares issued upon exercise by the underwriters of their option to purchase
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additional shares. We received net proceeds of approximately $117.9 million after deducting underwriting discounts and
commissions and other offering expenses payable by us.
On August 23, 2018, we completed our acquisition of Agilis for total upfront consideration comprised of $49.2 million in
cash and 3,500,907 shares of our common stock, which was determined by dividing $150.0 million by the volume-weighted
average price per share of our common stock on the Nasdaq Global Select Market for the 10 consecutive trading-day period ending
on the second trading-day immediately preceding the closing.
In January 2019, we closed an underwritten public offering of our common stock pursuant to a registration statement on
Form S-3. We issued and sold an aggregate of 7,563,725 shares of common stock under the registration statement at a public
offering price of $30.20 per share, including 843,725 shares issued upon exercise by the underwriter of its option to purchase
additional shares in February 2019. We received net proceeds of approximately $224.1 million after deducting underwriting
discounts and commissions and other offering expenses payable by us.
To date, we have financed our operations primarily through our offering of 3.00% convertible senior notes due August 15,
2022, or the Convertible Notes offering, our public offerings of common stock in February 2014, in October 2014, in April 2018,
and in January 2019, our initial public offering of common stock in June 2013, private placements of our preferred stock,
collaborations, bank debt and convertible debt financings, the Credit Agreement and grants and clinical trial support from
governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed by our product candidates.
Since 2014, we have also relied on revenue generated from net sales of Translarna for the treatment of nmDMD in territories
outside of the United States, and since May 2017, we have generated revenue from net sales of Emflaza for the treatment of DMD
in the United States.
As of December 31, 2018, we had an accumulated deficit of $938.9 million. We had a net loss of $128.1 million and
$79.0 million for the fiscal years ended December 31, 2018 and 2017, respectively.
We anticipate that our expenses will continue to increase in connection with our commercialization efforts in the United
States, the EEA, Latin America and other territories, including the expansion of our infrastructure and corresponding sales and
marketing, legal and regulatory, distribution and manufacturing and administrative and employee-based expenses. In addition to
the foregoing, we expect to continue to incur significant costs in connection with Study 041 and Study 045 and our open label
extension trials of Translarna for the treatment of nmDMD as well as our studies for nonsense mutation aniridia and nonsense
mutation Dravet syndrome/CDKL5 and our FDA post-marketing requirements with respect to Emflaza in the United States and
studies for limb-girdle 2I. We also expect to incur ongoing research and development expenses for our other product candidates,
including our gene therapy. splicing and oncology programs. In addition, we may incur substantial costs in connection with our
efforts to advance our regulatory submissions. We have begun seeking and intend to continue to seek marketing authorization for
Translarna for the treatment of nmDMD in territories outside of the EEA and we may also seek marketing authorization for
Translarna for other indications. In late 2019, we plan to submit a request for marketing authorization for PTC-AADC with the
FDA, followed by a request for marketing authorization for PTC-AADC with the EMA and we recently submitted a request for
marketing authorization for Tegsedi with ANVISA. These efforts may significantly impact the timing and extent of our
commercialization expenses.
We may seek to expand and diversify our product pipeline through opportunistically in-licensing or acquiring the rights
to products, product candidates or technologies and we may incur expenses, including with respect to transaction costs, subsequent
development costs or any upfront, milestone or other payments or other financial obligations associated with any such transaction,
which would increase our future capital requirements.
With respect to our outstanding Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears,
which require total funding of $4.5 million annually. Additionally, under the terms of our Credit Agreement cash interest payments
are payable monthly in arrears. Furthermore, as a result of our initial public offering in June 2013, we have incurred and expect
to continue to incur additional costs associated with operating as a public company including significant legal, accounting, investor
relations and other expenses. See also, “The price of our common stock may be volatile and fluctuate substantially, which could
result in substantial losses for purchasers of our common stock and lawsuits against us and our officers and directors” under
Part II, Item 1A. Risk Factors - Risks Related to Our Common Stock.
We will need to generate significant revenues to achieve and sustain profitability, and we may never do so. Accordingly,
we may need to obtain substantial additional funding in connection with our continuing operations. Adequate additional financing
may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we
could be forced to delay, reduce or eliminate our research and development programs or our commercialization efforts.
Financial operations overview
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To date, our net product revenues have consisted solely of sales of Translarna for the treatment of nmDMD in territories
outside of the United States and sales of Emflaza for the treatment of DMD in the United States. Our process for recognizing
revenue is described below under “Critical accounting policies and significant judgments and estimates—Revenue recognition”.
Roche and the SMA Foundation Collaboration. In November 2011, we entered into a license and collaboration agreement,
or licensing agreement, with Roche and the SMA Foundation pursuant to which we are collaborating with Roche and the SMA
Foundation to further develop and commercialize compounds identified under our spinal muscular atrophy program with the SMA
Foundation. The research component of this agreement terminated effective December 31, 2014. The licensing agreement included
a $30 million upfront payment made in 2011 which was recognized on a deferred basis over the research term, and the potential
for up to $460 million in milestone payments and royalties on net sales.
In August 2013, we announced the selection of a development candidate, RG7800. The achievement of this milestone
triggered a $10.0 million payment to us from Roche, which we recorded as collaboration revenue for the year ended December 31,
2013.
In January 2014, we initiated a Phase 1 clinical program for RG7800, which triggered a $7.5 million milestone payment to
us from Roche which we recorded as collaboration revenue for the year ended December 31, 2014.
In November 2014, we announced that our joint development program in Spinal Muscular Atrophy (SMA) with Roche and
the SMA Foundation (SMAF) has started a Phase 2 study for RG7800 in adult and pediatric patients. The achievement of this
milestone triggered a $10 million payment to us from Roche which we recorded as collaboration revenue for the year ended
December 31, 2014.
In October 2017, we announced that the joint development program in SMA with Roche and SMAF had transitioned into
the pivotal second part of its study evaluating the efficacy and safety of RG7916 in pediatric and adult Type 2/3 SMA patients.
The achievement of this milestone triggered a $20.0 million payment to us from Roche which we recorded as collaboration revenue
at time of achievement.
Grant revenue. From time to time, we receive grant funding from various institutions and governmental bodies. The grants
are typically for early discovery research, and generally such grant programs last from two to five years.
Research and development expense
Research and development expenses consist of the costs associated with our research activities, as well as the costs associated
with our drug discovery efforts, conducting preclinical studies and clinical trials, manufacturing development efforts and activities
related to regulatory filings. Our research and development expenses consist of:
•
•
•
external research and development expenses incurred under agreements with third-party contract research organizations
and investigative sites, third-party manufacturing organizations and consultants;
employee-related expenses, which include salaries and benefits, including share-based compensation, for the personnel
involved in our drug discovery and development activities; and
facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and
maintenance of facilities, depreciation of leasehold improvements and equipment, and laboratory and other supplies.
We use our employee and infrastructure resources across multiple research projects, including our drug development
programs. We track expenses related to our clinical programs and certain preclinical programs on a per project basis.
We expect our research and development expenses to fluctuate in connection with our ongoing activities, particularly in
connection with Study 041 and other studies for Translarna for the treatment of nmDMD, our studies of Translarna in nonsense
mutation aniridia and nonsense mutation Dravet syndrome/CDKL5, our studies of Emflaza in limb-girdle 2I, activities under our
gene therapy, splicing and oncology programs, and performance of our FDA post-marketing requirements with respect to Emflaza
in the United States. The timing and amount of these expenses will depend upon the outcome of our ongoing clinical trials and
the costs associated with our planned clinical trials. The timing and amount of these expenses will also depend on the costs
associated with potential future clinical trials of our products or product candidates and the related expansion of our research and
development organization, regulatory requirements, advancement of our preclinical programs, and product and product candidate
manufacturing costs.
The following table provides research and development expense for our most advanced principal product development
programs, for the years ended December 31, 2018, 2017, and 2016.
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Year ended
December 31,
2018
2017
2016
(in thousands)
Translarna (nmDMD, nmCF, nmMPS I, aniridia and Dravet)
$
80,859
$
75,954
$
84,566
Gene therapy
Oncology
Next generation nonsense readthrough
Emflaza
Akcea
Other research and preclinical
Total research and development
6,534
16,438
6,735
16,461
11,957
33,000
—
4,481
5,609
7,053
—
—
7,532
6,428
—
—
24,359
19,107
$
171,984
$
117,456
$
117,633
We discontinued our clinical studies for nonsense mutation cystic fibrosis (nmCF) and nonsense mutation
mucopolysaccharidosis type I (nmMPS I) in 2017 and we expect the research and development costs for those programs to continue
to decline as we complete the wind down of those programs.
The successful development of our product and product candidates is highly uncertain. This is due to the numerous risks
and uncertainties associated with developing drugs, including the uncertainty of:
•
•
•
•
•
•
the scope, rate of progress and expense of our clinical trials and other research and development activities;
the potential benefits of our product and product candidates over other therapies;
our ability to market, commercialize and achieve market acceptance for our product or any of our product candidates
that we are developing or may develop in the future, including our ability to negotiate pricing and reimbursement terms
acceptable to us;
clinical trial results;
the terms and timing of regulatory approvals; and
the expense of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights.
A change in the outcome of any of these variables with respect to the development of Translarna or any other product
candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For
example, if the EMA or FDA or other regulatory authority were to require us to conduct clinical trials beyond those which we
currently anticipate will be required for the completion of clinical development of Translarna or any other product candidate or if
we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional
financial resources and time on the completion of clinical development.
Selling, general and administrative expense
Selling, general and administrative expenses consist primarily of salaries and other related costs for personnel, including
share-based compensation expenses, in our executive, legal, business development, finance, accounting, information technology
and human resource functions. Other selling, general and administrative expenses include facility-related costs not otherwise
included in research and development expense; advertising and promotional expenses; costs associated with industry and trade
shows; and professional fees for legal services, including patent-related expenses, accounting services and miscellaneous selling
costs.
We expect that selling, general and administrative expenses will increase in future periods in connection with our continued
efforts to commercialize Emflaza in the United States, and our continued efforts to commercialize Translarna for the treatment of
nmDMD in territories outside the United States, including increased payroll, expanded infrastructure, commercial operations,
increased consulting, legal, accounting and investor relations expenses.
Interest expense, net
Interest expense, net consists of interest income earned on investments and interest expense from the Convertible Notes
outstanding and interest expense from the Credit Agreement.
Critical accounting policies and significant judgments and estimates
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Our management’s discussion and analysis of our financial condition and results of operations is based on our financial
statements, which we have prepared in accordance with generally accepted accounting principles in the United States. The
preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported
revenues and expenses during the reporting periods. Actual results may differ from these estimates under different assumptions
or conditions.
Revenue recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2014-9, “Revenue from Contracts with Customers (Topic 606)”. ASU No. 2014-9 eliminated transaction- and industry-specific
revenue recognition guidance under FASB Accounting Standards Codification (“ASC”) Subtopic 605-15, Revenue Recognition-
Products (Topic 605) and replaced it with a principle-based approach for determining revenue recognition. ASC Topic 606 requires
entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. On January 1, 2018, the Company
adopted ASC Topic 606 using the modified retrospective approach, a practical expedient permitted under Topic 606, and applied
this approach only to contracts that were not completed as of January 1, 2018. The Company calculated a one-time transition
adjustment of $3.3 million, which was recorded on January 1, 2018 to the opening balance of accumulated deficit, related to the
product sales of Emflaza. The ASC 606 transition adjustment recorded for Emflaza resulted in sales being recognized earlier than
under Topic 605, as the deferred revenue recognition model (sell-through) is not allowed under Topic 606. The one-time adjustment
consisted of $3.9 million in deferred revenue offset by $0.6 million of variable consideration. The information presented for the
periods prior to January 1, 2018 has not been adjusted and is reported under Topic 605.
Periods prior to January 1, 2018
We recognize revenue when amounts are realized or realizable and earned. Revenue is considered realizable and earned
when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have
been rendered; (3) the price is fixed or determinable; and (4) collection of the amounts due are reasonably assured.
Net Product Sales
Prior to the second quarter of 2017, our net product sales have consisted primarily of sales of Translarna for the treatment
of nmDMD in territories outside of the U.S. We recognize revenue from product sales when there is persuasive evidence that an
arrangement exists, title to product and associated risk of loss has passed to the customer, the price is fixed or determinable,
collectability is reasonably assured and we have no further performance obligations in accordance with Financial Accounting
Standards Board, or FASB, Accounting Standards Codification, or ASC, Subtopic 605-15, Revenue Recognition—Products.
We have recorded revenue on sales where Translarna is available either on a commercial basis or through a reimbursed
EAP program. Orders for Translarna are generally received from hospital and retail pharmacies and our third-party partner
distributors. Our third-party distributors act as intermediaries between us and end users and do not typically stock significant
quantities of Translarna. The ultimate payor for Translarna is typically a government authority or institution or a third-party health
insurer. For the years ended December 31, 2017 and 2016 we recognized Translarna sales of $145.2 million, and $81.4 million,
respectively.
In May 2017, we began the commercialization of Emflaza in the U.S. We recorded product revenue related to the sales
of Emflaza in the U.S. in accordance with ASC 605-15, when persuasive evidence of an arrangement exists, delivery has occurred
and title of the product and associated risk of loss has passed to the customer, the price is fixed or determinable and collection
from the customer has been reasonably assured. Due to the early stage of the product launch, we determined that we were not able
to reliably make certain estimates, including returns, necessary to recognize product revenue upon shipment to distributors. As a
result, we recorded net product revenue for Emflaza using a deferred revenue recognition model (sell-through). Under the deferred
revenue model, we did not recognize revenue until Emflaza was shipped to the specialty pharmacy. During the fourth quarter of
2017, we evaluated and determined that we had sufficient volume of historical activity and visibility into the distribution channel
to reasonably make all estimates required under ASC 605 to recognize revenue upon shipment to its specialty pharmacy. The
change from the sell-through model to recognizing revenue upon shipment to specialty pharmacies during the fourth quarter of
2017 was immaterial to the financial statements. For the year ended December 31, 2017, we recognized Emflaza sales of $28.8
million.
We record revenue net of estimated third-party discounts and rebates. Allowances are recorded as a reduction of revenue
at the time revenues from product sales are recognized. Allowances for government and other third-party rebates and discounts
are established or estimated at the time of delivery. These allowances are adjusted to reflect known changes in factors and may
impact such allowances in the quarter those changes are known.
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We expect that net product sales of Translarna for the treatment of nmDMD will fluctuate quarter-over-quarter. In some
countries, including those in Latin America, orders for named patient sales may be for multiple months of therapy which can lead
to an unevenness in orders. In addition, net product sales may fluctuate quarter-over-quarter as a result of government actions,
economic pressures and political unrest. Net product sales may be significantly impacted by multiple factors, including, among
other things, decisions by regulatory authorities, in particular the FDA and the EMA with respect to our submissions for Translarna
for the treatment of nmDMD and our ability to successfully negotiate favorable pricing and reimbursement processes on a timely
basis in the countries in which we have or may obtain regulatory approval, including the United States, EEA and other territories.
Collaboration and Grant Revenue
The terms of collaboration agreements typically include payments of one or more of the following: nonrefundable, upfront
license fees; milestone payments; research funding; and royalties on future product sales. If applicable, we generate service revenue
through collaboration and grant agreements that provide for fees for research and development services or additional payments
upon achievement of specified events.
We evaluate all contingent consideration earned, such as a milestone payment, using the criteria as provided by the FASB
guidance on the milestone method of revenue recognition. At the inception of a collaboration arrangement, we evaluate if milestone
payments are substantive. The criteria requires that (1) we determine if the milestone is commensurate with either its performance
to achieve the milestone or the enhancement of value resulting from our activities to achieve the milestone; (2) the milestone be
related to past performance; and (3) the milestone be reasonable relative to all deliverable and payment terms of the collaboration
arrangement. If these criteria are met then the contingent milestones can be considered as substantive milestones and will be
recognized as revenue in the period that the milestone is achieved. We recognize royalties as earned in accordance with the terms
of various research and collaboration agreements. If not substantive, the contingent consideration is allocated to the existing units
of accounting based on relative selling price and recognized following the same basis previously established for the associated
unit of accounting.
We recognize reimbursements for research and development costs under collaboration agreements as revenue as the services
are performed. We record these reimbursements as revenue and not as a reduction of research and development expenses as we
have the risks and rewards as the principal in the research and development activities.
Our principal obligation under our grant agreements is to conduct the internal or external research in the specific field funded
by the grant. We determine, through the grant’s normal research process, which research and development projects to pursue. We
recognize grant revenues as the research activities are performed. If the grant includes an upfront payment, we defer the amount
and recognize it as revenue as the expenditures are incurred.
Periods commencing January 1, 2018
Our net product revenue consists of sales of Translarna in territories outside of the U.S. and sales of Emflaza in the U.S.,
both for the treatment of DMD.
Net Product Revenue
We recognize revenue when performance obligations with customers have been satisfied. Our performance obligations
are to provide Translarna or Emflaza based on customer orders from distributors, hospitals, specialty pharmacies or retail
pharmacies. The performance obligations are satisfied at a point in time when our customer obtains control of either Translarna
or Emflaza, which is typically upon delivery. We invoice customers after the products have been delivered and invoice payments
are generally due within 30 to 90 days of invoice date. We determine the transaction price based on fixed consideration in its
contractual agreements. Contract liabilities arise in certain circumstances when consideration is due for goods not yet provided.
As we have identified only one distinct performance obligation, the transaction price is allocated entirely to either product sales
of Translarna or Emflaza. In determining the transaction price, a significant financing component does not exist since the timing
from when we deliver product to when the customers pay for the product is typically less than one year. Customers in certain
countries pay in advance of product delivery. In those instances, payment and delivery typically occur in the same month. For the
year ended December 31, 2018, we recognized Translarna sales of $171.0 million and Emflaza sales of $92.0 million.
We record product sales net of any variable consideration, which includes discounts, allowances, rebates and distribution
fees. We use the expected value or most likely amount method when estimating variable consideration, unless discount or rebate
terms are specified within contracts. Historically, returns of Translarna and Emflaza were immaterial to our financial statements.
The identified variable consideration is recorded as a reduction of revenue at the time revenues from product sales are recognized.
These estimates for variable consideration are adjusted to reflect known changes in factors and may impact such estimates in the
quarter those changes are known. Revenue recognized does not include amounts of variable consideration that are constrained.
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In relation to customer contracts, we incur costs to fulfill a contract but do not incur costs to obtain a contract. These
costs to fulfill a contract do not meet the criteria for capitalization and are expensed as incurred.
Upon adoption of ASC Topic 606 on January 1, 2018, we have elected the following practical expedients:
•
•
•
•
Portfolio Approach - We applied the Portfolio Approach to contract reviews within identified revenue streams that have
similar characteristics and we believe this approach would not differ materially than if applying ASC Topic 606 to each
individual contract.
Significant Financing Component - We expect the period between when an we transfer a promised good or service to a
customer and when the customer pays for the good or service to be one year or less.
Immaterial Performance Obligations - We disregard promises deemed to be immaterial in the context of the contract.
Shipping and Handling Activities - We consider any shipping and handling costs that are incurred after the customer has
obtained control of the product as a cost to fulfill a promise.
Shipping and handling costs associated with finished goods delivered to customers are recorded as a selling expense.
Collaboration Revenue
The terms of these agreements typically include payments to us of one or more of the following: nonrefundable, upfront
license fees; milestone payments; research funding and royalties on future product sales. In addition, we generate service revenue
through agreements that generally provide for fees for research and development services and may include additional payments
upon achievement of specified events.
At the inception of a collaboration arrangement, we need to first evaluate if the arrangement meets the criteria in ASC
Topic 808 “Collaborative Arrangements” to then determine if ASC Topic 606 is applicable by considering whether the collaborator
meets the definition of a customer. If the criteria are met, we assess the promises in the arrangement to identify distinct performance
obligations.
For licenses of intellectual property, we assess, at contract inception, whether the intellectual property is distinct from
other performance obligations identified in the arrangement. If the licensing of intellectual property is determined to be distinct,
revenue is recognized for nonrefundable, upfront license fees when the license is transferred to the customer and the customer can
use and benefit from the license. If the licensing of intellectual property is determined not to be distinct, then the license will be
bundled with other promises in the arrangement into one distinct performance obligation. We determine if the bundled performance
obligation is satisfied over time or at a point in time. If we conclude that the nonrefundable, upfront license fees will be recognized
over time, we assess the appropriate method of measuring proportional performance.
For milestone payments, we assess, at contract inception, whether the development or sales-based milestones are
considered probable of being achieved. If it is probable that a significant revenue reversal will occur, we will not record revenue
until the uncertainty has been resolved. Milestone payments that are contingent upon regulatory approval are not considered
probable of being achieved until the applicable regulatory approvals or other external conditions are obtained as such conditions
are not within our control. If it is probable that a significant revenue reversal will not occur, we will estimate the milestone
payments using the most likely amount method. We will re-assess the development and sales-based milestones each reporting
period to determine the probability of achievement.
We recognize revenue for reimbursements of research and development costs under collaboration agreements as the
services are performed. We record these reimbursements as revenue and not as a reduction of research and development expenses
as we have the risks and rewards as the principal in the research and development activities.
Inventories and Cost of Product Revenues
In January 2017, the European Commission granted an annual renewal of our marketing authorization for Translarna for the
treatment of nmDMD. Until this renewal, we had considered the authorization to be subject to risk and did not capitalize productions
costs in inventory as it was not probable that such costs would be recovered. With the renewal, we now consider recovery of the
costs to be probable and began capitalizing production costs in inventory, effective January 1, 2017. Since January 1, 2017,
production costs are expensed as cost of product sales when the related products are sold. The costs for a portion of the inventory
available for sale were expensed as research and development costs prior to the January 1, 2017 annual renewal of the Translarna
marketing authorization and as such the cost of products sold and related gross margins prior to January 1, 2017 are not directly
comparable to the cost of products sold and gross margin after January 1, 2017.
In April 2017, we completed the Transaction (see Note 3). Emflaza, both in tablet and suspension form, received approval
from the FDA on February 9, 2017 as a treatment for DMD in patients five years of age and older. We began the commercialization
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of Emflaza in the United States shortly after the Transaction was completed. We utilize third parties for the commercial distribution
of Emflaza, including a third-party logistics company to warehouse Emflaza as well as a specialty pharmacy to sell and distribute
Emflaza to patients. All of our manufacturing needs for Emflaza are fulfilled pursuant to exclusive supply agreements assumed
by us upon close of the Transaction. Production costs will be expensed as cost of product sales when the related products are sold.
Inventory
Inventories are stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis by
product. We capitalize inventory costs associated with products following regulatory approval when future commercialization is
considered probable and the future economic benefit is expected to be realized. Translarna and Emflaza product which may be
used in clinical development programs are included in inventory and charged to research and development expense when the
product enters the research and development process and no longer can be used for commercial purposes. Inventory used for
marketing efforts are charged to selling, general and administrative expense.
We periodically review inventory for excess amounts or obsolescence and write down obsolete or otherwise unmarketable
inventory to its estimated net realizable value. We recorded a $1.8 million inventory write down for the twelve month period ended
December 31, 2018 primarily related to inventory labeling changes. No write down was recorded for the twelve month period
ended December 31, 2017. Additionally, though our products are subject to strict quality control and monitoring which is performed
throughout the manufacturing processes, certain batches or units of product may not meet quality specifications resulting in a
charge to cost of product sales.
Cost of product sales
Cost of product sales consists of the cost of inventory sold, manufacturing and supply chain costs, storage costs, amortization
of the acquired intangible asset and royalty payments associated with net product sales.
Accrued expenses
As part of the process of preparing our financial statements, we are required to estimate accrued expenses. This process
involves communicating with our applicable personnel to identify services that have been performed on our behalf and estimating
the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise
notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make
estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known
to us. Examples of estimated accrued expenses include:
•
•
•
•
fees paid to contract research organizations in connection with preclinical and toxicology studies and clinical trials;
fees paid to investigative sites in connection with clinical trials;
fees paid to contract manufacturers in connection with the production of clinical trial materials; and
professional service fees.
Share-based compensation
We expect to grant additional stock options that will result in additional share-based compensation expense. We measure
the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the
award. For service type awards, share-based compensation expense is recognized on a straight-line basis over the period during
which the employee is required to provide service in exchange for the entire award. For awards that vest or begin vesting upon
achievement of a performance condition, we estimate the likelihood of satisfaction of the performance condition and recognize
compensation expense when achievement of the performance condition is deemed probable using an accelerated attribution model.
In 2018, we issued a total of 3,181,623 stock options to various employees. Of those, 1,352,800 were non-statutory stock
option inducement grants made pursuant to the Nasdaq inducement grant exception as a material component of our new hires’
employment compensation. All other stock option grants were made under our 2013 Long Term Incentive Plan.
The fair values of grants made in the year ended December 31, 2018, 2017 and 2016 were contemporaneously estimated
on the date of grant using the following assumptions:
Risk-free interest rate
Expected volatility
Expected term
2018
2017
2016
2.25% - 3.10%
1.84% - 2.45%
1.30% - 2.24%
64% - 90%
5.03 - 10.00 years
76% - 81%
5.04 - 10.00 years
67% - 78%
5.05 - 10.00 years
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We assumed no expected dividends for all grants. The weighted average grant date fair value of options granted during the
years ended December 31, 2018, 2017 and 2016 was $17.48, $8.45, and $17.31 per share, respectively.
The fair value of options is calculated using the Black-Scholes option pricing model to determine the fair value of stock
options on the date of grant based on key assumptions, such as expected volatility and expected term. We calculate expected
volatility based on a historical volatility analysis of peers that were similar to us with respect to industry, stage of life cycle, size,
and financial leverage and will continue to do so until the historical volatility of our common stock is sufficient to measure expected
volatility for future option grants. We use the “simplified method” to determine the expected term of options. Under this method,
the expected term represents the average of the vesting period and the contractual term. The risk-free rate of the option is based
on U.S. Government Securities Treasury Constant Maturities yields at the date of grant for a term similar to the expected term of
the option. In connection with the adoption of ASU 2016-0, we made a policy election to continue our methodology for estimating
our forfeiture rate.
Restricted Stock Awards—Restricted stock awards are granted subject to certain restrictions, including service conditions.
The grant-date fair value of restricted stock awards, which has been determined based upon the market value of our common stock
on the grant date, is expensed over the vesting period.
Restricted Stock Units—Restricted stock units are granted subject to certain restrictions, including in some cases service or
time conditions (restricted stock). The grant-date fair value of restricted stock units, which has been determined based upon the
market value of the Company’s shares on the grant date, is expensed over the vesting period.
The following table summarizes information on our restricted stock awards and units:
Unvested at December 31, 2017
Granted
Vested
Forfeited
Unvested at December 31, 2018
Restricted Stock Awards and Units
Number of
Shares
Weighted
Average Grant
Date Fair Value
393,011
$
354,691
$
(114,295) $
(61,928) $
$
571,479
15.64
19.09
16.36
17.24
17.61
Stock Appreciation Rights—Stock appreciation rights (SARs) entitle the holder to receive, upon exercise, an amount of our
common stock or cash (or a combination thereof) determined by reference to appreciation, from and after the date of grant, in the
fair market value of a share of our common stock over the measurement price based on the exercise date.
In May 2016, a total of 897,290 SARs were granted to non-executive employees (the 2016 SARs). The 2016 SARs will vest
annually in equal installments over four years and will be settled in cash on each vest date, requiring us to remeasure the SARs
at each reporting period until vesting occurs. For the period ending December 31, 2018, we recorded $4.1 million in compensation
expense related to the 2016 SARs.
Employee Stock Purchase Plan—In June 2016, we established an Employee Stock Purchase Plan (ESPP or the Plan) for
certain eligible employees. The Plan is administered by our Board of Directors or a committee appointed by the Board. The total
number of shares available for purchase under the Plan is one million shares of our common stock. Employees may participate
over a six-month period through payroll withholdings and may purchase, at the end of the six-month period, our common stock
at a purchase price of at least 85% of the closing price of a share of our common stock on the first business day of the offering
period or the closing price of a share of our common stock on the last business day of the offering period, whichever is lower. No
participant will be granted a right to purchase our common stock under the Plan if such participant would own more than 5% of
the total combined voting power of our or any subsidiary of ours after such purchase. For the period ending December 31, 2018,
we recorded $1.0 million in compensation expense related to the ESPP.
We recorded share-based compensation expense in the statement of operations related to incentive stock options, nonstatutory
stock options, restricted stock awards, restricted stock units and the ESPP as follows:
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(in thousands)
Research and development
Selling, general and administrative
Total
Year ended December 31,
2018
2017
2016
$ 16,096
$ 15,456
$ 16,812
17,156
15,103
18,197
$ 33,252
$ 30,559
$ 35,009
As of December 31, 2018, 2017 and 2016 there was approximately $62.6 million, $38.2 million and $60.8 million,
respectively, of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under
the Company’s 2013 Long Term Incentive Plan and prior equity awards plans or made pursuant to the Nasdaq inducement grant
exception for new hires. This cost is expected to be recognized as share-based compensation expense over the weighted average
remaining service period of approximately 2.96 years.
Warrant liability
Warrants to purchase our common stock with nonstandard antidilution provisions, regardless of the probability or likelihood
that may conditionally obligate the issuer to ultimately transfer assets, are classified as liabilities and are recorded at their estimated
fair value at each reporting period. Any change in fair value of these warrants is recorded as gain (loss) on warrant valuation each
reporting period in Other income (expense) on our statement of operations.
Convertible notes offering
In August 2015, we issued, at par value, $150.0 million aggregate principal amount of 3.0% convertible senior notes due
2022, which we refer to as the Convertible Notes. The Convertible Notes bear cash interest at a rate of 3.0% per year, payable
semi-annually on February 15 and August 15 of each year, beginning on February 15, 2016. The Convertible Notes will mature
on August 15, 2022, unless earlier repurchased or converted. The net proceeds to us from the offering were $145.4 million after
deducting the initial purchasers’ discounts and commissions and the offering expenses payable by us.
The Convertible Notes are governed by an indenture (the Convertible Notes Indenture) with U.S Bank National Association
as trustee (the Convertible Notes Trustee).
Holders may convert their Convertible Notes at their option at any time prior to the close of business on the business day
immediately preceding February 15, 2022 only under the following circumstances: (1) during any calendar quarter commencing
on or after September 30, 2015 (and only during such calendar quarter), if the last reported sale price of our common stock for at
least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day
of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading
day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which
the trading price (as defined in the Convertible Notes Indenture) per $1,000 principal amount of Convertible Notes for each trading
day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the
conversion rate on each such trading day; (3) during any period after we have issued notice of redemption until the close of business
on the scheduled trading day immediately preceding the relevant redemption date; or (4) upon the occurrence of specified corporate
events. On or after February 15, 2022, until the close of business on the business day immediately preceding the maturity date,
holders may convert their Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, we will
pay cash up to the aggregate principal amount of the Convertible Notes to be converted and deliver shares of its common stock
in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of Convertible Notes
being converted.
The conversion rate for the Convertible Notes was initially, and remains, 17.7487 shares of our common stock per $1,000
principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $56.34 per share
of our common stock.
We were not permitted to redeem the Convertible Notes prior to August 20, 2018. As of August 20, 2018, we may redeem
for cash all or any portion of the Convertible Notes, at our option, on or after August 20, 2018 if the last reported sale price of its
common stock has been at least 130% of the conversion price then in effect on the last trading day of, and for at least 19 other
trading days (whether or not consecutive) during, any 30 consecutive trading day period ending on, and including, the trading day
immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal
amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No
sinking fund is provided for the Convertible Notes, which means that we are not required to redeem or retire the Convertible Notes
periodically. There have been no redemptions to date.
If we undergo a “fundamental change” (as defined in the Indenture governing the Convertible Notes Indenture), subject to
certain conditions, holders of the Convertible Notes may require us to repurchase for cash all or part of their Convertible Notes
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at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid
interest to, but excluding, the fundamental change repurchase date.
The Convertible Notes Indenture contains customary events of default with respect to the Convertible Notes, including that
upon certain events of default (including our failure to make any payment of principal or interest on the Convertible Notes when
due and payable) occurring and continuing, the Convertible Notes Trustee by notice to us, or the holders of at least 25% in principal
amount of the outstanding Convertible Notes by notice to us and the Convertible Notes Trustee, may, and the Convertible Notes
Trustee at the request of such holders (subject to the provisions of the Convertible Notes Indenture) shall, declare 100% of the
principal of and accrued and unpaid interest, if any, on all the Convertible Notes to be due and payable. In case of certain events
of bankruptcy, insolvency or reorganization, involving us or a significant subsidiary, 100% of the principal of and accrued and
unpaid interest on the Convertible Notes will automatically become due and payable. Upon such a declaration of acceleration,
such principal and accrued and unpaid interest, if any, will be due and payable immediately.
Credit facility
On May 5, 2017, we entered into the Credit Agreement, with MidCap Financial as administrative agent and MidCap
Financial and other certain institutions as lenders that provides for a senior secured term loan facility of $60.0 million, of which
$40.0 million was drawn by us on May 5, 2017. Our ability to draw on the remaining $20.0 million under the senior secured term
loan facility expired on December 31, 2018.
Borrowings under the Credit Agreement bear interest at a rate per annum equal to LIBOR (with a LIBOR floor rate of
1.00%) plus 6.15%. We are obligated to make interest only payments (payable monthly in arrears) through April 30, 2019.
Commencing on May 1, 2019 and continuing for the remaining twenty-four months of the facility, we will be required to make
monthly interest payments and monthly principal payments. The principal payments are to be made based on straight-line
amortization of the principal over the twenty-four month period. The maturity date of the Credit Agreement is May 1, 2021, unless
terminated earlier.
Income taxes
As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the
jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing temporary
differences resulting from differing treatments of items for tax and accounting purposes. These differences result in deferred tax
assets and liabilities. At December 31, 2018 and 2017, we recorded a valuation allowance against our net deferred tax assets of
approximately $180.5 million and $177.6 million, respectively. The change in the valuation allowance during the years ended
December 31, 2018 and 2017 was approximately $2.8 million and $5.4 million, respectively. A valuation allowance has been
recorded since, in the judgment of management, these assets are not more likely than not to be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences
and carryforwards become deductible or are utilized. As of December 31, 2018, we have approximately $296.0 million, $202.4
million, and $5.9 million of federal, state, and foreign net operating loss carryforwards, respectively. As a result of the adoption
of ASU 2016-09, we no longer exclude tax benefits that arose directly from equity compensation in excess of compensation
recognized for financial reporting in its U.S. federal and U.S. state net operating loss carryforwards.
During 2018, we acquired in-process research and development, or IPR&D, as part of the acquisition of Agilis. This asset is
currently considered an indefinite-lived intangible with no related book amortization and tested for impairment, annually. As the
IPR&D has no tax basis and is an indefinite-lived intangible, the deferred tax liability created at the time of acquisition is not
considered positive evidence of future income and is presented as a deferred tax liability in the balance sheet.
As of December 31, 2018, research and development credit carryforwards for federal and state purposes are approximately
$15.2 million and $6.6 million, respectively. In addition, the Orphan Drug Credit Carryover available as of December 31, 2018
is approximately $74.0 million. As a result of U.S. tax reform legislation, federal net operating losses, or NOLs, generated in
2018 carryforward indefinitely, however, we have federal net operating losses that pre-date U.S. tax reform legislation which begin
to expire in 2021 and federal credit carryforwards that begin to expire in 2019. State net operating loss carryforwards begin to
expire in 2030, and the state credit carryforwards began to expire in 2016. Sections 382 and 383 of the Internal Revenue Code of
1986 subject the future utilization of net operating losses and certain other tax attributes, such as research and development tax
credits, to an annual limitation in the event of certain ownership changes, as defined. We have undergone an ownership change
and have determined that a “change in ownership” as defined by IRC Section 382 of the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder, did occur in June of 2013. Accordingly, about $231.5 million of
our NOL carryforwards are limited and we can only use $16.7 million for the first five years from the ownership change and $5.7
million per year going forward. Therefore, $169.2 million of the NOLs will be freed up over the next 20 years and $62.3 million
are expected to expire unused which are not included in the deferred tax assets listed above. In summary, there are $296.0 million
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of net operating losses available, out of which $231.5 million are limited by IRC Section 382. At December 31, 2018, there is
$194.5 million available for immediate use and an additional $5.7 million will free up in 2019.
Business combinations and asset acquisitions
We evaluate acquisitions of assets and other similar transactions to assess whether or not the transaction should be
accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair
value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen
is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to
whether or not we have acquired inputs and processes that have the ability to create outputs, which would meet the requirements
of a business. If determined to be a business combination, we account for the transaction under the acquisition method of accounting
as indicated in ASC 2017-01, “Business Combinations”, which requires the acquiring entity in a business combination to recognize
the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in the acquiree and establishes the
acquisition date as the fair value measurement point. Accordingly, we recognize assets acquired and liabilities assumed in business
combinations, including contingent assets and liabilities, and non-controlling interest in the acquiree based on the fair value
estimates as of the date of acquisition. In accordance with ASC 805, we recognize and measure goodwill as of the acquisition
date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.
The consideration for our business acquisitions may include future payments that are contingent upon the occurrence of
a particular event or events. The obligations for such contingent consideration payments are recorded at fair value on the acquisition
date. The contingent consideration obligations are then evaluated each reporting period. Changes in the fair value of contingent
consideration obligations, other than changes due to payments, are recognized as a gain or loss on fair value remeasurement of
contingent consideration in the consolidated statements of operations.
If determined to be an asset acquisition, we account for the transaction under ASC 805-50, which requires the acquiring
entity in an asset acquisition to recognize assets (net assets) based on the cost to the acquiring entity on a relative fair value basis,
which includes transaction costs in addition to consideration given. No gain or loss is recognized as of the date of acquisition
unless the fair value of noncash assets given as consideration differs from the assets' carrying amounts on the acquiring entity's
books. Consideration transferred that is noncash will be measured based on either the cost (which shall be measured based on the
fair value of the consideration given) or the fair value of the assets (net assets) acquired, whichever is more reliably measurable.
Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets
acquired is allocated to the identifiable assets based on relative fair values.
Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the
consideration is paid or becomes payable (unless the contingent consideration meets the definition of a derivative, in which case
the amount becomes part of the basis in the asset acquired). Upon recognition of the contingent consideration payment, the amount
is included in the cost of the acquired asset or group of assets.
Indefinite-lived intangible assets
Indefinite-lived intangible assets consist of IPR&D. IPR&D acquired directly in a transaction other than a business
combination is capitalized if the projects will be further developed or have an alternative future use; otherwise they are expensed.
The fair values of IPR&D projects acquired in business combinations are capitalized. Several methods may be used to determine
the estimated fair value of the IPR&D acquired in a business combination. We utilize the "income method”, and use estimated
future net cash flows that are derived from projected sales revenues and estimated costs. These projections are based on factors
such as relevant market size, patent protection, and expected pricing and industry trends. The estimated future net cash flows are
then discounted to the present value using an appropriate discount rate. These assets are treated as indefinite-lived intangible assets
until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written
off, as appropriate. IPR&D intangible assets that are determined to have had a drop in their fair value are adjusted downward and
an impairment is recognized in the statement of operations. These assets are tested at least annually or sooner when a triggering
event occurs that could indicate a potential impairment.
Goodwill
Goodwill represents the amount of consideration paid in excess of the fair value of net assets acquired as a result of our
business acquisitions accounted for using the acquisition method of accounting. Goodwill is not amortized and is subject to
impairment testing on an annual basis or when a triggering event occurs that may indicate the carrying value of the goodwill is
impaired.
Year ended December 31, 2018 compared to year ended December 31, 2017
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The following table summarizes revenues and selected expense and other income data for the year ended December 31,
2018 and 2017:
(in thousands)
Net product revenue
Collaboration and grant revenue
Cost of product sales, excluding amortization of acquired intangible
asset
Amortization of acquired intangible asset
Research and development expense
Selling, general and administrative expense
Change in the fair value of deferred and contingent consideration
Interest expense, net
Other income (expense), net
Income tax benefit (expense)
Year ended
December 31,
2018
2017
$
263,005
$ 174,066
1,729
20,326
$
$
$
$
$
$
Change
2018 vs. 2017
88,939
(18,597)
8,093
7,497
54,528
32,277
19,340
(460)
1,408
1,364
4,577
15,380
117,456
121,271
— $
(12,094) $
(1,279) $
(1,335) $
12,670
22,877
171,984
153,548
19,340
(12,554)
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29
Net product revenue. Net product revenue was $263.0 million for the year ended December 31, 2018, an increase of $88.9
million, or 51%, from net product revenue of $174.1 million for the year ended December 31, 2017. The increase in net product
revenue was primarily due to the increase in net product sales of $25.8 million in existing markets where Translarna is available
as well as continued geographic expansion into new territories, in addition to an increase in $63.2 million in net product sales of
Emflaza, which launched domestically in May 2017.
Collaboration and grant revenue. Collaboration and grant revenue was $1.7 million for the year ended December 31,
2018, a decrease of $18.6 million, or 91%, from collaboration and grant revenue of $20.3 million for the year ended December 31,
2017. The decrease in collaboration and grant revenue was primarily due to the $20.0 million milestone achieved during the fourth
quarter of 2017 from Roche. In October 2017, we announced that Sunfish, a two-part clinical trial in pediatric and adult type 2
and type 3 spinal muscular atrophy initiated in the fourth quarter of 2016, had transitioned into the pivotal second part of its study
which triggered the milestone payment.
Cost of product sales, excluding amortization of acquired intangible asset. Cost of product sales, excluding amortization
of acquired intangible asset, was $12.7 million for the year end December 31, 2018, an increase of $8.1 million, or 177%, from
$4.6 million for the year ended December 31, 2017. Cost of product sales consist primarily of royalty payments associated with
Emflaza and Translarna net product sales, excluding Marathon contingent payments, and costs associated with Emflaza and
Translarna product sold during the period. For Translarna sold in 2017, the majority of related manufacturing costs incurred had
previously been expensed prior to January 1, 2017 as research and development expenses.
Amortization of acquired intangible asset. Amortization of acquired intangible asset was $22.9 million for the year ended
December 31, 2018, an increase of $7.5 million, or 49%, from $15.4 million for the year ended December 31, 2017, which is
related to the acquisition of all rights to Emflaza, acquired in May 2017 and Marathon contingent payments . The amount allocated
to the Emflaza intangible asset is amortized on a straight-line basis over its estimated useful life of approximately seven years
from the date of the completion of the acquisition of all rights to Emflaza, the period of estimated future cash flows. The Marathon
contingent payments are amortized prospectively as incurred, straight-line, over the remaining useful life of the Emflaza intangible
asset.
Research and development expense. Research and development expense was $172.0 million for the year ended
December 31, 2018, an increase of $54.5 million, or 46%, compared to $117.5 million for the year ended December 31, 2017.
The increase reflects costs associated with advancing the gene therapy platform and increased investment in research programs
as well as advancement of the clinical pipeline.
Selling, general and administrative expense. Selling, general and administrative expense was $153.5 million for the year
ended December 31, 2018, an increase of $32.3 million, or 27%, from $121.3 million for the year ended December 31, 2017. The
increase was primarily due to continued investment in commercial activities for Emflaza and Translarna.
Change in the fair value of deferred and contingent consideration. Change in the fair value of deferred and contingent
consideration was $19.3 million for the year ended December 31, 2018. The change is related to the fair valuation of the potential
future consideration to be paid to former Agilis’ equity holders as a result of the Merger, which closed in August 2018. Changes
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in the fair value were due to the re-calculation of discounted cash flows for the passage of time and changes to certain other
estimated assumptions.
Interest expense, net. Net interest expense was $12.6 million for the year ended December 31, 2018, an increase of $0.5
million, or 4% from net interest expense of $12.1 million for the year ended December 31, 2017. The increase in interest expense
was primarily due to current year interest expense recorded from the Convertible Notes and the Credit Agreement partially offset
by interest income from investments.
Other income (expense), net. Other income, net was $0.1 million for the year ended December 31, 2018, an increase of
$1.4 million, or 110%, from other (expense), net of $1.3 million for the year ended December 31, 2017. The increase in other
income (expense), net resulted primarily from exchange rate changes in the current period.
Income tax benefit (expense). Income tax benefit was $0.03 million for the year ended December 31, 2018, a change of
$1.4 million, or 102%, from income tax expense of $1.3 million for the year ended December 31, 2017. We incurred income tax
expense in various foreign jurisdictions, and our foreign tax liabilities are largely dependent upon the distribution of pre-tax
earnings among these different jurisdictions. We are paying minimum income taxes in the United States because of incurred losses
in the various state jurisdictions. The current year foreign tax benefit is primarily driven by the Akcea upfront licensing fee.
Year ended December 31, 2017 compared to year ended December 31, 2016
The following table summarizes revenues and selected expense and other income data for the years ended December 31,
2017 and 2016:
(in thousands)
Net product revenue
Collaboration and grant revenue
Cost of product sales, excluding amortization of acquired intangible asset
Amortization of acquired intangible asset
Research and development expense
Selling, general and administrative expense
Interest expense, net
Other expense, net
Income tax expense
Year ended
December 31,
2017
2016
$
174,066
$
81,447
Change
2017 vs. 2016
92,619
19,068
4,577
15,380
(177)
24,141
(3,818)
(72)
(766)
$
$
1,258
— $
— $
117,633
$
$
97,130
(8,276) $
(1,207) $
(569) $
20,326
4,577
15,380
117,456
121,271
(12,094)
(1,279)
(1,335)
Net product revenue. Net product revenue was $174.1 million for the year ended December 31, 2017, an increase of $92.6
million, or 114%, from net product revenue of $81.4 million for the year ended December 31, 2016. The increase in net product
revenue was primarily due to the increase in net product sales of $63.8 million in existing markets where Translarna is available
as well as continued geographic expansion into new territories, in addition to net product sales of $28.8 million from the domestic
commercial launch of Emflaza in May 2017.
Collaboration and grant revenue. Collaboration and grant revenue was $20.3 million for the year ended December 31,
2017, an increase of $19.1 million, or 1,516%, from collaboration and grant revenue of $1.3 million for the year ended December 31,
2016. The increase in collaboration and grant revenue was primarily due to the $20.0 million milestone achieved during the fourth
quarter of 2017 from Roche. In October 2017, we announced that Sunfish, a two-part clinical trial in pediatric and adult type 2
and type 3 spinal muscular atrophy initiated in the fourth quarter of 2016, had transitioned into the pivotal second part of its study
which triggered the milestone payment.
Cost of product sales, excluding amortization of acquired intangible asset. Cost of product sales, excluding amortization
of acquired intangible asset, was $4.6 million for the year end December 31, 2017. Cost of product sales consist primarily of
royalty payments associated with Emflaza and Translarna net product sales and costs associated with Emflaza and Translarna
product sold during the period. For Translarna sold in 2017, the majority of related manufacturing costs incurred had previously
been expensed prior to January 1, 2017 as research and development expenses.
Amortization of acquired intangible asset. Amortization of acquired intangible asset was $15.4 million for the year ended
December 31, 2017 related to the acquisition of all rights to Emflaza. The amount allocated to the Emflaza intangible asset is
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amortized on a straight-line basis over its estimated useful life of approximately seven years from the date of the completion of
the acquisition of all rights to Emflaza, the period of estimated future cash flows.
Research and development expense. Research and development expense was $117.5 million for the year ended
December 31, 2017, relatively flat compared to $117.6 million for the year ended December 31, 2016. The slight decrease resulted
primarily from the completion of our Phase 3 Translarna trials at the end of 2016, partially offset by increased clinical activities
and regulatory spend.
Selling, general and administrative expense. Selling, general and administrative expense was $121.3 million for the year
ended December 31, 2017, an increase of $24.1 million or 25% from $97.1 million for the year ended December 31, 2016. The
increase resulted primarily from higher personnel costs of $10.8 million due to additional headcount and higher professional
services fees of $13.8 million due to the Emflaza product launch and continued commercial support, as well as continued growth
of Translarna marketing activities.
Interest expense, net. Interest expense, net was $12.1 million for the year ended December 31, 2017, an increase of $3.8
million, or 46%, from interest expense, net of $8.3 million for the year ended December 31, 2016. The increase in interest expense
was primarily due to current year interest expense recorded from the Convertible Notes and the Credit Agreement partially offset
by interest income from investments.
Other expense, net. Other expense, net was $1.3 million for the year ended December 31, 2017, an increase of $0.1 million,
or 6%, from other expense, net of $1.2 million for the year ended December 31, 2016. The increase in other expense, net resulted
primarily from exchange rate changes in the current period.
Income tax expense. Income tax expense was $1.3 million for the year ended December 31, 2017, an increase of $0.8
million, or 135%, from income tax expense of $0.6 million for the year ended December 31, 2016. We incurred income tax expense
in various foreign jurisdictions, and our foreign tax liabilities are largely dependent upon the distribution of pre-tax earnings among
these different jurisdictions. We are paying minimum income taxes in the United States because of incurred losses in the various
state jurisdictions.
Liquidity and capital resources
Sources of liquidity
Since inception, we have incurred significant operating losses.
As a growing commercial-stage biopharmaceutical company, we are engaging in significant commercialization efforts
for Translarna for nmDMD and Emflaza for the treatment of DMD while also devoting a substantial portion of our efforts on
research and development related to our products, product candidates and other programs. To date, almost all of our product
revenue has been attributable to sales of Translarna for the treatment of nmDMD in territories outside of the United States and
from Emflaza for the treatment of DMD in the United States. Our ongoing ability to generate revenue from sales of Translarna
for the treatment of nmDMD is dependent upon our ability to maintain our marketing authorization in the EEA and secure market
access through commercial programs following the conclusion of pricing and reimbursement terms at sustainable levels in the
member states of the EEA or through EAP programs in the EEA and other territories. The marketing authorization requires annual
review and renewal by the European Commission following reassessment by the EMA of the benefit-risk balance of the
authorization and is subject to the specific obligation to conduct Study 041. Our ability to generate product revenue from Emflaza
will largely depend on the coverage and reimbursement levels set by governmental authorities, private health insurers and other
third-party payors.
On August 23, 2018, we completed our acquisition of Agilis for total upfront consideration comprised of $49.2 million in
cash and 3,500,907 shares of our common stock, which was determined by dividing $150.0 million by the volume-weighted
average price per share of our common stock on the Nasdaq Global Select Market for the 10 consecutive trading-day period ending
on the second trading-day immediately preceding the closing. Agilis equityholders may become entitled to receive contingent
payments from us based on the achievement of certain development, regulatory and net sales milestones as well as based upon a
percentage of net sales of certain products. Under the Merger Agreement, we are required to pay $40.0 million of the development
milestone payments no later than the second anniversary of the closing of the Merger, regardless of whether the applicable milestones
have been achieved.
We have historically financed our operations primarily through the issuance and sale of our common stock in public
offerings, the private placements of our preferred stock, collaborations, bank debt, convertible debt financings, the Credit Agreement
and grants and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease
areas addressed by our product candidates. We expect to continue to incur significant expenses and operating losses for at least
the next several years. The net losses we incur may fluctuate significantly from quarter to quarter.
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In February 2014, we closed a public offering of 5,163,265 shares of common stock at a public offering price of $24.50
per share, including 673,469 shares pursuant to the exercise by the underwriters of an overallotment option. We received net
proceeds from the public offering of approximately $118.4 million after deducting underwriting discounts and commissions and
other offering expenses payable by us.
In October 2014, we closed a public offering of 3,450,000 shares of common stock at a public offering price of $36.25
per share, including 450,000 shares pursuant to the exercise by the underwriters of their option to purchase additional shares. We
received net proceeds from the public offering of approximately $117.6 million after deducting underwriting discounts and
commissions and other offering expenses payable by us.
In August 2015, we closed a private offering of $150 million in aggregate principal amount of 3.00% convertible senior
notes due 2022, or the Convertible Notes, including the exercise by the initial purchasers of an option to purchase an additional
$25 million in aggregate principal amount of the Convertible Notes. The Convertible Notes bear cash interest payable on
February 15 and August 15 of each year, beginning on February 15, 2016. The Convertible Notes are senior unsecured obligations
of ours and will mature on August 15, 2022, unless earlier converted, redeemed or repurchased in accordance with their terms
prior to such date. We received net proceeds from the offering of approximately $145.4 million, after deducting the initial purchasers’
discounts and commissions and the estimated offering expenses payable by us.
On May 5, 2017, we entered into the Credit Agreement with MidCap Financial, which provides for a senior secured term
loan facility of $60 million, of which $40 million was drawn by us on May 5, 2017. Our ability to draw on the remaining $20.0
million under the senior secured term loan facility expired on December 31, 2018. The maturity date of the Credit Agreement is
May 1, 2021, unless terminated earlier. The facility is structured to require only monthly interest payments for the initial two years
with principal amortization beginning in years three and four. The facility bears interest at a rate per annum equal to LIBOR (with
a LIBOR floor rate of 1.00%) plus 6.15%, as well as additional upfront and administrative fees and expenses.
In April 2018, we closed an underwritten public offering of our common stock pursuant to a registration statement on
Form S-3. We issued and sold an aggregate of 4,600,000 shares of common stock under the registration statement at a public
offering price of $27.04 per share, including 600,000 shares issued upon exercise by the underwriters of their option to purchase
additional shares. We received net proceeds of approximately $117.9 million after deducting underwriting discounts and
commissions and other offering expenses payable by us.
In January 2019, we closed an underwritten public offering of our common stock pursuant to a registration statement on
Form S-3. We issued and sold an aggregate of 7,563,725 shares of common stock under the registration statement at a public
offering price of $30.20 per share, including 843,725 shares issued upon exercise by the underwriter of its option to purchase
additional shares in February 2019. We received net proceeds of approximately $224.1 million after deducting underwriting
discounts and commissions and other offering expenses payable by us.
Cash flows
As of December 31, 2018, we had cash and cash equivalents and marketable securities of $227.6 million.
The following table provides information regarding our cash flows and our capital expenditures for the periods indicated.
(in thousands)
Cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Years ended
December 31,
2018
2017
2016
(27,641)
(42,613)
131,571
(10,063)
13,117
44,218
(103,566)
104,481
968
Net cash used in operating activities was $27.6 million, $10.1 million, and $103.6 million for the years ended December 31,
2018, 2017 and 2016, respectively. The cash used in operating activities primarily related to supporting clinical development,
including the manufacture of drug product, commercial launch activities for Emflaza and Translarna, and costs associated with
the expansion of our international infrastructure for the years ended December 31, 2018, 2017, and 2016.
Net cash used in investing activities was $42.6 million for the year ended December 31, 2018. The cash used in investing
activities was primarily related to the business acquisition of Agilis, purchases of fixed assets, and the acquisition of product rights
related to Emflaza, partially offset by net sales and redemptions of marketable securities. Net cash provided by investing activities
was $13.1 million and $104.5 million for the years ended December 31, 2017 and 2016. The cash provided by investing activities
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was primarily related to net sales and redemptions of marketable securities, partially offset by the cash used in the acquisition of
Emflaza for the 2017 period.
Net cash provided by financing activities in 2018 is primarily attributable to net proceeds received from our public stock
offering, the exercise of options, and issuance of stock under the ESPP. Net cash provided by financing activities in 2017 was
primarily attributable to borrowings under the Credit Agreement and the exercise of options and issuance of stock under the ESPP.
Net cash provided by financing activities in 2016 was due to proceeds from the exercise of stock options.
Funding requirements
We anticipate that our expenses will continue to increase in connection with our commercialization efforts in the United
States, the EEA, Latin America and other territories, including the expansion of our infrastructure and corresponding sales and
marketing, legal and regulatory, distribution and manufacturing and administrative and employee-based expenses. In addition to
the foregoing, we expect to continue to incur significant costs in connection with Study 041 and Study 045 and our open label
extension trials of Translarna for the treatment of nmDMD as well as our studies for nonsense mutation aniridia and nonsense
mutation Dravet syndrome/CDKL5 and our FDA post-marketing requirements with respect to Emflaza in the United States and
our studies for limb-girdle 2I. We also expect to incur ongoing research and development expenses for our other product candidates,
including our gene therapy, splicing and oncology programs. In addition, we may incur substantial costs in connection with our
efforts to advance our regulatory submissions. We have begun seeking and intend to continue to seek marketing authorization for
Translarna for the treatment of nmDMD in territories outside of the EEA and we may also seek marketing authorization for
Translarna for other indications. In late 2019, we plan to submit a request for marketing authorization for PTC-AADC with the
FDA, followed by a request for marketing authorization for PTC-AADC with the EMA and we recently submitted a request for
marketing authorization for Tegsedi with ANVISA. These efforts may significantly impact the timing and extent of our
commercialization expenses.
In addition, our expenses will increase if and as we:
• seek to integrate Agilis's operations and employees into our business and seek to satisfy contractual and regulatory
obligations we assumed in connection with the Agilis acquisition;
• seek to satisfy contractual and regulatory obligations in conjunction with the Akcea Agreement, including the potential
commercialization of Tegsedi and Waylivra in the PTC Territory;
• execute our strategy for Emflaza in the United States, including commercialization and integration efforts;
• satisfy contractual and regulatory obligations that we assumed through the Emflaza acquisition;
• are required to complete any additional clinical trials, non-clinical studies or CMC assessments or analyses in order to
advance Translarna for the treatment of nmDMD in the United States or elsewhere;
• are required to take other steps, in addition to Study 041, to maintain our current marketing authorization in the EEA
for Translarna for the treatment of nmDMD or to obtain further marketing authorizations for Translarna for the treatment
of nmDMD or other indications;
•
initiate or continue the research and development of Translarna and Emflaza for additional indications and of our other
product candidates;
• seek to discover and develop additional product candidates;
• seek to expand and diversify our product pipeline through strategic transactions;
• maintain, expand and protect our intellectual property portfolio; and
• add operational, financial and management information systems and personnel, including personnel to support our
product development and commercialization efforts.
We believe that our cash flows from product sales, together with existing cash and cash equivalents, including the net
proceeds from our term loan facility with MidCap Financial, our offering of the Convertible Notes, public offerings of common
stock, marketable securities and research funding that we expect to receive under our collaborations, will be sufficient to fund our
operating expenses and capital expenditure requirements for at least the next twelve months. We have based this estimate on
assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
Our future capital requirements will depend on many factors, including:
•
our ability to commercialize and market Emflaza for the treatment of DMD in the United States;
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms, on a timely basis,
with third-party payors for Emflaza for the treatment of DMD in the United States and for Translarna for the treatment
of nmDMD in the EEA and other territories outside of the United States;
our ability to maintain orphan exclusivity for, and successfully complete all FDA post-marketing requirements with
respect to, Emflaza;
our ability to maintain the marketing authorization in the EEA for Translarna for the treatment of nmDMD, including
whether the EMA determines on an annual basis that the benefit-risk balance of Translarna supports renewal of our
marketing authorization in the EEA, on the current approved label;
the costs, timing and outcome of Study 041;
the costs, timing and outcome of our efforts to advance Translarna for the treatment of nmDMD in the United States,
including, whether we will be required to perform additional clinical trials, non-clinical studies or CMC assessments
or analyses at significant cost which, if successful, may enable FDA review of an NDA submission by us and, ultimately,
may support approval of Translarna for nmDMD in the United States;
our ability to commercialize and market Tegsedi and Waylivra in the PTC Territory;
the progress and results of our open label extension clinical trials of Translarna for the treatment of nmDMD as well
as our studies for nonsense mutation aniridia and nonsense mutation Dravet syndrome/CDKL5 and activities under
our gene therapy and oncology programs;
the scope, costs and timing of our commercialization activities, including product sales, marketing, legal, regulatory,
distribution and manufacturing, for both Emflaza for the treatment of DMD and Translarna for the treatment of nmDMD,
for Tegsedi, for Waylivra and for any of our other product candidates that may receive marketing authorization or any
additional indications or territories in which we receive authorization to market Translarna;
the costs, timing and outcome of regulatory review of our other product candidates, including those in our gene therapy
and oncology programs, and Translarna in other territories or for indications other than nmDMD;
our ability to satisfy our obligations under the terms of the Credit Agreement with MidCap Financial;
the timing and scope of growth in our employee base;
the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for Translarna
and Emflaza for additional indications and for our other product candidates, including those in our gene therapy and
oncology programs;
revenue received from commercial sales of Translarna, Emflaza, Tegsedi, Waylivra, or any of our other product
candidates;
our ability to obtain additional and maintain existing reimbursed named patient and cohort EAP programs for Translarna
for the treatment of nmDMD on adequate terms, or at all;
the ability and willingness of patients and healthcare professionals to access Translarna through alternative means if
pricing and reimbursement negotiations in the applicable territory do not have a positive outcome;
the costs of preparing, filing and prosecuting patent applications, maintaining, and protecting our intellectual property
rights and defending against intellectual property-related claims;
the extent to which we acquire or invest in other businesses, products, product candidates, and technologies, including
the success of any acquisition, in-licensing or other strategic transaction we may pursue, and the costs of subsequent
development requirements and commercialization efforts, including with respect to our acquisition of Emflaza, our
acquisition of Agilis, and our licensing of Tegsedi and Waylivra; and
our ability to establish and maintain collaborations, including our collaborations with Roche and the SMA Foundation,
and our ability to obtain research funding and achieve milestones under these agreements.
With respect to our outstanding Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears,
which will require total funding of $4.5 million annually. Furthermore, as a result of our initial public offering in June 2013, we
have incurred and expect to continue to incur additional costs associated with operating as a public company. These costs include
significant legal, accounting, investor relations and other expenses that we did not incur as a private company.
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We will need to generate significant revenues to achieve and sustain profitability, and we may never do so. We may need
to obtain substantial additional funding in connection with our continuing operations. Until such time, if ever, as we can generate
substantial product revenues, we expect to finance our cash needs primarily through a combination of equity offerings, debt
financings, collaborations, strategic alliances, grants and clinical trial support from governmental and philanthropic organizations
and patient advocacy groups in the disease areas addressed by our product and product candidates and marketing, distribution or
licensing arrangements. Adequate additional financing may not be available to us on acceptable terms, or at all. To the extent that
we raise additional capital through the sale of equity or convertible debt securities, our shareholders ownership interest will be
diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common
stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take
specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds
through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to
relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses
on terms that may not be favorable to us.
If we are unable to raise additional funds through equity or debt financings when needed or on attractive terms, we may
be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop
and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual obligations
The following table summarizes our significant contractual obligations and commercial commitments as of
December 31, 2018.
(in thousands)
Operating lease obligations (1)
Long-term debt obligations, including interest (2)
Minimum royalty (3)
Credit agreement, including interest (4)
Deferred Consideration payable (5)
Total contractual obligations
Total
$
13,928
$ 168,000
$
$
$
8,588
43,986
40,000
Less than
1 year
3,216
4,500
1,718
14,283
20,000
1 - 3 years
3 - 5 years
5,309
9,000
3,435
29,703
20,000
3,965
154,500
3,435
—
—
More than
5 years
1,438
—
—
—
—
$ 274,502
$
43,717
$
67,447
$ 161,900
$
1,438
_______________________________________________________________________________
(1) We lease office space for our principal office in South Plainfield, New Jersey under three non-cancelable operating leases
with terms that extend through May 2022, August 2024 and October 2024. In addition, we lease office space in various
countries for our international employees and operations.
(2) Our long-term debt obligations reflect our obligations under the Convertible Notes to pay interest on the $150.0 million
aggregate principal amount of the Convertible Notes and to make principal payments on the Convertible Notes at maturity
or upon conversion.
(3) Under an Exclusive License and Supply Agreement ("the Faes Agreement") with Faes Farma, S.A. ("Faes"), we are
required to pay royalties as a percentage of or as a fixed payment with respect to net product sales by us allocable to the
Emflaza oral suspension product. We are required to pay Faes an annual minimum royalty during the first seven calendar
years with a fixed percentage royalty during the remainder of the Faes Agreement term. The amounts above reflect the
minimum required payment based on the euro to U.S. dollar exchange rate as of December 31, 2018.
(4) Under the terms of the Credit Agreement, we are required to make interest only payments through April 30, 2019.
Commencing on May 1, 2019 and continuing for the remaining twenty-four months of the facility, we will be required
to make monthly interest payments and monthly principal payments. The principal payments are to be made based on
straight-line amortization of the principal over the twenty-four month period.
(5) Pursuant to the Merger Agreement with Agilis, we are required to pay $40.0 million of development milestone payments,
or deferred consideration payments, no later than the second anniversary of the closing of the Merger, regardless of
whether the applicable milestones have been achieved. The payment schedule above reflects our expected timing of when
the payments will be made as of December 31, 2018. The fair value of the deferred consideration payments at the
December 31, 2018 was estimated to be $37.7 million.
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The preceding table excludes contingent contractual payments that we may become obligated to make. Under various
agreements, we will be required to pay royalties and milestone payments upon the successful development and commercialization
of products, including the following agreements with The Wellcome Trust Limited, or Wellcome Trust, and the SMA Foundation.
We have entered into funding agreements with Wellcome Trust for the research and development of small molecule
compounds in connection with our oncology and antibacterial programs. As we have discontinued development under our
antibacterial program, we no longer expect that milestone and royalty payments from us to Wellcome Trust will apply under that
agreement, resulting in a change to the total amount of development and regulatory milestone payments we may become obligated
to pay for this program. Under our oncology program funding agreement, to the extent that we develop and commercialize program
intellectual property on a for-profit basis ourselves or in collaboration with a partner (provided we retain overall control of worldwide
commercialization), we may become obligated to pay to Wellcome Trust development and regulatory milestone payments and
single-digit royalties on sales of any research program product. Our obligation to pay such royalties would continue on a country-
by-country basis until the longer of the expiration of the last patent in the program intellectual property in such country covering
the research program product and the expiration of market exclusivity of such product in such country. We made the first
development milestone payment of $0.8 million to Wellcome Trust under the oncology program funding agreement during the
second quarter of 2016. Additional development and regulatory milestone payments of up to an aggregate of $22.4 million may
become payable by us under this agreement.
We have also entered into a sponsored research agreement with the SMA Foundation in connection with our spinal
muscular atrophy program. We may become obligated to pay the SMA Foundation single-digit royalties on worldwide net product
sales of any collaboration product that we successfully develop and subsequently commercialize or, with respect to collaboration
products we outlicense, a specified percentage of certain payments we receive from our licensee. We are not obligated to make
such payments unless and until annual sales of a collaboration product exceed a designated threshold. Our obligation to make such
payments would end upon our payment to the SMA Foundation of a specified amount.
We have employment agreements with certain employees which require the funding of a specific level of payments, if
certain events, such as a change in control or termination without cause, occur.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as
defined under Securities and Exchange Commission rules.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest rate
sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in
short-term securities. Our available for sale securities are subject to interest rate risk and will fall in value if market interest rates
increase. At any time, sharp changes in interest rates can affect the fair value of the investment portfolio and its interest earnings.
There were no investments classified as long-term at December 31, 2018. At December 31, 2018, we held $227.6 million in cash
and cash equivalents and short-term investments. After a review of our marketable investment securities, we believe that in the
event of a hypothetical ten percent increase in interest rates, the resulting decrease in fair value of our marketable investment
securities would be insignificant to the consolidated financial statements.
Currently, we do not hedge these interest rate exposures. We maintain an investment portfolio in accordance with our
investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity and to meet
operating needs. Although our investments are subject to credit risk, our investment policy specifies credit quality standards for
our investments and limits the amount of credit exposure from any single issue, issuer or type of investment. Our investments are
also subject to interest rate risk and will decrease in value if market interest rates increase. However, due to the conservative nature
of our investments and relatively short duration, interest rate risk is mitigated. We do not own derivative financial instruments.
Accordingly, we do not believe that there is any material market risk exposure with respect to derivative or other financial
instruments.
As a result of our foreign operations, we face exposure to movements in foreign currency exchange rates, including the
British Pound, Euro and Swiss Franc against the U.S. dollar. The current exposures arise primarily from cash, accounts receivable,
intercompany receivables and payables, and product sales denominated in foreign currencies. Both positive and negative impacts
to our international product sales from movements in foreign currency exchange rates may be partially mitigated by the natural,
opposite impact that foreign currency exchange rates have on our international operating expenses. For the year ended December 31,
2018, we recognized foreign currency transaction losses, net of $1.0 million. A hypothetical ten percent increase or decrease in
the exchange rate between the U.S. dollar and the British Pound, Euro, Brazilian Real, or Swiss Franc from the December 31,
2018 rate would not have a significant impact on our cash flows. We are not currently engaged in any foreign currency hedging
activities. We will evaluate the use of derivative financial instruments to hedge our exposure as the needs and risks should arise.
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In August 2015, we issued $150 million of 3.00% convertible senior notes due August 15, 2022, or the Convertible Notes.
We do not have economic interest rate exposure on the Convertible Notes as they have a fixed annual interest rate of 3.00%.
However, the fair value of the Convertible Notes is exposed to interest rate risk. We do not carry the Convertible Notes at fair
value on our balance sheet but present the fair value of the principal amount for disclosure purposes. Generally, the fair value of
the Convertible Notes will increase as interest rates fall and decrease as interest rates rise. The Convertible Notes are also affected
by the price and volatility of our common stock and will generally increase or decrease as the market price of our common stock
changes. The estimated fair value of the Convertible Notes was approximately $146.6 million as of December 31, 2018.
In May 2017, we entered into the Credit Agreement with MidCap Financial, which provides for a senior secured term loan
facility of $60.0 million, of which $40.0 million was drawn by us for the year ended December 31, 2018. The maturity date of the
Credit Agreement is May 1, 2021, unless terminated earlier. The facility bears interest at a rate per annum equal to LIBOR (with
a LIBOR floor rate of 1.00%) plus 6.15%. Borrowings under the term loan facility are at variable rates of interest and expose us
to interest rate risk. As such, our net income is sensitive to movements in interest rates. If interest rates increase, our debt obligations
on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would
decrease. Such increases in interest rates could have a material adverse effect on our cash flow and financial condition. We do not
hold any derivative instruments and do not engage in any hedging activities to mitigate interest rate risk. Based on our outstanding
borrowings under the Credit Agreement at December 31, 2018, a one-percentage change in interest rates would have affected
interest expense on the debt by an immaterial amount on an annualized basis.
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Item 8. Financial Statements and Supplementary Data
Index to consolidated financial statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
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131
132
133
134
135
136
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of PTC Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PTC Therapeutics, Inc. (the Company) as of December 31,
2018 and 2017, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company at December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated March 1, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2010.
Iselin, New Jersey
March 1, 2019
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PTC Therapeutics, Inc.
Consolidated Balance Sheets
In thousands, except shares
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Trade receivables, net
Inventory
Prepaid expenses and other current assets
Total current assets
Fixed assets, net
Intangible assets, net
Goodwill
Deposits and other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses
Current portion of long-term debt
Deferred revenue
Other current liabilities
Deferred consideration payable- current
Total current liabilities
Deferred revenue - long-term
Long-term debt
Contingent consideration payable
Deferred consideration payable- long-term
Deferred tax liability
Other long-term liabilities
Total liabilities
Stockholders’ equity:
Common stock, $0.001 par value. Authorized 125,000,000 shares; issued and outstanding
50,606,147 shares at December 31, 2018. Authorized 125,000,000 shares; issued and
outstanding 41,612,395 shares at December 31, 2017.
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying consolidated notes.
131
December 31,
2018
2017
$
169,498
$
111,792
58,088
67,907
16,117
9,247
320,857
12,694
701,031
82,341
2,299
79,454
40,394
10,754
6,669
249,063
8,376
132,993
—
1,221
$ 1,119,222
$
391,653
128,199
11,667
3,716
3,814
19,400
166,796
9,722
141,347
310,240
18,300
122,032
58
76,446
—
3,937
1,665
—
82,048
7,954
144,971
—
—
—
243
768,495
235,216
51
1,288,137
1,462
(938,923)
350,727
42
966,534
3,969
(814,108)
156,437
$ 1,119,222
$
391,653
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PTC Therapeutics, Inc.
Consolidated Statements of Operations
In thousands
Year ended December 31,
2018
2017
2016
Revenues:
Net product revenue
Collaboration and grant revenue
Total revenues
Operating expenses:
Cost of product sales, excluding amortization of acquired intangible asset
Amortization of acquired intangible asset
Research and development
Selling, general and administrative
Change in the fair value of deferred and contingent consideration
Total operating expenses
Loss from operations
Interest expense, net
Other income (expense), net
Loss before income tax expense
Income tax benefit (expense)
Net loss attributable to common stockholders
Weighted-average shares outstanding:
Basic and diluted (in shares)
Net loss per share—basic and diluted (in dollars per share)
$
$
$
263,005
$
174,066
$
1,729
264,734
12,670
22,877
171,984
153,548
19,340
380,419
(115,685)
(12,554)
129
(128,110)
29
(128,081) $
20,326
194,392
4,577
15,380
117,456
121,271
—
258,684
(64,292)
(12,094)
(1,279)
(77,665)
(1,335)
(79,000) $
81,447
1,258
82,705
—
—
117,633
97,130
—
214,763
(132,058)
(8,276)
(1,207)
(141,541)
(569)
(142,110)
46,576,313
39,183,073
(2.75) $
(2.02) $
34,044,584
(4.17)
See accompanying consolidated notes.
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PTC Therapeutics, Inc.
Consolidated Statements of Comprehensive Loss
In thousands
Net loss
Other comprehensive loss:
Unrealized gain on marketable securities, net of tax
Foreign currency translation (loss) gain
Comprehensive loss
Year ended December 31,
2018
(128,081) $
2017
(79,000) $
2016
(142,110)
9
(2,516)
(130,588) $
225
5,229
(73,546) $
386
(671)
(142,395)
$
$
See accompanying consolidated notes.
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PTC Therapeutics, Inc.
Consolidated Statements of Stockholders’ Equity
In thousands, except shares
Balance, December 31, 2015
Exercise of options
Restricted stock vesting and issuance
Share-based compensation expense
Net loss
Comprehensive loss
Balance, December 31, 2016
Issuance of common stock related to acquisition
Exercise of options
Restricted stock vesting and issuance
Issuance of common stock in connection with an employee stock purchase plan
Share-based compensation expense
Net loss
Comprehensive loss
Balance, December 31, 2017
Adjustment to accumulated deficit
Issuance of common stock related to equity offering
Issuance of common stock related to acquisition
Exercise of options
Restricted stock vesting and issuance
Issuance of common stock in connection with an employee stock purchase plan
Share-based compensation expense
Receivable from investor
Net loss
Comprehensive loss
Balance, December 31, 2018
Common stock
Shares
Amount
Additional
paid-in
capital
Accumulated
other
comprehensive
(loss) income
Accumulated
deficit
Total
stockholders’
equity
33,916,559
$
89,216
163,635
—
—
—
34,169,410
$
6,683,598
202,085
287,531
269,771
—
—
—
41,612,395
$
—
4,600,000
3,500,907
633,973
119,691
139,181
—
—
—
—
50,606,147
$
34
—
—
—
—
—
34
7
—
1
—
—
—
—
42
—
5
3
1
—
—
—
—
—
—
51
$
820,165
$
(1,200) $
(592,998) $
226,001
968
—
35,009
—
—
—
—
—
—
(285)
—
—
—
(142,110)
—
$
856,142
$
(1,485) $
(735,108) $
75,184
2,182
—
2,467
30,559
—
—
—
—
—
—
—
—
5,454
—
—
—
—
—
(79,000)
—
$
966,534
$
3,969
$
(814,108) $
—
117,911
155,857
10,867
—
2,787
33,252
929
—
—
—
—
—
—
—
—
—
—
—
(2,507)
3,266
—
—
—
—
—
—
—
(128,081)
—
$
1,288,137
$
1,462
$
(938,923) $
968
—
35,009
(142,110)
(285)
119,583
75,191
2,182
1
2,467
30,559
(79,000)
5,454
156,437
3,266
117,916
155,860
10,868
—
2,787
33,252
929
(128,081)
(2,507)
350,727
See accompanying consolidated notes.
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PTC Therapeutics, Inc.
Consolidated Statements of Cash Flows
In thousands
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Change in valuation of warrant liability
Change in valuation of deferred and contingent consideration
Amortization of (discounts) premiums on investments, net
Amortization of debt issuance costs
Share-based compensation expense
Non-cash interest expense
Disposal of asset
Benefit for deferred income taxes
Unrealized foreign currency transaction (gains) losses, net
Changes in operating assets and liabilities:
Inventory, net
Prepaid expenses and other current assets
Trade receivables, net
Deposits and other assets
Accounts payable and accrued expenses
Other liabilities
Deferred revenue
Net cash used in operating activities
Cash flows from investing activities
Purchases of fixed assets
Purchases of marketable securities
Sale & redemption of marketable securities
Acquisition of product rights
Business acquisition, net of cash acquired
Net cash (used in) provided by investing activities
Cash flows from financing activities
Proceeds from exercise of options
Proceeds from shares issued under employee stock purchase plan
Debt issuance costs related to secured term loan
Net proceeds from public offering
Proceeds from issuance of secured term loan
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash information
Cash paid for interest
Cash paid for income taxes
Supplemental disclosures of non-cash information related to investing and financing
activities
Change in unrealized gain on marketable securities, net of tax
Acquisition of product rights and licenses
Year ended December 31,
2018
2017
2016
$
(128,081) $
(79,000) $
(142,110)
26,087
—
19,340
(433)
524
33,252
7,518
2
—
(59)
(5,823)
(1,609)
(29,589)
(1,093)
43,877
1,932
6,514
17,682
—
—
535
433
30,559
6,755
5
199
(459)
(6,454)
(1,784)
(12,203)
(544)
24,011
733
9,469
3,290
(47)
—
1,885
302
35,009
6,065
—
(199)
1,202
—
1,171
(14,842)
(278)
4,259
(799)
1,526
(27,641)
(10,063)
(103,566)
(7,097)
(68,614)
90,423
(8,433)
(48,892)
(42,613)
10,868
2,787
—
117,916
—
131,571
(3,611)
57,706
111,792
169,498
7,773
1,583
$
$
$
(3,101)
(81,368)
174,749
(77,163)
—
13,117
2,182
2,468
(432)
—
40,000
44,218
6,199
53,471
58,321
111,792
6,271
1,101
$
$
$
9
$
(5,981) $
225
$
— $
(1,776)
(85,377)
191,634
—
—
104,481
968
—
—
—
—
968
(1,584)
299
58,022
58,321
4,513
943
386
—
$
$
$
$
$
See accompanying consolidated notes.
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1. The Company
PTC Therapeutics, Inc.
Notes to consolidated financial statements
December 31, 2018
(In thousands except share and per share amount)
PTC Therapeutics, Inc. (the “Company” or “PTC”) is a science-led global biopharmaceutical company focused on the
discovery, development and commercialization of clinically-differentiated medicines that provide benefits to patients with rare
disorders. The Company’s ability to globally commercialize products is the foundation that drives its continued investment in a
robust pipeline of transformative medicines and its mission to provide access to best-in-class treatments for patients who have an
unmet medical need. The Company’s strategy is to bring best-in-class therapies with differentiated clinical benefit to patients
affected by rare disorders and to leverage its global commercial infrastructure to maximize value for its patients and other
stakeholders.
The Company has two products, Translarna™ (ataluren) and Emflaza™ (deflazacort), for the treatment of Duchenne
muscular dystrophy, or DMD, a rare, life threatening disorder. Translarna received marketing authorization from the European
Commission in August 2014 for the treatment of nonsense mutation Duchenne muscular dystrophy, or nmDMD, in ambulatory
patients aged 5 years and over in the 31 member states of the European Economic Area, or EEA, subject to annual renewal and
other conditions. In July 2018, the European Commission approved a label-extension request to the marketing authorization for
Translarna in the EEA to include patients from two to up to five years of age. Emflaza is approved in the United States for the
treatment of DMD in patients five years and older.
The Company has a pipeline of gene therapy product candidates, including PTC-AADC for the treatment of Aromatic
L-Amino Acid Decarboxylase, or AADC, deficiency, or AADC deficiency. The Company is preparing a biologics license
application, or BLA, for PTC-AADC for the treatment of AADC deficiency in the United States, which it anticipates submitting
to the U.S. Food and Drug Administration, or FDA, in late 2019, with an anticipated commercial launch in the United States in
2020. The Company is also preparing a marketing authorization application, or MAA, for PTC-AADC for the treatment of AADC
deficiency in the European Union, or EU, for submission to the European Medicines Agency, or EMA, which will follow its BLA
submission to the FDA.
The Company holds the rights for the commercialization of Tegsedi™ (inotersen) and Waylivra™ (volanesorsen) for the
treatment of rare diseases in countries in Latin America and the Caribbean. Tegsedi has received marketing authorization in the
U.S., EU and Canada for the treatment of stage 1 or stage 2 polyneuropathy in adult patients with hATTR amyloidosis. The
Company filed for marketing authorization with ANVISA, the Brazilian regulatory authority, which granted priority review. It
expects approval in Brazil by the end of 2019. Waylivra is currently under regulatory review in EU for the treatment of familial
chylomicronemia syndrome, or FCS.
The Company also has a spinal muscular atrophy (“SMA”) collaboration with F. Hoffman-La Roche Ltd and Hoffman-
La Roche Inc., which it refers to collectively as Roche, and the Spinal Muscular Atrophy Foundation, or SMA Foundation. Currently,
its collaboration has two pivotal clinical trials ongoing to evaluate the safety and effectiveness of risdiplam (RG7916, RO7034067),
the lead compound in the SMA program. Roche is preparing an NDA and a MAA for risdiplam for the treatment of SMA in the
United States and the EU, respectively, which Roche anticipates submitting to the FDA and the EMA in the second half of 2019.
In addition, the Company has a pipeline of product candidates and discovery programs that are in early clinical, pre-clinical and
research and development stages focused on the development of new treatments for multiple therapeutic areas, including rare
diseases and oncology.
The Company’s marketing authorization for Translarna in the EEA is subject to annual review and renewal by the European
Commission following reassessment by the EMA of the benefit-risk balance of the authorization, which the Company refers to as
the annual EMA reassessment. This marketing authorization is further subject to the specific obligation to conduct and submit the
results of a multi-center, randomized, double-blind, 18-month, placebo-controlled trial, followed by an 18-month open-label
extension, according to an agreed protocol, in order to confirm the efficacy and safety of Translarna. The final report on the trial
and open-label extension is to be submitted by the Company to the EMA by the end of the third quarter of 2021. Due to enrollment
at a slower pace in certain countries than initially expected, in its February 2019 marketing authorization renewal request, the
Company asked the EMA to extend the timeframe for submission of the results of Study 041 to the EMA to the end of the third
quarter of 2022. The Company refers to the trial and open-label extension together as Study 041.
The marketing authorization in the EEA was last renewed in July 2018 and is effective, unless extended, through August
5, 2019. The renewal was based on the Company’s commitment to conduct Study 041 and the totality of the clinical data available
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
1. The Company (Continued)
from its trials and studies of Translarna for the treatment of nmDMD, including the safety and efficacy results of the Phase 2b and
Phase 3 clinical trials. The primary efficacy endpoint was not achieved in either trial within the pre-specified level of statistical
significance.
In June 2014, the Company initiated reimbursed early access programs, or EAP programs, for Translarna for nmDMD
patients in selected territories in the EEA and recorded its first sales of Translarna in the third quarter of 2014 pursuant to an EAP
program. In December 2014, the Company recorded its first commercial sales in Germany. As of December 31, 2018, Translarna
was available in over 40 countries on a commercial basis or pursuant to the EAP program. The Company expects to expand its
commercial activities across the EEA pursuant to the marketing authorization granted by the EMA throughout 2019 and future
years, subject to continued renewal of its marketing authorization following annual EMA reassessments and successful completion
of pricing and reimbursement negotiations. Concurrently, the Company plans to continue to pursue EAP programs in select countries
where those mechanisms exist, both within the EEA and in other countries that will reference the marketing authorization in the
EEA.
Translarna is an investigational new drug in the United States. During the first quarter of 2017, the Company filed a New
Drug Application, or NDA, over protest with the United States Food and Drug Administration, (the "FDA"), for which the FDA
granted a standard review. In October 2017, the Office of Drug Evaluation I of the FDA issued a complete response letter for the
NDA, stating that it was unable to approve the application in its current form. In response, the Company filed a formal dispute
resolution request with the Office of New Drugs of the FDA. In February 2018, the Office of New Drugs of the FDA denied PTC’s
appeal of the Complete Response Letter. In its response, the Office of New Drugs recommended a possible path forward for the
ataluren NDA submission based on the accelerated approval pathway. This would involve a re-submission of an NDA containing
the current data on effectiveness of ataluren with new data to be generated on dystrophin production in nmDMD patients’ muscles.
The Company intends to follow the FDA’s recommendation and will collect, using newer technologies via procedures and methods
that the Company designed, such dystrophin data in a new study, Study 045, which the Company initiated in the fourth quarter of
2018. The Company expects that a potential re-submission of an NDA could occur in 2020. Additionally, should a re-submission
of an NDA receive accelerated approval, the Office of New Drugs stated that Study 041, which is currently enrolling, could serve
as the confirmatory post-approval trial required in connection with the accelerated approval framework.
On April 20, 2017, the Company completed its acquisition of all rights to Emflaza, or the Transaction. Emflaza is approved
in the United States for the treatment of DMD in patients five years and older. The Transaction was completed pursuant to an asset
purchase agreement, dated March 15, 2017, as amended on April 20, 2017, (the "Asset Purchase Agreement"), by and between
the Company and Marathon Pharmaceuticals, LLC (now known as Complete Pharma Holdings, LLC), or Marathon. The Transaction
was accounted for as an asset acquisition. The assets acquired by the Company in the Transaction include intellectual property
rights related to Emflaza, inventories of Emflaza, and certain contractual rights related to Emflaza. The Company assumed certain
liabilities and obligations in the Transaction arising out of, or relating to, the assets acquired in the Transaction.
Upon the closing of the Transaction, the Company paid to Marathon total upfront consideration comprised of $75.0 million
in cash, funded through cash on hand, and 6,683,598 shares of the Company’s common stock. The number of shares of common
stock issued at closing was determined by dividing $65.0 million by the volume weighted average price per share of the Company’s
common stock on the Nasdaq Stock Market for the 15 trading-day period ending on the third trading day immediately preceding
the closing. Marathon will be entitled to receive contingent payments from the Company based on annual net sales of Emflaza
beginning in 2018, up to a specified aggregate maximum amount over the expected commercial life of the asset, and a single $50.0
million sales-based milestone, in each case subject to the terms and conditions of the Asset Purchase Agreement.
On August 23, 2018, the Company completed its acquisition of Agilis Biotherapeutics, Inc., or Agilis, pursuant to an
Agreement and Plan of Merger, dated as of July 19, 2018 (the “Merger Agreement”), by and among the Company, Agility Merger
Sub, Inc., a Delaware corporation and the Company's wholly owned, indirect subsidiary, Agilis and, solely in its capacity as the
representative, agent and attorney-in-fact of the equityholders of Agilis, Shareholder Representative Services LLC, (the "Merger").
Upon the closing of the Merger, the Company paid to Agilis equityholders total upfront consideration comprised of
$49.2 million in cash and 3,500,907 shares of the Company’s common stock (the “Closing Stock Consideration”). The Closing
Stock Consideration was determined by dividing $150.0 million by the volume-weighted average price per share of the Company’s
common stock on the Nasdaq Global Select Market for the 10 consecutive trading-day period ending on the second trading-day
immediately preceding the closing of the Merger. Agilis equityholders may become entitled to receive contingent payments from
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
1. The Company (Continued)
the Company based on the achievement of certain development, regulatory and net sales milestones as well as based upon a
percentage of net sales of certain products. Under the Merger Agreement, the Company is required to pay $40.0 million of the
development milestone payments no later than the second anniversary of the closing of the Merger, regardless of whether the
applicable milestones have been achieved.
As of December 31, 2018, the Company had an accumulated deficit of approximately $938.9 million. The Company has
financed its operations to date primarily through the private offering in August 2015 of 3.00% convertible senior notes due 2022
(see Note 7), public offerings of common stock in February 2014, October 2014, and April 2018, its initial public offering of
common stock in June 2013, private placements of its convertible preferred stock, collaborations, bank debt, convertible debt
financings, grant funding and clinical trial support from governmental and philanthropic organizations and patient advocacy groups
in the disease area addressed by the Company’s product candidates. Since 2014, the Company has also relied on revenue generated
from net sales of Translarna for the treatment of nmDMD in territories outside of the United States, and since May 2017, the
Company generated revenue from net sales of Emflaza for the treatment of DMD in the United States. The
and
Company expects that cash flows from the sales of its products, together with the Company’s cash,
marketable securities, will be sufficient to fund its operations for at least the next twelve months.
equivalents
cash
2. Summary of significant accounting policies
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles (GAAP) and include all adjustments necessary for the fair presentation of the Company’s financial position
for the periods presented.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in these consolidated
financial statements have been made in connection with the calculation of net product sales, certain accruals related to the Company’s
research and development expenses, stock-based compensation, valuation procedures for the convertible notes, allowance for
doubtful accounts, inventory, acquired intangible assets, fair value of the contingent consideration, and the provision for or benefit
from income taxes. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the
period in which they become known.
Consolidation
The consolidated financial statements include the accounts of PTC Therapeutics, Inc. and its wholly owned subsidiaries. All
inter-company accounts, transactions, and profits have been eliminated in consolidation.
Segment and geographic information
Operating segments are defined as components of an enterprise about which separate discrete information is available for
evaluation by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing
performance. The Company views its operations and manages its business in one operating and reporting segment.
Cash equivalents
The Company considers all highly liquid investments with a maturity of 90 days or less at the time of purchase to be cash
equivalents. Cash equivalents are carried at cost which approximates fair value due to their short-term nature.
Marketable securities
The Company considers securities with original maturities of greater than 90 days to be available for sale securities. Securities
under this classification are recorded at fair value and unrealized gains and losses within accumulated other comprehensive income.
The estimated fair value of the available for sale securities is determined based on quoted market prices or rates for similar
instruments. In addition, the cost of debt securities in this category is adjusted for amortization of premium and accretion of discount
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
2. Summary of significant accounting policies (Continued)
to maturity. The Company evaluates securities with unrealized losses to determine whether such losses, if any, are other than
temporary.
Fixed assets
Fixed assets are stated at cost. Depreciation is computed starting when the asset is placed into service on a straight-line
basis over the estimated useful life of the related asset as follows:
Leasehold improvements
Computer equipment and software
Furniture, fixtures, and lab equipment
Concentration of credit risk
Lesser of useful life or lease term
3 years
7 years
The Company’s financial instruments that are exposed to credit risks consist primarily of cash and cash equivalents, available-
for-sale marketable securities and accounts receivable. The Company maintains its cash and cash equivalents in bank accounts,
which, at times, exceed federally insured limits. The Company has not experienced any credit losses in these accounts and does
not believe it is exposed to any significant credit risk on these funds. The Company’s investment policy includes guidelines on
the quality of the financial institutions and financial instruments the Company is allowed to invest in, which the Company believes
minimizes the exposure to concentration of credit risk.
The Company is subject to credit risk from its accounts receivable related to its product sales. The payment terms are
predetermined and the Company evaluates the creditworthiness of each customer or distributor on a regular basis. The Company
reserves all uninsured amounts billed directly to a patient until the time of cash receipt as collectability is not reasonably assured
at the time the product is received. To date, the Company has not incurred any credit losses.
Inventories and cost of product sales
In January 2017, the European Commission granted a one-year renewal of the Company’s marketing authorization for
Translarna for the treatment of nmDMD. Until this renewal, the Company had considered the authorization to be subject to risk
and did not capitalize productions costs in inventory as it was not probable that such costs would be recovered. With the renewal,
the Company considered recovery of the costs to be probable and began capitalizing production costs in inventory, effective January
1, 2017. Since January 1, 2017, production costs are expensed as cost of product sales when the related products are sold. The
costs for a portion of the inventory available for sale were expensed as research and development costs prior to the January 2017
annual renewal of the Translarna marketing authorization and as such the cost of products sold and related gross margins prior to
January 1, 2017 are not directly comparable to future cost of products sold and gross margin after January 1, 2017.
In April 2017, the Company completed the Transaction (see Note 3). Emflaza, both in tablet and suspension form, received
approval from the FDA in February 2017 as a treatment for DMD in patients five years of age and older in the United States. The
Company began the commercialization of Emflaza in the United States shortly after the Transaction was completed. The Company
utilizes third parties for the commercial distribution of Emflaza, including a third-party logistics company to warehouse Emflaza
as well as a specialty pharmacy to sell and distribute Emflaza to patients. All of the Company's supply and manufacturing needs
for Emflaza are fulfilled pursuant to exclusive supply agreements assumed by the Company upon close of the Transaction.
Production costs are expensed as cost of product sales when the related products are sold.
Inventory
Inventories are stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis by
product. The Company capitalizes inventory costs associated with products following regulatory approval when future
commercialization is considered probable and the future economic benefit is expected to be realized. Translarna and Emflaza
product which may be used in clinical development programs are included in inventory and charged to research and development
expense when the product enters the research and development process and no longer can be used for commercial purposes.
Inventory used for marketing efforts are charged to selling, general and administrative expense.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
2. Summary of significant accounting policies (Continued)
The following table summarizes the components of the Company’s inventory for the periods indicated:
Raw materials
Work in progress
Finished goods
Total inventory
December 31,
2018
December 31,
2017
$
1,431
$
9,324
5,362
452
3,912
6,390
$
16,117
$
10,754
The Company periodically reviews its inventories for excess amounts or obsolescence and writes down obsolete or
otherwise unmarketable inventory to its estimated net realizable value. The Company recorded a $1.8 million inventory write
down for the twelve month period ended December 31, 2018 primarily related to inventory labeling changes. No write down was
recorded for the twelve month period ended December 31, 2017. Additionally, though the Company’s product is subject to strict
quality control and monitoring which it performs throughout the manufacturing processes, certain batches or units of product may
not meet quality specifications resulting in a charge to cost of product sales. For the twelve month periods ended December 31,
2018 and December 31, 2017, these amounts were immaterial.
Cost of product sales
Cost of product sales consists of the cost of inventory sold, manufacturing and supply chain costs, storage costs,
amortization of the acquired intangible asset and royalty payments associated with net product sales.
Deferred rent
The Company has an operating lease for office space. Rent expense is recorded on a straight-line basis over the initial lease
term. The difference between the actual cash paid and the straight-line rent expense is recorded as deferred rent. Leasehold
improvements made related to this lease, subsequent to its inception, are amortized over the remaining lease term.
Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss) consists of unrealized gains or losses on marketable securities and foreign
currency translation adjustments.
Revenue recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2014-9, “Revenue from Contracts with Customers (Topic 606)”. ASU No. 2014-9 eliminated transaction- and industry-specific
revenue recognition guidance under FASB Accounting Standards Codification (“ASC”) Subtopic 605-15, Revenue Recognition-
Products (Topic 605) and replaced it with a principle-based approach for determining revenue recognition. ASC Topic 606 requires
entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. On January 1, 2018, the Company
adopted ASC Topic 606 using the modified retrospective approach, a practical expedient permitted under Topic 606, and applied
this approach only to contracts that were not completed as of January 1, 2018. The Company calculated a one-time transition
adjustment of $3.3 million, which was recorded on January 1, 2018 to the opening balance of accumulated deficit, related to the
product sales of Emflaza. The ASC 606 transition adjustment recorded for Emflaza resulted in sales being recognized earlier than
under Topic 605, as the deferred revenue recognition model (sell-through) is not allowed under Topic 606. The one-time adjustment
consisted of $3.9 million in deferred revenue offset by $0.6 million of variable consideration. The information presented for the
periods prior to January 1, 2018 has not been adjusted and is reported under Topic 605.
Periods prior to January 1, 2018
The Company recognizes revenue when amounts are realized or realizable and earned. Revenue is considered realizable
and earned when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or
services have been rendered; (3) the price is fixed or determinable; and (4) collection of the amounts due are reasonably assured.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
2. Summary of significant accounting policies (Continued)
Net product sales
Prior to the second quarter of 2017, the Company’s net product sales consisted of sales of Translarna for the treatment of
nmDMD in territories outside of the U.S. The Company recognizes revenue from product sales when there is persuasive evidence
that an arrangement exists, title to product and associated risk of loss has passed to the customer, the price is fixed or determinable,
collectability is reasonably assured and the Company has no further performance obligations in accordance with FASB ASC
Subtopic 605-15, Revenue Recognition—Products.
The Company has recorded revenue on sales where Translarna is available either on a commercial basis or through a
reimbursed EAP program. Orders for Translarna are generally received from hospital and retail pharmacies and the Company’s
third-party partner distributors. Revenue is recognized when risk of ownership has transferred. The Company’s third-party partner
distributors act as intermediaries between the Company and end users and do not typically stock significant quantities of Translarna.
The ultimate payor for Translarna is typically a government authority or institution or a third-party health insurer.
In May 2017, the Company began the commercialization of Emflaza in the U.S. The Company recorded product revenue
related to the sales of Emflaza in the U.S. in accordance with ASC 605-15, when persuasive evidence of an arrangement exists,
delivery has occurred and title of the product and associated risk of loss has passed to the customer, the price is fixed or determinable
and collection from the customer has been reasonably assured. Due to the early stage of the product launch, the Company determined
that it was not able to reliably make certain estimates, including returns, necessary to recognize product revenue upon shipment
to distributors. As a result, the Company recorded net product revenue for Emflaza using a deferred revenue recognition model
(sell-through). Under the deferred revenue model, the Company does not recognize revenue until Emflaza is shipped to the specialty
pharmacy.
The Company records revenue net of estimated third-party discounts and rebates. Allowances are recorded as a reduction
of revenue at the time revenues from product sales are recognized. These allowances are adjusted to reflect known changes in
factors and may impact such allowances in the quarter those changes are known. For the years ended December 31, 2017 and
2016 the Company recognized Translarna sales of $145.2 million and $81.4 million, respectively. For the year ended December
31, 2017, the Company recognized Emflaza sales of $28.8 million.
Collaboration and grant revenue
The terms of these agreements typically include payments to the Company of one or more of the following: nonrefundable,
upfront license fees; milestone payments; research funding and royalties on future product sales. In addition, the Company generates
service revenue through agreements that generally provide for fees for research and development services and may include additional
payments upon achievement of specified events.
The Company evaluates all contingent consideration earned, such as a milestone payment, using the criteria as provided
by ASC 605-28, Revenue Recognition—Milestone Method. At the inception of a collaboration arrangement, the Company evaluates
if a milestone payment is substantive. The criteria requires that (1) the Company determines if the milestone is commensurate with
either its performance to achieve the milestone or the enhancement of value resulting from its activities to achieve the milestone;
(2) the milestone be related to past performance; and (3) the milestone be reasonable relative to all deliverable and payment terms
of the collaboration arrangement. If these criteria are met then the contingent milestones can be considered a substantive milestone
and will be recognized as revenue in the period that the milestone is achieved. The Company recognizes royalties as earned in
accordance with the terms of various research and collaboration agreements. If not substantive, the contingent consideration is
allocated to the existing units of accounting based on relative selling price and recognized following the same basis previously
established for the associated unit of accounting.
The Company recognizes revenue for reimbursements of research and development costs under collaboration agreements
as the services are performed. The Company records these reimbursements as revenue and not as a reduction of research and
development expenses as the Company has the risks and rewards as the principal in the research and development activities.
Periods commencing January 1, 2018
The Company's net product revenue consists of sales of Translarna in territories outside of the U.S. and sales of Emflaza
in the U.S., both for the treatment of DMD.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
2. Summary of significant accounting policies (Continued)
Net product revenue
The Company recognizes revenue when its performance obligations with its customers have been satisfied. The
Company’s performance obligations are to provide Translarna or Emflaza based on customer orders from distributors, hospitals,
specialty pharmacies or retail pharmacies. The performance obligations are satisfied at a point in time when the Company’s
customer obtains control of either Translarna or Emflaza, which is typically upon delivery. The Company invoices its customers
after the products have been delivered and invoice payments are generally due within 30 to 90 days of invoice date. The Company
determines the transaction price based on fixed consideration in its contractual agreements. Contract liabilities arise in certain
circumstances when consideration is due for goods the Company has yet to provide. As the Company has identified only one
distinct performance obligation, the transaction price is allocated entirely to either product sales of Translarna or Emflaza. In
determining the transaction price, a significant financing component does not exist since the timing from when the Company
delivers product to when the customers pay for the product is typically less than one year. Customers in certain countries pay in
advance of product delivery. In those instances, payment and delivery typically occur in the same month.
The Company records product sales net of any variable consideration, which includes discounts, allowances, rebates and
distribution fees. The Company uses the expected value or most likely amount method when estimating its variable consideration,
unless discount or rebate terms are specified within contracts. Historically, returns of Translarna and Emflaza are immaterial to
the financial statements. The identified variable consideration is recorded as a reduction of revenue at the time revenues from
product sales are recognized. These estimates for variable consideration are adjusted to reflect known changes in factors and may
impact such estimates in the quarter those changes are known. Revenue recognized does not include amounts of variable
consideration that are constrained. For the year ended December 31, 2018, the Company recognized Translarna net sales of $171.0
million and Emflaza net sales of $92.0 million.
In relation to customer contracts, the Company incurs costs to fulfill a contract but does not incur costs to obtain a contract.
These costs to fulfill a contract do not meet the criteria for capitalization and are expensed as incurred.
Upon adoption of ASC Topic 606 on January 1, 2018, the Company elected the following practical expedients:
•
•
•
•
Portfolio Approach - the Company applied the Portfolio Approach to contract reviews within its identified revenue streams
that have similar characteristics and the Company believes this approach would not differ materially than if applying
ASC Topic 606 to each individual contract.
Significant Financing Component - the Company expects the period between when it transfers a promised good to a
customer and when the customer pays for the good or service to be one year or less.
Immaterial Performance Obligations - the Company disregards promises deemed to be immaterial in the context of the
contract.
Shipping and Handling Activities - the Company considers any shipping and handling costs that are incurred after the
customer has obtained control of the product as a cost to fulfill a promise.
Shipping and handling costs associated with finished goods delivered to customers are recorded as a selling expense.
Collaboration revenue
The terms of these agreements typically include payments to the Company of one or more of the following: nonrefundable,
upfront license fees; milestone payments; research funding and royalties on future product sales. In addition, the Company generates
service revenue through agreements that generally provide for fees for research and development services and may include additional
payments upon achievement of specified events.
At the inception of a collaboration arrangement, the Company needs to first evaluate if the arrangement meets the criteria
in ASC Topic 808 “Collaborative Arrangements” to then determine if ASC Topic 606 is applicable by considering whether the
collaborator meets the definition of a customer. If the criteria are met, the Company assesses the promises in the arrangement to
identify distinct performance obligations.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
2. Summary of significant accounting policies (Continued)
For licenses of intellectual property, the Company assesses, at contract inception, whether the intellectual property is
distinct from other performance obligations identified in the arrangement. If the licensing of intellectual property is determined
to be distinct, revenue is recognized for nonrefundable, upfront license fees when the license is transferred to the customer and
the customer can use and benefit from the license. If the licensing of intellectual property is determined not to be distinct, then
the license will be bundled with other promises in the arrangement into one distinct performance obligation. The Company needs
to determine if the bundled performance obligation is satisfied over time or at a point in time. If the Company concludes that the
nonrefundable, upfront license fees will be recognized over time, the Company will need to assess the appropriate method of
measuring proportional performance.
For milestone payments, the Company assesses, at contract inception, whether the development or sales-based milestones
are considered probable of being achieved. If it is probable that a significant revenue reversal will occur, the Company will not
record revenue until the uncertainty has been resolved. Milestone payments that are contingent upon regulatory approval are not
considered probable of being achieved until the applicable regulatory approvals or other external conditions are obtained as such
conditions are not within the Company's control. If it is probable that a significant revenue reversal will not occur, the Company
will estimate the milestone payments using the most likely amount method. The Company will re-assess the development and
sales-based milestones each reporting period to determine the probability of achievement.
The Company recognizes revenue for reimbursements of research and development costs under collaboration agreements
as the services are performed. The Company records these reimbursements as revenue and not as a reduction of research and
development expenses as the Company has the risks and rewards as the principal in the research and development activities.
Allowance for doubtful accounts
The Company maintains an allowance for estimated losses resulting from the inability of its customers to make required
payments. The Company estimates uncollectible amounts based upon current customer receivable balances, the age of customer
receivable balances, the customer’s financial condition and current economic trends. The allowance for doubtful accounts was $0.7
million as of December 31, 2018 and $0.8 million as of December 31, 2017. Bad debt expense was immaterial for the years ended
December 31, 2018, 2017, and 2016.
Research and development costs
Research and development expenses include the clinical development costs associated with the Company’s product
development programs and research and development costs associated with the Company’s discovery programs. These expenses
include internal research and development costs and the costs of research and development conducted on behalf of the Company
by third parties, including sponsored university-based research agreements and clinical study vendors. All research and development
costs are expensed as incurred. Costs incurred in obtaining technology licenses are charged immediately to research and development
expense if the technology licensed has not reached technological feasibility and has no alternative future uses.
Nonrefundable advance payments made for goods and services that will be used in future research and development activities
are deferred if the contracted party has not yet performed the related activities. The amount deferred is then recognized as expense
when the research and development activities are performed. The deferred research and development advance payments were $2.4
million and $0.5 million as of December 31, 2018 and 2017, respectively.
Fair value of financial instruments
The Company follows the fair value measurement rules, which provides guidance on the use of fair value in accounting and
disclosure for assets and liabilities when such accounting and disclosure is called for by other accounting literature. These rules
establish a fair value hierarchy for inputs to be used to measure fair value of financial assets and liabilities. This hierarchy prioritizes
the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3
(lowest priority).
• Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability
to access at the balance sheet date.
• Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
2. Summary of significant accounting policies (Continued)
for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable
for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated
by observable market data by correlation or other means (market corroborated inputs).
• Level 3—Inputs are unobservable and reflect the Company’s assumptions as to what market participants would use in
pricing the asset or liability. The Company develops these inputs based on the best information available.
Investments are reflected in the accompanying financial statements at fair value. The carrying amount of receivables and
accounts payable and accrued expenses approximates fair value due to the short-term nature of those instruments.
Warrant liability
Warrants to purchase the Company’s common stock with nonstandard antidilution provisions, regardless of the probability
or likelihood that may conditionally obligate the issuer to ultimately transfer assets, are classified as liabilities and are recorded
at their estimated fair value at each reporting period. Any change in fair value of these warrants is recorded as gain/(loss) on warrant
valuation each reporting period in Other expense, net on the Company’s statement of operations.
Share-based compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments based on
the grant date fair value of the award. Restricted stock awards are measured based on the fair market values of the underlying stock
on the dates of grant. For service type awards, share-based compensation expense is recognized on a straight-line basis over the
period during which the employee is required to provide service in exchange for the entire award. For awards that vest or begin
vesting upon achievement of a performance condition, the Company estimates the likelihood of satisfaction of the performance
condition and recognizes compensation expense when achievement of the performance condition is deemed probable using an
accelerated attribution model.
The fair value of options is calculated using the Black-Scholes option pricing model to determine the fair value of stock
options on the date of grant based on key assumptions such as expected volatility and expected term. The Company calculates
expected volatility based on a historical volatility analysis of peers that were similar with respect to industry, stage of life cycle,
size, and financial leverage and will continue to do so until the historical volatility of its common stock is sufficient to measure
expected volatility for future option grants. The Company uses the “simplified method” to determine the expected term of options.
Under this method, the expected term represents the average of the vesting period and the contractual term. The risk-free rate of
the option is based on U.S. Government Securities Treasury Constant Maturities yields at the date of grant for a term similar to
the expected term of the option. In connection with the adoption of ASU 2016-9, the Company made a policy election to continue
its methodology for estimating its forfeiture rate.
Income taxes
On December 22, 2017, the U.S. government enacted the 2017 Tax Cuts and Jobs Act (the 2017 Tax Act), which
significantly revises U.S. tax law by, among other provisions, lowering the U.S. federal statutory income tax rate to 21%, imposing
a mandatory one-time transition tax on previously deferred foreign earnings, and eliminating or reducing certain income tax
deductions. The Global Intangible Low-tax Income (GILTI) provisions of the 2017 Tax Act require the Company to include in its
U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The
Company has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred
tax impacts of GILTI in its consolidated financial statements for the period ended December 31, 2018.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the
Tax Cuts and Jobs Act (SAB 118), which allowed the Company to record provisional amounts during a measurement period not
to extend beyond one year of the enactment date. As a result of the reduction in the U.S. corporate income tax rate, the Company
revalued its ending net deferred tax assets as of December 31, 2017. In the fourth quarter of 2018, the Company completed its
analysis to determine the effect of the Tax Act and recorded no further adjustments.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
2. Summary of significant accounting policies (Continued)
credit carryforwards. Deferred tax assets and liabilities are measured at rates expected to apply to taxable income in the years in
which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. A
valuation allowance is recorded when it is not more likely than not that all or a portion of the net deferred tax assets will be realized.
The Company recorded a deferred tax liability in conjunction with the Merger, further discussed in Note 3, of $122.0
million related to the tax basis difference in the In-Process Research and Development, or IPR&D, indefinite-lived intangibles
acquired. The Company's policy is to record a deferred tax liability related to acquired IPR&D which may eventually be realized
either upon amortization of the asset when the research is completed and a product is successfully launched or the write-off of the
asset if it is abandoned or unsuccessful.
Foreign currency
The functional currencies of the Company’s foreign subsidiaries primarily are the local currencies of the country in which
the subsidiary operates. The Company’s asset and liability accounts are translated using the current exchange rate as of the balance
sheet date. Stockholders’ equity accounts are translated using historical rates at the balance sheet date. Revenue and expense
accounts are translated using a weighted average exchange rate over the period ended on the balance sheet date. Adjustments
resulting from the translation of the financial statements of the Company’s foreign subsidiaries into U.S. dollars are accumulated
as a separate component of stockholders’ equity within other comprehensive income. Gains or losses resulting from transactions
denominated in foreign currencies are included in other income or expense, within the consolidated statements of income.
Net (loss) income per share
Basic net (loss) income per share is calculated by dividing the net income attributable to common stockholders by the
weighted average number of common shares outstanding for the period, without consideration for common stock equivalents.
Diluted net income per share is calculated by dividing the net income attributable to common stockholders by the weighted-average
number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted
method. During periods in which the Company incurs net losses, both basic and diluted loss per share is calculated by dividing
the net loss by the weighted average shares outstanding—potentially dilutive securities are excluded from the calculation because
their effect would be anti-dilutive. Dilutive common stock equivalents are comprised of options and unvested restricted stock
outstanding under the Company’s stock option plans.
Business combinations and asset acquisitions
The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction
should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all
of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If
the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required
as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the
requirements of a business. If determined to be a business combination, the Company accounts for the transaction under the
acquisition method of accounting as indicated in ASC 2017-01, “Business Combinations”, which requires the acquiring entity in
a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in
the acquiree and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets
acquired and liabilities assumed in business combinations, including contingent assets and liabilities, and non-controlling interest
in the acquiree based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, the Company recognizes
and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the
identified net assets acquired.
The consideration for the Company’s business acquisitions may include future payments that are contingent upon the
occurrence of a particular event or events. The obligations for such contingent consideration payments are recorded at fair value
on the acquisition date. The contingent consideration obligations are then evaluated each reporting period. Changes in the fair
value of contingent consideration obligations, other than changes due to payments, are recognized as a (gain) loss on fair value
remeasurement of contingent consideration in the consolidated statements of operations.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
2. Summary of significant accounting policies (Continued)
If determined to be an asset acquisition, the Company accounts for the transaction under ASC 805-50, which requires the
acquiring entity in an asset acquisition to recognize assets (net assets) based on the cost to the acquiring entity on a relative fair
value basis, which includes transaction costs in addition to consideration given. No gain or loss is recognized as of the date of
acquisition unless the fair value of noncash assets given as consideration differs from the assets' carrying amounts on the acquiring
entity's books. Consideration transferred that is noncash will be measured based on either the cost (which shall be measured based
on the fair value of the consideration given) or the fair value of the assets (net assets) acquired, whichever is more reliably
measurable. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the
net assets acquired is allocated to the identifiable assets based on relative fair values.
Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the
consideration is paid or becomes payable (unless the contingent consideration meets the definition of a derivative, in which case
the amount becomes part of the basis in the asset acquired). Upon recognition of the contingent consideration payment, the amount
is included in the cost of the acquired asset or group of assets.
Finite-lived intangible assets
The Company records the fair value of purchased intangible assets with finite useful lives as of the transaction date of a
business combination or asset acquisition. Purchased intangible assets with finite useful lives are amortized to their estimated
residual values over their estimated useful lives.
Impairment of long-lived assets
The Company monitors its long-lived assets and finite-lived intangibles for indicators of impairment. If such indicators are
present, the Company assesses the recoverability of affected assets by determining whether the carrying value of such assets is
less than the sum of the undiscounted future cash flows of the assets. If such assets are found not to be recoverable, the Company
measures the amount of such impairment by comparing the carrying value of the assets to the fair value of the assets, with the fair
value generally determined based on the present value of the expected future cash flows associated with the assets. The Company
believes that no impairment of long-lived assets exists as of December 31, 2018.
Indefinite-lived intangible assets
Indefinite-lived intangible assets consist of IPR&D. IPR&D acquired directly in a transaction other than a business
combination is capitalized if the projects will be further developed or have an alternative future use; otherwise they are expensed.
The fair values of IPR&D projects acquired in business combinations are capitalized. Several methods may be used to determine
the estimated fair value of the IPR&D acquired in a business combination. The Company utilizes the "income method”, and uses
estimated future net cash flows that are derived from projected sales revenues and estimated costs. These projections are based on
factors such as relevant market size, patent protection, and expected pricing and industry trends. The estimated future net cash
flows are then discounted to the present value using an appropriate discount rate. These assets are treated as indefinite-lived
intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful
life or written off, as appropriate. IPR&D intangible assets that are determined to have had a drop in their fair value are adjusted
downward and an impairment is recognized in the statement of operations. These assets are tested at least annually or sooner when
a triggering event occurs that could indicate a potential impairment. The Company performed its annual test for its IPR&D assets
and concluded that no impairment exists as of December 31, 2018.
Goodwill
Goodwill represents the amount of consideration paid in excess of the fair value of net assets acquired as a result of the
Company’s business acquisitions accounted for using the acquisition method of accounting. Goodwill is not amortized and is
subject to impairment testing on an annual basis or when a triggering event occurs that may indicate the carrying value of the
goodwill is impaired. The Company performed its annual test for goodwill as of October 1, 2018 and concluded that no impairment
exists as of December 31, 2018.
Recent accounting pronouncements
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
2. Summary of significant accounting policies (Continued)
In February 2016, the FASB issued No. 2016-2, “Leases (Topic 842)”. This standard will require organizations that lease
assets with lease terms of more than 12 months to recognize assets and liabilities for the rights and obligations created by those
leases on their balance sheets. The ASU will also require new qualitative and quantitative disclosures to help investors and other
financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The standard is
effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018,
with early adoption permitted. The Company will adopt this guidance on January 1, 2019, as well as the package of practical
expedients permitted under the transition guidance within the new standard. The Company believes that the adoption of ASU
No. 2016-2 will not have a material impact on its consolidated results of operations, and expects to record approximately $10 -
$15 million of lease assets and lease liabilities to the balance sheet.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments”. This standard requires financial assets measured at amortized cost basis to be presented
at the net amount expected to be collected. This standard is effective for public companies who are SEC filers for fiscal years
beginning after December 15, 2019, including interim periods within those years. The Company expects to adopt this guidance
when effective and is assessing what effect the adoption of ASU 2016-13 will have on its consolidated financial statements and
accompanying notes.
In February 2018, the FASB issued ASU 2018-02, "Income Statement — Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". This standard permits the reclassification
of tax effects stranded in other comprehensive income as a result of tax reform to retained earnings related to the change in federal
tax rate in addition to other stranded effects that relate to the Tax Cuts and Job Act ("the Act") but do not directly relate to the
change in the federal rate. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years with early adoption permitted for periods for which financial statements have not yet been issued or made
available for issuance. The Company will adopt this guidance on January 1, 2019. The Company believes that the adoption of
ASU No. 2018-02 will not have a material impact on its consolidated financial statements and accompanying notes.
In June 2018, the FASB issued ASU 2018-07, "Compensation — Stock Compensation (Topic 718), Improvements to
Nonemployee Share-Based Payment Accounting". This standard expands the scope of ASC 718 to include share-based payments
granted to nonemployees in exchange for goods or services used or consumed in the entity’s own operations and supersedes the
guidance in ASC 505-50. The ASU retains the existing cost attribution guidance, which requires entities to recognize compensation
cost for nonemployee awards in the same period and in the same manner they would if they paid cash for the goods or services,
but it moves the guidance to ASC 718. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years with early adoption permitted for periods for which financial statements have not yet been
issued or made available for issuance. The Company will adopt this guidance on January 1, 2019. The Company is currently
assessing what effect the adoption of ASU No. 2018-07 will have on its consolidated financial statements and accompanying notes.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820), Disclosure Framework—Changes
to the Disclosure Requirements for Fair Value Measurement". This standard eliminates certain disclosure requirements for fair
value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure
requirements. The new guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim
periods within those fiscal years. An entity is permitted to early adopt either the entire standard or only the provisions that eliminate
or modify requirements. Entities can elect to early adopt in interim periods, including periods for which they have not yet issued
financial statements or made their financial statements available for issuance. The Company expects to adopt this guidance when
effective and is currently assessing what effect the adoption of ASU No. 2018-13 will have on its consolidated financial statements
and accompanying notes.
In August 2018, the FASB issued ASU 2018-15,"Intangibles - Goodwill and Other - Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract".
ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software
guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an
asset. For public business entities, the guidance is effective for annual periods, and interim periods within those annual periods,
beginning after December 15, 2019. For all other entities, it is effective for annual periods beginning after December 15, 2020 and
interim periods in annual periods beginning after December 15, 2021. Early adoption is permitted, including adoption in any
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
2. Summary of significant accounting policies (Continued)
interim period for all entities. The Company expects to adopt this guidance when effective and is currently assessing what effect
the adoption of ASU No. 2018-13 will have on its consolidated financial statements and accompanying notes.
In November 2018, the FASB issued ASU 2018-18,"Collaborative Arrangements (Topic 808): Clarifying the Interaction
between Topic 808 and Topic 606”. ASU 2018-18 provides guidance on whether certain transactions between collaborative
arrangement participants should be accounted for with revenue under Topic 606. For public business entities, the guidance is
effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. For all other
entities, it is effective for annual periods beginning after December 15, 2020 and interim periods in annual periods beginning after
December 15, 2021. Early adoption is permitted, including adoption in any interim period for all entities. The Company expects
to adopt this guidance when effective and is currently assessing what effect the adoption of ASU No. 2018-18 will have on its
consolidated financial statements and accompanying notes.
Impact of recently adopted accounting pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. ASU No.
2014-09 eliminated transaction- and industry-specific revenue recognition guidance under FASB Accounting Standards
Codification (“ASC”) Subtopic 605-15, Revenue Recognition-Products and replaced it with a principle-based approach for
determining revenue recognition. ASC Topic 606 requires entities to recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services. On January 1, 2018, the Company adopted ASC Topic 606 using the modified retrospective approach and
applied this approach only to contracts that were not completed as of January 1, 2018. The Company calculated a one-time transition
adjustment of $3.3 million, which was recorded on January 1, 2018 to deferred revenue and accumulated deficit, related to the
product sales of Emflaza. The information presented for the periods prior to January 1, 2018 has not been restated and is reported
under ASC Topic 605.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of
Deferred Taxes”. This standard requires all deferred tax assets and liabilities to be classified as non-current on the balance sheet
instead of separating deferred taxes into current and non-current amounts. In addition, valuation allowance allocations between
current and non-current deferred tax assets are no longer required because those allowances also will be classified as non-current.
This standard is effective for public companies for annual periods beginning after December 15, 2016. The Company adopted the
guidance on January 1, 2017 on a prospective basis. As the Company’s deferred tax assets are provided with full valuation allowance
and the deferred tax liability is non-current as of December 31, 2018, adoption of this standard did not have a significant impact
on the Company's financial statements.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments — Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities”. This standard enhances the reporting model for financial
instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The new
guidance affects all reporting organizations (whether public or private) that hold financial assets or owe financial liabilities. The
Company adopted the guidance on January 1, 2018. In March 2018, the FASB issued ASU 2018-04, "Investments - Debt Securities
(Topic 320) and Regulated Operations (Topic 980): Amendments to SEC Paragraphs Pursuant to the SEC Staff Accounting Bulletin
("SAB") No. 117 and SEC Release No. 33-9273 (SEC Update)". This standard supersedes SEC paragraphs in ASC 320, Investments-
Debt Securities, as a result of the issuance of SAB 117 and also updates the Codification for a 2011 SEC release and is effective
when a registrant adopts ASU 2016-01, which in the case of the Company was on January 1, 2018. The adoption of the guidance
did not have a material impact on the consolidated financial statements and accompanying notes.
In March 2016, the FASB issued ASU No. 2016-9, “Compensation—Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting”. This standard requires the recognition of all income tax effects of awards in the
income statement when the awards vest or are settled, with Additional Paid in Capital (APIC) pools to be eliminated. In addition,
the standard will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception
to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation as well as allowing
companies to elect whether to account for forfeitures of share-based payments by recognizing forfeitures of awards as they occur
or estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently
required. This standard is effective for public companies for fiscal years beginning after December 15, 2016 and interim periods
within those years. The Company adopted the guidance on January 1, 2017 and on a prospective basis, the Company records all
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
2. Summary of significant accounting policies (Continued)
excess tax benefits and deficiencies as income tax expense or benefit. Due to the Company's history of operating losses, the adoption
did not result in changes to the Company's Net loss or Retained earnings. In connection with the adoption of ASU 2016-9, the
Company made a policy election to continue its methodology for estimating its forfeiture rate.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments”. This standard clarifies the presentation of certain specific cash flow issues in the Statement
of Cash Flows. The Company adopted the guidance on January 1, 2018. The adoption of the guidance did not have a material
impact on the consolidated financial statements and accompanying notes.
In November 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory”. ASU
2016-16 requires companies to account for the income tax effects of intercompany transfers of assets other than inventory (e.g.,
intangible assets) when the transfer occurs. The Company adopted the guidance on January 1, 2018. The adoption of the guidance
did not have a material impact on the consolidated financial statements and accompanying notes.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. This
standard requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents
in the statement of cash flows and no longer present transfers between cash and cash equivalents and restricted cash and restricted
cash equivalents in the statement of cash flows. The Company adopted the guidance on January 1, 2018. The adoption of the
guidance did not have a material impact on the consolidated financial statements and accompanying notes.
In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of
a Business". This standard changed the definition of a business to help entities determine whether a set of transferred assets and
activities is a business. This standard is effective for public companies for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years, with early adoption permitted. The Company elected to early adopt ASU No. 2017-01
and applied the guidance to the Transaction, which was accounted for as an asset acquisition under the revised guidance.
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment". This standard simplifies
the accounting for goodwill impairment by requiring impairment charges to be based on the first step in today's two-step impairment
test under ASC 350. Therefore, entities will record an impairment charge based on the excess of a reporting unit's carrying amount
over its fair value. The guidance is effective for annual and interim impairment tests performed in periods beginning after December
15, 2019 for public business entities that meet the definition of an SEC filer, December 15, 2020 for public business entities that
are not SEC filers, and December 15, 2021 for all other entities. Early adoption is permitted for all entities for annual and interim
goodwill impairment testing dates on or after January 1, 2017. The guidance should be applied on a prospective basis. The Company
early adopted this guidance in the fourth quarter ended December 31, 2018. The adoption of the guidance did not have a material
impact on the consolidated financial statements and accompanying notes.
In May 2017, the FASB issued ASU No. 2017-09, "Stock Compensation (Topic 718): Scope of Modification Accounting".
This standard clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a
modification, with entities applying the modification accounting guidance if the value, vesting conditions or classification of the
award changes. In addition to all disclosures about modifications that are required under the current guidance, entities will be also
required to disclose that compensation expense has not changed if applicable. The Company adopted the guidance on January 1,
2018. The adoption of the guidance did not have a material impact on the consolidated financial statements and accompanying
notes.
3. Acquisitions
Agilis Acquisition
On August 23, 2018, the Company completed its acquisition of Agilis pursuant to the Merger Agreement. Agilis was a
privately-held biotechnology company advancing an innovative gene therapy platform for rare monogenic diseases that affect the
central nervous system. Upon completion of the Merger, the Company acquired Agilis's lead product candidate, PTC-AADC, for
the treatment of AADC deficiency, as well as three other gene therapies that were part of the Agilis platform.
Upon the closing of the Merger, the Company paid to Agilis equityholders total upfront consideration comprised of $49.2
million in cash and 3,500,907 shares of the Company’s common stock (the “Closing Stock Consideration”). The Closing Stock
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
3. Acquisitions (Continued)
Consideration was determined by dividing $150.0 million by the volume-weighted average price per share of the Company’s
common stock on the Nasdaq Global Select Market for the 10 consecutive trading-day period ending on the second trading-day
immediately preceding the closing of the Merger. The fair value of the stock on the acquisition date was determined to be $155.9
million.
Pursuant to the Merger Agreement, Agilis equityholders may become entitled to receive contingent consideration payments
from the Company based on (i) the achievement of certain development milestones up to an aggregate maximum amount of $60.0
million, (ii) the achievement of certain regulatory approval milestones together with a milestone payment following the receipt of
a priority review voucher up to an aggregate maximum amount of $535.0 million, (iii) the achievement of certain net sales milestones
up to an aggregate maximum amount of $150.0 million, and (iv) a percentage of annual net sales for Friedreich Ataxia and Angelman
Syndrome during specified terms, ranging from 2%-6%. The fair value of the contingent consideration payments at the acquisition
date was estimated to be $290.5 million. Under the Merger Agreement, the Company is required to pay $40.0 million of the
development milestone payments mentioned above no later than the second anniversary of the closing of the Merger, regardless
of whether the applicable milestones have been achieved. The fair value of the deferred consideration payments at the closing date
was estimated to be $38.1 million. Refer to Footnote 4 for further fair value considerations.
The Company evaluated the acquisition of Agilis under ASU No. 2017-01, Business Combinations: Clarifying the
Definition of a Business. Because the business contained both inputs and processes necessary to manage products and provide
economic benefits directly to its owners and substantially all the value of the acquisition did not relate to a similar group of assets,
it was determined that the acquisition represents a business combination. Therefore, the transaction has been accounted for using
the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price of the acquisition is
allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the
date of acquisition.
The fair value of consideration totaled approximately $533.7 million summarized as follows:
Cash consideration
Fair value of PTC common stock issued
Estimated fair value of deferred consideration payable
Estimated fair value of contingent consideration payable
Total consideration
$
$
Fair Value
49,221
155,860
38,100
290,500
533,681
The Company recorded the assets acquired and liabilities assumed as of the date of acquisition based on the information
available at that time. The Company finalized its accounting for the Merger during the three month period ended December 31,
2018. The following table presents the preliminary allocation of the purchase price to the estimated fair values of the assets acquired
and liabilities assumed as of the acquisition date of August 23, 2018, the measurement period adjustments recorded during the
period from the acquisition date through December 31, 2018, and the final allocation of the purchase price as of December 31,
2018.
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3. Acquisitions (Continued)
PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
Preliminary
Allocation as of the
acquisition date of
August 23, 2018
Measurement Period
Adjustments
Final Allocation as of
December 31, 2018
Cash and cash equivalents
Prepaid expenses and other current assets
Fixed assets
Other assets
Intangible assets - IPR&D
Accounts payable and accrued expenses
Deferred tax liability
Fair value of net assets acquired
Goodwill
Total purchase price
$
$
$
328
181
153
38
480,000
(3,828)
(115,200)
361,672
100,309
461,981
$
$
$
— $
—
—
—
96,500
—
(6,832)
89,668
(17,968)
71,700
$
$
328
181
153
38
576,500
(3,828)
(122,032)
451,340
82,341
533,681
The Company incurred approximately $1.7 million in acquisition related expenses as of December 31, 2018, which
were included in selling, general and administrative expenses in the consolidated statement of operations. The results of Agilis’s
operations have been included in the consolidated statements of operations beginning on the acquisition date of August 23,
2018.
The fair value of the IPR&D was capitalized as of the acquisition date and accounted for as indefinite-lived intangible
assets until disposition of the assets or completion or abandonment of the associated research and development efforts. Accordingly,
during the development period after the completion of the acquisition, these assets will not be amortized into earnings; rather,
these assets will be subject to periodic impairment testing. Upon successful completion of the development efforts, the useful lives
of the IPR&D assets will be determined and the assets will be considered definite-lived intangible assets and amortized over their
expected useful lives.
The goodwill recorded is the excess of the purchase price of the net assets acquired net of any deferred tax adjustments.
The Company currently has a deferred tax liability for the indefinite lived IPR&D intangible assets, which have no tax basis and,
therefore, will not result in a future tax deduction. The goodwill is not deductible for income tax purposes.
The net loss of Agilis included in the consolidated statement of operations for the period August 23, 2018 through
December 31, 2018 was $8.7 million.
Pro-Forma Financial Information Associated with the Agilis Acquisition (Unaudited)
The following table summarizes certain supplemental pro forma financial information for the twelve-month periods ended
December 31, 2018 and 2017 as if the Merger had occurred as of January 1, 2017. The unaudited pro-forma financial information
for the twelve-month period ended December 31, 2018 reflects adjustments of $1.7 million related to acquisition fees that are non-
recurring in nature. There were no adjustments related to the twelve-month period ended December 31, 2017.
Revenues
Net loss attributable to common stockholders
Twelve Months Ended December 31,
2018
2017
$
$
264,734 $
(138,083) $
194,392
(93,333)
Emflaza Acquisition
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
3. Acquisitions (Continued)
On April 20, 2017, the Company completed its previously announced acquisition of all rights to Emflaza pursuant to an
Asset Purchase Agreement, dated March 15, 2017, and amended on April 20, 2017, by and between the Company and Marathon.
The assets acquired by the Company in the Transaction include intellectual property rights related to Emflaza, inventories of
Emflaza, and certain contractual rights related to Emflaza. The Company assumed certain liabilities and obligations in the
Transaction arising out of, or relating to, the assets acquired in the Transaction.
The Company concluded that the Transaction included inputs and processes that did not constitute a business under the
revised guidance of ASU No. 2017-01, which allows for a screen to evaluate if substantially all of the fair value of the gross assets
acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is
accounted for as an asset acquisition. The Company determined that substantially all of the fair value is concentrated in the Emflaza
rights intangible asset and accounted for the Transaction as an asset acquisition under ASC 805-50.
The purchase price consisted of total upfront consideration comprised of $75.0 million in cash and 6,683,598 shares of
the Company's common stock with a fair value of $75.2 million. In addition, the Company incurred approximately $2.2 million
of acquisition costs, which are capitalized in an asset acquisition and included in the total consideration transferred.
Marathon is entitled to receive contingent payments from the Company based on annual net sales of Emflaza beginning
in 2018, up to a specified aggregate maximum amount over the expected commercial life of the asset. In addition, Marathon has
the opportunity to receive a single $50.0 million sales-based milestone. In accordance with the guidance for an asset acquisition,
the Company will record the milestone payment when it becomes payable to Marathon and increase the cost basis for the Emflaza
rights intangible asset. Refer to Note 18 for further details.
The following tables present the total purchase consideration and the preliminary allocation of the purchase
consideration for the Transaction as of April 20, 2017 (the “Acquisition Date”):
Cash consideration
Fair value of PTC common stock issued to Marathon (6,683,598 shares)
Acquisition costs
Total preliminary consideration transferred
Purchase price
Total fair value of tangible assets acquired and liabilities assumed:
Inventory
Emflaza rights
$
$
$
$
75,000
75,190
2,163
152,353
152,353
3,980
148,373
The Emflaza rights intangible asset is being amortized to cost of product sales over its expected useful life of approximately
seven years. Given the inherent uncertainty of the Company's sales projections, the Company amortizes the asset on a straight line
basis. Refer to Note 18 for further details.
4. Fair value of financial instruments and investments
Fair value of certain investments is based upon market prices using quoted prices in active markets for identical assets
quoted on the last day of the year. In establishing the estimated fair value of the remaining investments, the Company used the
fair value as determined by its investment advisors using observable inputs other than quoted prices.
The Company reviews its investments on a periodic basis for other-than-temporary impairments. This review is subjective,
as it requires management to evaluate whether an event or change in circumstances has occurred in that period that may have a
significant adverse effect on the fair value of the investment.
The following represents the fair value using the hierarchy described in Note 2 for the Company’s financial assets and
liabilities that are required to be measured at fair value on a recurring basis as of December 31, 2018 and 2017:
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
4. Fair value of financial instruments and investments (Continued)
December 31, 2018
Quoted prices
in active
markets for
identical assets
(level 1)
Significant
other
observable
inputs
(level 2)
Total
Marketable securities
Warrant liability
Stock appreciation rights liability
Deferred consideration payable
Contingent consideration payable- development
and regulatory milestones
Contingent consideration payable- net sales
milestones and royalties
Marketable securities
Warrant Liability
Stock appreciation rights liability
$
$
$
$
$
$
$
$
$
58,088
$
— $
$
$
3,814
37,700
257,040
53,200
Total
79,454
1
1,665
$
$
$
$
$
Significant
unobservable
inputs
(level 3)
—
—
3,814
—
58,088
$
— $
— $
$
37,700
— $
257,040
— $
53,200
— $
— $
— $
— $
— $
— $
December 31, 2017
Quoted prices
in active
markets for
identical assets
(level 1)
Significant
other
observable
inputs
(level 2)
Significant
unobservable
inputs
(level 3)
— $
— $
— $
79,454
$
— $
— $
—
1
1,665
The Company uses the market approach to measure fair value for its financial assets. The market approach uses prices and
other relevant information generated by market transactions involving identical or comparable assets. The Company’s marketable
securities investments classified as Level 2 primarily utilize broker quotes in a nonactive market to value these securities. No
transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the years ended
December 31, 2018 and 2017.
The following is a summary of marketable securities accounted for as available-for-sale securities at December 31, 2018
and 2017:
Commercial paper
Corporate debt securities
Total
Commercial paper
Corporate debt securities
Total
Amortized
Cost
31,657
26,399
58,056
Amortized
Cost
13,775
65,657
79,432
$
$
$
$
$
$
$
$
December 31, 2018
Gross
Unrealized
Gains
Losses
43
—
43
$
$
Fair
Value
31,699
26,389
58,088
(1) $
(10)
(11) $
December 31, 2017
Gross
Unrealized
Gains
Losses
52
—
52
$
$
Fair
Value
13,827
65,627
79,454
— $
(30)
(30) $
Unrealized gains and losses are reported as a component of accumulated other comprehensive (loss) income in stockholders’
equity. During the year ended December 31, 2018, the Company did not have any realized gains or losses from the sale of marketable
securities. The cost of securities sold is based on the specific identification method. The Company evaluates investments with
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
4. Fair value of financial instruments and investments (Continued)
unrealized losses to determine if the losses are other than temporary. At December 31, 2018, the Company held securities with an
unrealized loss position that were not considered to be other-than-temporarily impaired as the Company has the ability and intent
to hold such investments until recovery of their amortized cost bases, which may be maturity. The Company has determined that
it is not more likely than not that the Company will be required to sell the investments before such recovery.
In addition, the Company considered the financial condition, credit ratings and near-term prospects of the issuers, and the
magnitude of the losses as compared to the cost and the length of time the investments have been in an unrealized loss position
when determining if the losses are other than temporary.
The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a
period of less than and greater than 12 months as of December 31, 2018 are as follows:
December 31, 2018
Securities in an unrealized loss
position less than 12 months
Securities in an unrealized loss
position greater than 12 months
Total
Unrealized
losses
Fair Value
Unrealized
losses
Fair Value
Unrealized
losses
Fair Value
Commercial Paper
Corporate debt securities
Total
$
$
(1) $
(7)
(8) $
1,993
14,230
16,223
$
$
— $
(3)
(3) $
— $
10,087
10,087
$
$
(1) $
(10) $
(11) $
1,993
24,317
26,310
The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a
period of less than and greater than 12 months as of December 31, 2017 are as follows:
December 31, 2017
Securities in an unrealized loss
position less than 12 months
Securities in an unrealized loss
position greater than 12 months
Total
Unrealized
losses
Fair Value
Unrealized
losses
Fair Value
Unrealized
losses
Fair Value
Corporate debt securities
$
(28) $
59,108
$
(2) $
6,519
$
(30) $
65,627
Marketable securities on the balance sheet at December 31, 2018 and 2017 mature as follows:
Commercial paper
Corporate debt securities
Total Marketable securities
Commercial paper
Corporate debt securities
Total Marketable securities
December 31, 2018
Less Than
12 Months
More Than
12 Months
31,699
26,389
58,088
$
$
—
—
—
December 31, 2017
Less Than
12 Months
More Than
12 Months
13,827
55,550
69,377
$
$
—
10,077
10,077
$
$
$
$
The Company classifies all of its securities as current as they are all available for sale and are available for current operations.
Convertible 3.0% senior notes
In August 2015, the Company issued $150.0 million of 3.0% convertible senior notes due August 15, 2022 (the “Convertible
Notes”). Interest is payable semi-annually on February 15 and August 15 of each year, beginning on February 15, 2016. The
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
4. Fair value of financial instruments and investments (Continued)
Company separately accounted for the liability and equity components of the Convertible Notes by allocating the proceeds between
the liability component and equity component, as further discussed in Note 7. The fair value of the Convertible Notes, which differs
from their carrying values, is influenced by interest rates, the Company’s stock price and stock price volatility and is determined
by prices for the Convertible Notes observed in market trading which are Level 2 inputs. The estimated fair value of the Convertible
Notes at December 31, 2018 and 2017 was $146.6 million and $115.7 million, respectively.
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable,
accounts payable and borrowings under the credit and security agreement with MidCap Financial Trust and other financial
institutions (as further discussed in Note 7) approximate fair value because of the immediate or short-term maturity of these
financial instruments. The carrying amounts for the credit and security agreement approximate fair value based on market activity
for other debt instruments with similar characteristics and comparable risk.
Deferred consideration payable
Pursuant to the Merger Agreement, Agilis equityholders may become entitled to receive contingent consideration payments
from the Company based on the achievement of certain development milestones up to an aggregate maximum amount of $60.0
million and the achievement of certain regulatory approval milestones together with a milestone payment following the receipt of
a priority review voucher up to an aggregate maximum amount of $535.0 million. The Company is required to pay $40.0 million
of development milestone payments no later than the second anniversary of the closing of the Merger, regardless of whether the
applicable milestones have been achieved. The fair value of the deferred consideration payable at December 31, 2018 was estimated
to be $37.7 million by applying a probability adjusted, discounted cash flow approach. The discount rates are estimated utilizing
Corporate B rated bonds maturing in the years of expected payments based on the Company’s estimated development timelines
for the acquired product candidates. As of December 31, 2018, $19.4 million of the deferred consideration payable was classified
as current on the balance sheet.
Level 3 valuation
The warrant liability is classified in Other long-term liabilities on the Company’s balance sheet. The warrant liability is
marked-to-market each reporting period with the change in fair value recorded as a gain or loss within Other expense, net on the
Company’s statement of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant
liability to be reclassified as an equity instrument. The fair value of the warrant liability is determined at each reporting period by
utilizing the Black-Scholes option pricing model.
The stock appreciation rights (SARs) liability is classified in Other liabilities on the Company’s consolidated balance sheets.
The SARs liability is marked-to-market each reporting period with the change in fair value recorded as compensation expense on
the Company’s consolidated statements of operations until the SARS vest. The fair value of the SARs liability is determined at
each reporting period by utilizing the Black-Scholes option pricing model.
The contingent consideration payable is fair valued each reporting period with the change in fair value recorded as a gain or
loss in the consolidated statements of operations. The fair value of the development and regulatory milestones is estimated utilizing
a probability adjusted, discounted cash flow approach. The discount rates are estimated utilizing Corporate B rated bonds maturing
in the years of expected payments based on the Company’s estimated development timelines for the acquired product candidate.
The fair value of the net sales milestones and royalties is determined utilizing an option pricing model with Monte Carlo simulation
to simulate a range of possible payment scenarios, and the average of the payments in these scenarios is then discounted to calculate
present fair value.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
4. Fair value of financial instruments and investments (Continued)
The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuation for the warrant
liability, SARs liability, and the contingent consideration payable for the years ended December 31, 2018 and 2017:
Level 3 liabilities
Contingent
consideration
payable-
development and
regulatory
milestones
Contingent
consideration
payable- net sales
milestones and
royalties
Warrants
SARs
Beginning balance as of December 31, 2016
Change in fair value
Payments
Ending balance as of December 31, 2017
Additions
Change in fair value
Payments
Ending balance as of December 31, 2018
$
$
$
$
$
1
—
—
1
—
(1)
—
— $
865
$
— $
1,864
(1,064)
1,665
—
4,140
(1,991)
3,814
$
$
—
—
— $
263,500
(6,460)
—
257,040
$
—
—
—
—
27,000
26,200
—
53,200
The following significant unobservable inputs were used in the valuation of the warrant liability, SARs liability, and the
contingent consideration payable for the years ended December 31, 2018 and 2017:
Fair Value
Valuation Technique
Unobservable Input
Range
December 31, 2018
Volatility
59.39% - 60.48%
Risk free interest rate
2.6%
Warrants
—
Option-pricing model
Strike price
$128.00 - $2,520.00
SARs
$3,814
Option-pricing model
Contingent consideration
payable- development
and regulatory
milestones
$257,040
Probability-adjusted
discounted cash flow
Contingent considerable
payable- net sales
milestones and royalties
$53,200
Option-pricing model
with Monte Carlo
simulation
156
Fair value of common stock
$34.32
Expected life
Volatility
Risk free interest rate
Strike price
Fair value of common stock
Expected life
Potential development and
regulatory milestones
Probabilities of success
Discount rates
Projected years of payments
Potential net sales
milestones
Probabilities of success
Potential percentage of net
sales for royalties
Discount rate
0.59 - 0.72 years
46.53% - 59.59%
2.44% - 2.63%
$6.76 - $30.86
$34.32
0.01 - 1.01 years
$0 - $555 million
25% - 94%
5.8% - 8.0%
2020 - 2026
$0 - $150 million
25% - 89%
2% - 6%
14.0%
Projected years of payments
2021 - 2038
Table of Contents
PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
4. Fair value of financial instruments and investments (Continued)
Fair Value
Valuation Technique
Unobservable Input
Range
December 31, 2017
Volatility
Risk free interest rate
69%
$1.89
Warrants
$1
Option-pricing model
Strike price
$128.00 - $2,520.00
Fair value of common stock
$16.68
SARs
$1,665
Option-pricing model
Strike price
Expected life
Volatility
Risk free interest rate
1.60 - 1.70 years
31% - 70%
1.28% - 1.89%
$6.76 - $30.86
Fair value of common stock
Expected life
$16.68
0.00 - 2.00 years
The contingent consideration is classified as a Level 3 liability as its valuation requires substantial judgment and
estimation of factors that are not currently observable in the market. If different assumptions were used for the various inputs to
the valuation approach, including but not limited to, assumptions involving probability adjusted sales estimates for the Agilis
platform and estimated discount rates, the estimated fair value could be significantly higher or lower than the fair value determined.
5. Fixed assets
Fixed assets, net were as follows at December 31, 2018 and 2017:
Leasehold improvements
Computer equipment and software
Furniture, fixtures, and lab equipment
Assets in process
Less accumulated depreciation and amortization
Total
December 31,
2018
2017
$
2,384
$
4,609
9,965
3,219
20,177
(7,483)
12,694
$
$
14,078
5,471
20,776
895
41,220
(32,844)
8,376
Depreciation expense was approximately $2.6 million, $2.3 million, and $3.3 million for the years ended December 31,
2018, 2017, and 2016, respectively.
6. Accounts payable and accrued expenses
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
Accounts payable and accrued expenses at December 31, 2018 and 2017 consist of the following:
Employee compensation, benefits, and related accruals
$
27,629
$
17,711
December 31,
2018
2017
Consulting and contracted research
Professional fees
Sales allowances and other related costs
Royalties and rebates
Accounts payable
Other
Total
7. Debt
2017 Credit Facility
11,267
5,574
29,417
31,874
6,001
16,437
$
128,199
$
5,137
2,116
22,257
11,657
15,282
2,286
76,446
In May 2017, the Company entered into a credit and security agreement (the "Credit Facility") with MidCap Financial
Trust, a Delaware statutory trust (“MidCap”), as administrative agent and MidCap and certain other financial institutions as lenders
thereunder (the “Credit Agreement”) that provides for a senior secured term loan facility of $60.0 million, of which $40.0 million
was drawn by the Company on May 5, 2017. The Company’s ability to draw on the remaining $20.0 million under the senior
secured term loan facility expired on December 31, 2018. The Company capitalized approximately $0.4 million of debt issuance
costs, which were netted against the carrying value of the Credit Facility and will be amortized over the term of the Credit Facility
using the effective interest rate method.
Borrowings under the Credit Agreement bear interest at a rate per annum equal to LIBOR (with a LIBOR floor rate of
1.00%) plus 6.15%. The Company is obligated to make interest only payments (payable monthly in arrears) through April 30,
2019. Commencing on May 1, 2019 and continuing for the remaining twenty-four months of the facility, the Company will be
required to make monthly interest payments and monthly principal payments. The principal payments are to be made based on
straight-line amortization of the principal over the twenty-four month period. The maturity date of the Credit Agreement is May
1, 2021, unless terminated earlier.
The Credit Facility is subject to certain financial covenants. As of December 31, 2018, the Company was in compliance
with all required covenants.
Convertible Notes
In August 2015, the Company issued, at par value, $150.0 million aggregate principal amount of 3.0% convertible senior
notes due 2022. The Convertible Notes bear cash interest at a rate of 3.0% per year, payable semi-annually on February 15 and
August 15 of each year, beginning on February 15, 2016. The Convertible Notes will mature on August 15, 2022, unless earlier
repurchased or converted. The net proceeds to the Company from the offering were $145.4 million after deducting the initial
purchasers’ discounts and commissions and the offering expenses payable by the Company.
The Convertible Notes are governed by an indenture (the Convertible Notes Indenture) with U.S Bank National Association
as trustee (the Convertible Notes Trustee).
Holders may convert their Convertible Notes at their option at any time prior to the close of business on the business day
immediately preceding February 15, 2022 only under the following circumstances:
•
during any calendar quarter commencing on or after September 30, 2015 (and only during such calendar quarter), if
the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive)
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7. Debt (Continued)
PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar
quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five business day period after any five consecutive trading day period (the “measurement period”) in which
the trading price (as defined in the Convertible Notes Indenture) per $1,000 principal amount of Convertible Notes for
each trading day of the measurement period was less than 98% of the product of the last reported sale price of the
Company’s common stock and the conversion rate on each such trading day;
during any period after the Company has issued notice of redemption until the close of business on the scheduled
trading day immediately preceding the relevant redemption date; or
•
•
•
upon the occurrence of specified corporate events.
On or after February 15, 2022, until the close of business on the business day immediately preceding the maturity date,
holders may convert their Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company
will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and deliver shares of its common
stock in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of Convertible
Notes being converted.
The conversion rate for the Convertible Notes was initially, and remains, 17.7487 shares of the Company’s common stock
per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $56.34
per share of the Company’s common stock.
The Company was not permitted to redeem the Convertible Notes prior to August 20, 2018. As of August 20, 2018, the
Company may redeem for cash all or any portion of the Convertible Notes, at its option, if the last reported sale price of its common
stock has been at least 130% of the conversion price then in effect on the last trading day of, and for at least 19 other trading days
(whether or not consecutive) during, any 30 consecutive trading day period ending on, and including, the trading day immediately
preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100% of the principal
amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No
sinking fund is provided for the Convertible Notes, which means that the Company is not required to redeem or retire the Convertible
Notes periodically. There have been no redemptions to date.
If the Company undergoes a “fundamental change” (as defined in the Indenture governing the Convertible Notes Indenture),
subject to certain conditions, holders of the Convertible Notes may require the Company to repurchase for cash all or part of their
Convertible Notes at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus
accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Convertible Notes Indenture contains customary events of default with respect to the Convertible Notes, including that
upon certain events of default (including the Company’s failure to make any payment of principal or interest on the Convertible
Notes when due and payable) occurring and continuing, the Convertible Notes Trustee by notice to the Company, or the holders
of at least 25% in principal amount of the outstanding Convertible Notes by notice to the Company and the Convertible Notes
Trustee, may, and the Convertible Notes Trustee at the request of such holders (subject to the provisions of the Convertible Notes
Indenture) shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the Convertible Notes to be due
and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving the Company or a significant subsidiary,
100% of the principal of and accrued and unpaid interest on the Convertible Notes will automatically become due and payable.
Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately.
The Company accounts for the Convertible Notes as a liability and equity component where the carrying value of the liability
component will be valued based on a similar instrument. In accounting for the issuance of the Convertible Notes, the Company
separated the Convertible Notes into liability and equity components. The carrying amount of the liability component was calculated
by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the
equity component representing the conversion option was determined by deducting the fair value of the liability component from
the par value of the Convertible Notes as a whole. The excess of the principal amount of the liability component over its carrying
amount, referred to as the debt discount, is amortized to interest expense over the seven-year term of the Convertible Notes. The
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7. Debt (Continued)
PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
equity component is not re-measured as long as it continues to meet the conditions for equity classification. The equity component
recorded at issuance related to the Convertible Notes is $57.5 million and was recorded in additional paid-in capital.
In accounting for the transaction costs related to the issuance of the Convertible Notes, the Company allocated the total costs
incurred to the liability and equity components of the Convertible Notes based on their relative values. Transaction costs attributable
to the liability component are amortized to interest expense over the seven-year term of the Convertible Notes, and transaction
costs attributable to the equity component are netted with the equity components in stockholders’ equity. Additionally, the Company
initially recorded a net deferred tax liability of $22.3 million in connection with the Notes.
The Convertible Notes consist of the following:
Liability component
Principal
Less: Debt issuance costs
Less: Debt discount, net (1)
Net carrying amount
Year ended
December 31,
2018
2017
$
$
150,000
(1,746)
(35,054)
113,200
$
$
150,000
(2,121)
(42,572)
105,307
(1) Included in the consolidated balance sheets within convertible senior notes (due 2022) and amortized to interest
expense over the remaining life of the Convertible Notes using the effective interest rate method.
The fair value of the Convertible Notes was approximately $146.6 million as of December 31, 2018. The Company estimates
the fair value of its Convertible Notes utilizing market quotations for debt that have quoted prices in active markets. As of
December 31, 2018, the remaining contractual life of the Convertible Notes is approximately 3.6 years.
The following table sets forth total interest expense recognized related to the Convertible Notes:
Contractual interest expense
Amortization of debt issuance costs
Amortization of debt discount
Total
Effective interest rate of the liability component
8. Capital structure
Common stock
Year ended
December 31,
2018
2017
$
$
4,500
$
375
7,518
4,500
337
6,755
12,393
$
11,592
11.0%
11.0%
In April 2018, the Company closed an underwritten public offering of its common stock pursuant to a registration statement
on Form S-3. The Company issued and sold an aggregate of 4,600,000 shares of common stock under the registration statement
at a public offering price of $27.04 per share, including 600,000 shares issued upon exercise by the underwriters of their option
to purchase additional shares. The Company received net proceeds of approximately $117.9 million after deducting underwriting
discounts and commissions and other offering expenses payable by the Company.
As of December 31, 2018, the Company’s number of authorized shares of common stock was 125,000,000.
Warrants
All of the Company’s outstanding warrants are classified as liabilities as of December 31, 2018 and 2017 because they
contain non-standard antidilution provisions.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
8. Capital structure (Continued)
The following is a summary of the Company’s outstanding warrants as of December 31, 2018:
Common stock
Common stock
Warrant shares
7,030
130
$
$
Exercise price
Expiration
128.00
2,520.00
2019
2019
The following is a summary of the Company’s outstanding warrants as of December 31, 2017:
Common stock
Common stock
9. Earnings per share
Warrant shares
7,030
130
$
$
Exercise price
Expiration
128.00
2,520.00
2019
2019
Basic earnings per share is computed by dividing net loss available to common stockholders by the weighted-average number
of common shares outstanding. Diluted earnings per share is computed by dividing net loss available to common stockholders by
the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding during the period.
The following table sets forth the computation of basic and diluted earnings per share for common stockholders:
Numerator
Net loss
Denominator
Denominator for basic and diluted net loss per share
Net loss per share:
Year ended December 31,
2018
2017
2016
$
(128,081)
$
(79,000)
$
(142,110)
46,576,313
39,183,073
34,044,584
Basic and diluted
$
(2.75) * $
(2.02) * $
(4.17) *
* For the years ended December 31, 2018, 2017, and 2016, the Company experienced a net loss and therefore did not report
any dilutive share impact.
The following table shows historical dilutive common share equivalents outstanding, which are not included in the above
historical calculation, as the effect of their inclusion is anti-dilutive during each period.
Stock Options
Unvested restricted stock
Total
10. Stock award plan
As of December 31,
2018
8,534,358
571,479
9,105,837
2017
6,448,642
393,011
6,841,653
2016
5,854,316
271,651
6,125,967
In 2009, the Company’s shareholders approved the 2009 Equity and Long-Term Incentive Plan, which provides for the
granting of stock option awards, restricted stock awards, and other stock-based and cash-based awards, subject to certain adjustments
and annual increases.
On March 5, 2013, the Company’s Board of Directors approved the 2013 Stock Incentive Plan, which provides for the
granting of stock option awards, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards in
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
10. Stock award plan (Continued)
the aggregate of 739,937 shares of common stock. On March 5, 2013, the Board approved a grant of 735,324 shares of restricted
stock and 4,613 stock options. There are no additional shares available for issuance under this plan.
In May 2013, the Company’s Board of Directors and stockholders increased by 2,500,000 the number of shares authorized
under the 2009 Equity and Long Term Incentive Plan, which provides for the granting of stock option awards, restricted stock
awards, and other stock-based and cash-based awards. There are no additional shares available for issuance under this plan.
In May 2013, the Company’s Board of Directors and stockholders approved the 2013 Long Term Incentive Plan, which
became effective upon the closing of the Company’s IPO. The 2013 Long Term Incentive Plan provides for the grant of incentive
stock options, nonstatutory stock options, restricted stock awards and other stock-based awards. The number of shares of common
stock reserved for issuance under the 2013 Long Term Incentive Plan is the sum of (1) 122,296 shares of common stock available
for issuance under the Company’s 2009 Equity and Long Term Incentive Plan and 2013 Stock Incentive Plan, (2) the number of
shares (up to 3,040,444 shares) equal to the sum of the number of shares of common stock subject to outstanding awards under
the Company’s 1998 Employee, Director and Consultant Stock Option Plan, 2009 Equity and Long Term Incentive Plan and 2013
Stock Incentive Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at
their original issuance price pursuant to a contractual repurchase right plus (3) an annual increase, to be added on the first day of
each fiscal year until the expiration of the 2013 Long Term Incentive Plan, equal to the lowest of 2,500,000 shares of common
stock, 4% of the number of shares of common stock outstanding on the first day of the fiscal year and an amount determined by
the Company’s Board of Directors. As of December 31, 2018, awards for 729,689 shares of common stock were available for
issuance.
The Board of Directors has the authority to select the individuals to whom options are granted and determine the terms of
each option, including (i) the number of shares of common stock subject to the option; (ii) the date on which the option becomes
exercisable; (iii) the option exercise price, which, in the case of incentive stock options, must be at least 100% (110% in the case
of incentive stock options granted to a stockholder owning in excess of 10% of the Company’s stock) of the fair market value of
the common stock as of the date of grant; and (iv) the duration of the option (which, in the case of incentive stock options, may
not exceed ten years). Options typically vest over a three- or four-year period.
Inducement stock option awards
Pursuant to the Nasdaq inducement grant exception, during the year ended December 31, 2018, the Company issued options
to purchase an aggregate of 1,352,800 shares of common stock to certain new hire employees at a weighted-average exercise price
of $37.35 per share. Additionally, during the year ended December 31, 2018, the Company issued restricted stock units to certain
new hire employees that upon vesting, will be converted into an aggregate of 7,000 shares of common stock. An aggregate of
202,432 of options previously granted as inducement awards were forfeited during the year ended December 31, 2018 in connection
with employee separations from the Company.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
10. Stock award plan (Continued)
A summary of stock option activity is as follows:
Weighted-
average
exercise
price
Weighted-
average
remaining
contractual
term
Number of
options
Aggregate
intrinsic
value
(in thousands)
Outstanding at December 31, 2015
Granted
Exercised
Forfeited
Outstanding at December 31, 2016
Granted
Exercised
Forfeited
Outstanding at December 31, 2017
Granted
Exercised
Forfeited
Outstanding at December 31, 2018
Vested or expected to vest at December 31, 2018
Exercisable at December 31, 2018
4,826,477
$
1,500,645
$
(89,216) $
(383,590) $
$
5,854,316
$
1,913,873
(202,085) $
(1,117,462) $
$
6,448,642
3,181,623
$
(633,973) $
(461,934) $
$
8,534,358
3,881,360
4,410,211
$
$
37.20
27.90
10.85
47.42
34.71
12.34
10.80
33.65
29.00
26.64
18.61
35.36
28.58
24.81
32.01
7.37
8.79
6.02
$
$
$
88,454
44,893
40,854
The fair values of grants made in the years ended December 31, 2018, 2017 and 2016 were contemporaneously estimated
on the date of grant using the following assumptions:
Risk-free interest rate
Expected volatility
Expected term
2018
2.25% - 3.10%
64% - 90%
5.03 - 10.00 years
2017
1.84% - 2.45%
76% - 81%
5.04 - 10.00 years
2016
1.30% - 2.24%
67% - 78%
5.05 - 10.00 years
The Company assumed no expected dividends for all grants. The weighted average grant date fair value of options granted
during the years ended December 31, 2018, 2017 and 2016 was $17.48, $8.45, and $17.31 per share, respectively.
Restricted Stock Awards—Restricted stock awards are granted subject to certain restrictions, including in some cases service
conditions (restricted stock). The grant-date fair value of restricted stock awards, which has been determined based upon the market
value of the Company’s shares on the grant date, is expensed over the vesting period.
Restricted Stock Units—Restricted stock units are granted subject to certain restrictions, including in some cases service or
time conditions (restricted stock). The grant-date fair value of restricted stock units, which has been determined based upon the
market value of the Company’s shares on the grant date, is expensed over the vesting period.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
10. Stock award plan (Continued)
The following table summarizes information on the Company’s restricted stock awards and units:
Unvested at December 31, 2017
Granted
Vested
Forfeited
Unvested at December 31, 2018
Restricted Stock Awards and Units
Weighted
Average
Grant
Date Fair
Value
15.64
19.09
16.36
17.24
17.61
Number of
Shares
393,011
$
354,691
$
(114,295) $
(61,928) $
$
571,479
Stock Appreciation Rights—Stock appreciation rights (SARs) entitle the holder to receive, upon exercise, an amount of the
Company’s common stock or cash (or a combination thereof) determined by reference to appreciation, from and after the date of
grant, in the fair market value of a share of the Company’s common stock over the measurement price based on the exercise date.
In May 2016, a total of 897,290 SARs were granted to non-executive employees (the 2016 SARs). The 2016 SARs will vest
annually in equal installments over four years and will be settled in cash on each vest date, requiring the Company to remeasure
the SARs at each reporting period until vesting occurs. For the period ending December 31, 2018, the Company recorded $4.1
million in compensation expense related to the 2016 SARs.
Employee Stock Purchase Plan—In June 2016, the Company established an Employee Stock Purchase Plan (ESPP or the
Plan) for certain eligible employees. The Plan is administered by the Company’s Board of Directors or a committee appointed by
the Board. The total number of shares available for purchase under the Plan is one million shares of the Company’s common stock.
Employees may participate over a six-month period through payroll withholdings and may purchase, at the end of the six-month
period, the Company’s common stock at a purchase price of at least 85% of the closing price of a share of the Company’s common
stock on the first business day of the offering period or the closing price of a share of the Company’s common stock on the last
business day of the offering period, whichever is lower. No participant will be granted a right to purchase the Company’s common
stock under the Plan if such participant would own more than 5% of the total combined voting power of the Company or any
subsidiary of the Company after such purchase. For the period ending December 31, 2018, the Company recorded $1.0 million in
compensation expense related to the ESPP.
The Company recorded share-based compensation expense in the statement of operations related to incentive stock
options, nonstatutory stock options, restricted stock awards, restricted stock units and the ESPP as follows:
Research and development
Selling, general and administrative
Total
Year ended December 31,
2018
2017
2016
$
$
16,096
17,156
33,252
$
$
15,456
15,103
30,559
$
$
16,812
18,197
35,009
As of December 31, 2018, there was approximately $62.6 million of total unrecognized compensation cost related to unvested
share-based compensation arrangements granted under the Company’s Plans. This cost is expected to be recognized as compensation
expense over the weighted average remaining service period of approximately 2.96 years.
11. Other comprehensive income (loss) and accumulated other comprehensive items
Other comprehensive income (loss) includes changes in equity that are excluded from net loss, such as unrealized gains and
losses on marketable securities.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
11. Other comprehensive income(loss) and accumulated other comprehensive items (Continued)
The following table summarizes other comprehensive income (loss) and the changes in accumulated other comprehensive
items, by component, for the years ended December 31, 2018, 2017, and 2016, respectively.
Unrealized
(Losses)/Gains
On
Marketable
Securities, net of tax
Foreign
Currency
Translation
Total
Accumulated
Other
Comprehensive
Items
Balance at December 31, 2015
Other comprehensive income (loss) before reclassifications
Amounts reclassified from other comprehensive items
Other comprehensive income (loss)
Balance at December 31, 2016
Other comprehensive income before reclassifications
Amounts reclassified from other comprehensive items
Other comprehensive income
Balance at December 31, 2017
Other comprehensive income (loss) before reclassifications
Amounts reclassified from other comprehensive items
Other comprehensive income (loss)
Balance at December 31, 2018
$
$
$
$
(589) $
386
—
386
(203) $
225
—
225
22
9
—
9
31
$
$
(611) $
(671)
—
(671)
(1,282) $
5,229
—
5,229
3,947
(2,516)
—
(2,516)
1,431
$
$
(1,200)
(285)
—
(285)
(1,485)
5,454
—
5,454
3,969
(2,507)
—
(2,507)
1,462
12. Revenue recognition
Net product sales
During the twelve months ended December 31, 2018, net product sales in the United States were $92.0 million consisting
solely of Emflaza, and net product sales not in the United States were $171.0 million and consisting solely of Translarna.
The following table presents changes in the Company’s contract liabilities from December 31, 2017 to December 31, 2018:
Deferred Revenue
$
11,891
$
6,417
$
(1,433) $
(3,937) $
12,938
Balance as of
December 31,
2017
Additions
Deductions
ASC 606
Adjustment
Balance as of
December 31,
2018
The Company did not have any contract assets for the During the twelve months ended December 31, 2018.
During the twelve months ended December 31, 2018, the Company recognized revenue in the period from:
Amounts included in contract liabilities at the beginning of the period
Performance obligations satisfied in previous period
Performance obligations satisfied in current period
Total product revenue
December 31,
2018
$
$
—
—
263,005
263,005
The Company has not made significant changes to the judgments made in applying ASC Topic 606 for the twelve months
ended December 31, 2018.
Remaining performance obligations
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
12. Revenue recognition (Continued)
Remaining performance obligations represent the transaction price for goods the Company has yet to provide. As of
December 31, 2018, the aggregate amount of transaction price allocated to remaining performance obligations relating to
Translarna net product revenue was $12.9 million. The Company expects to recognize revenue over the next one to three years as
the specific timing for satisfying the performance obligations is contingent upon a number of factors, including customers’ needs
and schedules.
The impact of adoption using the modified retrospective method on the Company’s consolidated financial statements is
as follows:
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
12. Revenue recognition (Continued)
i. Consolidated balance sheets
Impact of changes in accounting policies
As reported
December 31,
2018
Adjustments
As reported
Balances without
adoption of
Topic 606
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Trade receivables, net
Inventory
Prepaid expenses and other current assets
Total current assets
Fixed assets, net
Intangible assets, net
Goodwill
Deposits and other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses
Current portion of long-term debt
Deferred revenue
Other current liabilities
Deferred consideration payable- current
Total current liabilities
Deferred revenue - long-term
Long-term debt
Contingent consideration payable
Deferred consideration payable - long-term
Deferred tax liability
Other long-term liabilities
Total liabilities
Stockholders’ equity:
Common stock
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity
$
169,498
$
— $
58,088
67,907
16,117
9,247
320,857
12,694
701,031
82,341
2,299
$
1,119,222
$
$
128,199
$
11,667
3,716
3,814
19,400
166,796
9,722
141,347
310,240
18,300
122,032
58
768,495
—
—
(84)
—
(84)
—
—
—
—
(84) $
(2,120) $
—
10,563
—
—
8,443
—
—
—
—
—
—
169,498
58,088
67,907
16,033
9,247
320,773
12,694
701,031
82,341
2,299
1,119,138
126,079
11,667
14,279
3,814
19,400
175,239
9,722
141,347
310,240
18,300
122,032
58
8,443
776,938
51
1,288,137
1,462
(938,923)
350,727
—
—
—
(8,527)
(8,527)
51
1,288,137
1,462
(947,450)
342,200
Total liabilities and stockholders’ equity
$
1,119,222
$
(84) $
1,119,138
167
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
12. Revenue recognition (Continued)
Consolidated statements of operations
Impact of changes in accounting policies
Twelve Months Ended
As reported for
the period ended
December 31,
2018
As reported
Balances without
adoption of
Topic 606
Adjustments
Revenues:
Net product revenue
Collaboration and grant revenue
Total revenues
Operating expenses:
Cost of product sales, excluding amortization of acquired
intangible asset
Amortization of acquired intangible asset
Research and development
Selling, general and administrative
Change in the fair value of deferred and contingent
consideration
Total operating expenses
Loss from operations
Interest expense, net
Other income, net
Loss before income tax expense
Income tax benefit
$
263,005
$
1,729
264,734
12,670
22,877
171,984
153,548
19,340
380,419
(115,685)
(12,554)
129
(128,110)
29
Net loss attributable to common stockholders
$
(128,081) $
(5,177) $
—
(5,177)
257,828
1,729
259,557
(84)
—
—
—
—
(84)
(5,093)
—
—
(5,093)
—
(5,093) $
12,586
22,877
171,984
153,548
19,340
380,335
(120,778)
(12,554)
129
(133,203)
29
(133,174)
iii. Consolidated statements of comprehensive loss
Net loss
Other comprehensive loss:
Impact of changes in accounting policies
Twelve Months Ended
As reported for
the period ended
December 31,
2018
(128,081) $
$
As reported
Balances without
adoption of
Topic 606
Adjustments
(5,093) $
(133,174)
Unrealized gain on marketable securities, net of tax
Foreign currency translation loss
Comprehensive loss
9
(2,516)
(130,588) $
$
—
—
(5,093) $
9
(2,516)
(135,681)
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
12. Revenue recognition (Continued)
iv. Consolidated statements of cash flows
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization
Change in valuation of deferred and contingent consideration
Amortization of premiums on investments
Amortization of debt issuance costs
Share-based compensation expense
Non-cash interest expense
Disposal of asset
Unrealized foreign currency transaction (gains) losses, net
Changes in operating assets and liabilities:
Inventory, net
Prepaid expenses and other current assets
Trade receivables, net
Deposits and other assets
Accounts payable and accrued expenses
Other long-term liabilities
Deferred revenue
Net cash used in operating activities
Cash flows from investing activities
Purchases of fixed assets
Purchases of marketable securities
Sale & redemption of marketable securities
Acquisition of product rights
Business acquisition, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities
Proceeds from exercise of options
Proceeds from shares issued under employee stock purchase plan
Net proceeds from public offerings
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
Collaboration revenue
169
Impact of changes in accounting policies
As reported for
the period ended
December 31,
2018
Adjustments
Balances without
adoption of
Topic 606
$
(128,081) $
(5,093) $
(133,174)
26,087
19,340
(433)
524
33,252
7,518
2
(59)
(5,823)
(1,609)
(29,589)
(1,093)
43,877
1,932
6,514
(27,641)
(7,097)
(68,614)
90,423
(8,433)
(48,892)
(42,613)
10,868
2,787
117,916
131,571
(3,611)
57,706
111,792
169,498
$
—
—
—
—
—
—
—
—
(84)
—
—
—
(2,120)
—
7,297
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
26,087
19,340
(433)
524
33,252
7,518
2
(59)
0
(5,907)
(1,609)
(29,589)
(1,093)
41,757
1,932
13,811
(27,641)
(7,097)
(68,614)
90,423
(8,433)
(48,892)
(42,613)
10,868
2,787
117,916
131,571
(3,611)
57,706
111,792
169,498
Table of Contents
PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
12. Revenue recognition (Continued)
The Company has ongoing collaborations with the Spinal Muscular Atrophy Foundation (SMA Foundation) and F.
Hoffman-La Roche Ltd and Hoffman- La Roche Inc. (collectively, Roche) and early stage discovery arrangements with other
institutions. The following are the key terms to the Company’s (i) ongoing collaborations and (ii) early stage discovery and
development arrangements.
Roche and SMA Foundation
In November 2011, the Company and the SMA Foundation entered into a licensing and collaboration agreement with
Roche for a spinal muscular atrophy program. Under the terms of the agreement, Roche acquired an exclusive worldwide license
to the Company’s spinal muscular atrophy program, which includes 3 compounds currently in preclinical development, as well as
potential back-up compounds. The Company received a nonrefundable upfront cash payment of $30.0 million during the research
term, which was terminated effective December 31, 2014, after which Roche provided the Company with funding, based on an
agreed- upon full-time equivalent rate, for an agreed-upon number of full- time equivalent employees that the Company contributed
to the research program.
The Company identified 2 material promises in the collaboration agreement, the license and the research activities. The
Company evaluated whether these material promises are distinct and determined that the license does not have standalone
functionality and there is a significant integration of the license and research activities. As such, both promises were bundled into
one distinct performance obligation. As a result, the Company deferred the $30.0 million upfront payment which was recognized
over the estimated performance period of 2 years, which was the contracted research period. As of adoption of ASC Topic 606 on
January 1, 2018, all performance obligations had been satisfied and the balance of the remaining deferred upfront payment was
fully recognized.
Under the agreement, the Company is eligible to receive additional payments from Roche if specified events are achieved
with respect to each licensed product, including up to $135.0 million in research and development event milestones, up to $325.0
million in sales milestones upon achievement of certain sales events, and up to double digit royalties on worldwide annual net
sales of a commercial product.
In August 2013, a lead development compound, RG7800, was selected to move into IND-enabling studies, which triggered
a milestone payment to the Company from Roche of $10.0 million. Under ASC Topic 605, the Company considered this milestone
event substantive because the applicable criteria of its revenue recognition policy would be satisfied and recorded it as collaboration
revenue for the year ended December 31, 2013.
In January 2014, the Company announced the initiation of a Phase 1 clinical program in its spinal muscular atrophy
collaboration with Roche and the SMA Foundation which triggered a $7.5 million milestone payment from Roche. Under ASC
Topic 605, the Company considered this milestone event substantive because the applicable criteria of its revenue recognition
policy would be satisfied and recorded it as collaboration revenue for the year ended December 31, 2014.
In November 2014, the Company announced the initiation of a Phase 2 study in adult and pediatric patients in its spinal
muscular atrophy collaboration with Roche and the SMA Foundation which triggered a $10 million payment from Roche. Under
ASC Topic 605, the Company considered this milestone event substantive because the applicable criteria of its revenue recognition
policy would be satisfied and recorded it as collaboration revenue for the year ended December 31, 2014.
In October 2017, the Company announced that the Sunfish, a two-part clinical trial in pediatric and adult type 2 and type
3 spinal muscular atrophy initiated in the fourth quarter of 2016 with Roche and SMA Foundation, had transitioned into the pivotal
second part of its study. The achievement of this milestone triggered a $20.0 million payment to the Company from Roche. Under
ASC Topic 605, the Company considered this milestone event substantive because the applicable criteria of its revenue recognition
policy would be satisfied and recorded it as collaboration revenue for the year ended December 31, 2017.
The remaining potential research and development event milestones that can be received as of December 31, 2018 is
$87.5 million. The remaining potential sales milestones as of December 31, 2018 is $325.0 million upon achievement of certain
sales events. In addition, the Company is eligible to receive up to double digit royalties on worldwide annual net sales of a
commercial product.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
12. Revenue recognition (Continued)
For the twelve months ended December 31, 2018, 2017, and 2016, the Company recognized revenue related to the licensing and
collaboration agreement with Roche of $0.2 million, $20.3 million, and $0.4 million, respectively.
Early stage collaboration and discovery agreements
From time to time, the Company has arrangements with several organizations pursuant to which the Company uses its
discovery technologies to help identify potential drug candidates. The Company does not take ownership of the potential compounds,
but rather provides research services to the collaborator using its specialized technology platform.
Generally, these arrangements are structured such that the collaborator and the Company work together to jointly select
targets from which to apply its discovery technologies. The research period for the Company to apply its technology is generally
3 to 4 years. The Company will typically receive a nonrefundable, upfront cash payment and the collaborator agrees to provide
funding for research activities performed on its behalf.
Generally, the 2 material promises in these arrangements are the license and the research activities. The Company evaluated
whether these material promises are distinct and determined that the license does not have standalone functionality and there is a
significant integration of the license and research activities. As such, both promises are bundled into one distinct performance
obligation. As of adoption of ASC Topic 606 on January 1, 2018, all deferred revenue related to these arrangements had been
recognized. For the twelve months ended December 31, 2018, 2017, and 2016, the Company did not recognize any revenue related
to discovery agreements.
The Company is eligible to receive additional payments from its early stage discovery research arrangements if the
discovery compounds are ultimately developed and commercialized. The aggregate potential payments the Company is eligible
for if all products are developed is $143.0 million and up to $252.0 million in sales milestones upon achievement of specified sales
events and up to double digit royalties on worldwide annual net sales of the licensed product. The Company will recognize revenue
when it is probable the milestones will be achieved (see Note 2). For the twelve months ended December 31, 2018, 2017, and
2016, the Company did not recognize any revenue related to early stage collaborations.
Grant revenue
The Company receives grant funding from various institutions and governmental bodies. The grants are typically for early
discovery research, and typically the grant program lasts from two to five years. The Company records revenue as the research
activities are performed. If the granting agency provides for an upfront payment, the amount is deferred and recognized as revenue
as the expenditures are incurred. For the year ended December 31, 2018 and 2017, the Company did not recognize any grant
revenue. For the year ending December 31, 2016, the Company recognized $0.9 million in grant revenue.
13. Income taxes
The loss from operations before tax (expense) benefit consisted of the following for the years ended December 31, 2018,
2017, and 2016:
Domestic
Foreign
Total
2018
2017
2016
(68,461)
(59,649)
(128,110)
(54,588)
(23,077)
(77,665)
(61,446)
(80,095)
(141,541)
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
13. Income taxes (Continued)
The Income Tax Provision consisted of the following for the years ended December 31, 2018, 2017 and 2016:
Current:
U.S. Federal
U.S. State and Local
Foreign
Deferred:
U.S. Federal
U.S. State and Local
Foreign
Total tax benefit (expense)
2018
2017
2016
$
$
— $
(38)
(669)
—
—
736
29
$
— $
(6)
(1,131)
(198)
—
—
(1,335) $
—
(2)
(766)
199
—
—
(569)
A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows:
Federal income tax provision at statutory rate
State income tax provision, net of federal benefit
Permanent differences
Research and development
Change in valuation allowances
Change in deferred tax assets
Foreign tax rate differential
Benefit allocated from other comprehensive income
Other
Effective income tax rate
December 31,
2018
2017
2016
21.00%
34.00 %
34.00 %
0.05
(6.41)
6.49
2.20
(14.22)
(9.10)
—
0.01
0.02%
(1.01)
(8.48)
19.53
29.10
(64.12)
(10.33)
(0.26)
(0.15)
3.05
(3.70)
16.66
(30.72)
—
(19.84)
0.14
0.01
(1.72)%
(0.40)%
Accounting for income taxes under U.S. GAAP requires that individual tax-paying entities of the company offset all deferred
tax liabilities and assets within each particular tax jurisdiction and present them as a noncurrent deferred tax liability or asset.
Amounts in different tax jurisdictions cannot be offset against each other. The noncurrent deferred income tax asset is recorded
within deposits and other assets on the balance sheet. The amount of deferred income taxes are as follows:
Assets:
Noncurrent deferred income taxes
Liabilities:
Noncurrent deferred income taxes
Deferred income taxes - net
2018
2017
$
$
736
$
(122,032)
(121,296) $
—
—
—
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
13. Income taxes (Continued)
The significant components of the Company’s deferred tax assets and liabilities at December 31, 2018 and 2017 are as
follows:
Deferred tax assets:
Accrued expense
Amortization
Depreciation
Federal tax credits
State tax credits
Federal net operating losses
State net operating losses
Foreign net operating losses
Capitalized research and development costs
Share based compensation and other
Total gross deferred tax assets
Less valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Convertible debt
OCI unrealized (gains)/losses
Indefinite lived intangible
Total gross deferred tax liabilities
Net deferred tax assets (liabilities)
2018
2017
$
714
$
5,148
1,601
89,070
5,473
62,159
165
736
2,093
21,411
625
2,116
1,749
80,961
7,148
61,068
11,884
—
3,332
18,815
188,570
(180,481)
8,089
$
187,698
(177,631)
10,067
(7,353) $
—
(122,032)
(129,385)
(121,296) $
(9,927)
(140)
—
(10,067)
—
$
$
$
At December 31, 2018 and 2017, the Company recorded valuation allowance against its net deferred tax assets of approximately
$180.5 million and $177.6 million, respectively. The change in the valuation allowance during the years ended December 31, 2018
and 2017 was approximately $2.8 million and $5.4 million, respectively. A valuation allowance has been recorded since, in the
judgment of management, these assets are not more likely than not to be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during periods in which those temporary differences and carryforwards
become deductible or are utilized. As of December 31, 2018, the Company incurred approximately $296.0 million, $202.4 million,
$5.9 million of federal, state, and foreign net operating loss carryforwards, respectively. As a result of the adoption of ASU 2016-09,
the Company no longer excludes tax benefits that arose directly from equity compensation in excess of compensation recognized
for financial reporting in its U.S. federal and U.S. state net operating loss carryforwards.
During 2018, the Company acquired IPR&D as part of the acquisition of Agilis. This asset is currently considered an indefinite-
lived intangible with no related book amortization and tested for impairment, annually. As the IPR&D has no tax basis and is an
indefinite-lived intangible, the deferred tax liability created at the time of acquisition is not considered positive evidence of future
income and is presented as a deferred tax liability in the balance sheet.
As of December 31, 2018, research and development credit carryforwards for federal and state purposes are approximately
$15.2 million and $6.6 million, respectively. In addition, the Orphan Drug Credit Carryover available as of December 31, 2018 is
approximately $74.0 million. As a result of U.S. tax reform legislation, federal net operating losses generated in 2018 carryforward
indefinitely, however, the Company has federal net operating losses that pre-date U.S. tax reform legislation which begin to expire
in 2021 and federal credit carryforwards that begin to expire in 2019. State net operating loss carryforwards begin to expire in
2030, and the state credit carryforwards began to expire in 2016. Sections 382 and 383 of the Internal Revenue Code of 1986
subject the future utilization of net operating losses and certain other tax attributes, such as research and development tax credits,
to an annual limitation in the event of certain ownership changes, as defined. The Company has undergone an ownership change
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
13. Income taxes (Continued)
and has determined that a “change in ownership” as defined by IRC Section 382 of the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder, did occur in June of 2013. Accordingly, about $231.5 million of the Company’s
NOL carryforwards are limited and the Company can only use $16.7 million for the first five years from the ownership change
and $5.7 million per year going forward. Therefore, $169.2 million of the NOL’s will be freed up over the next 20 years and $62.3
million are expected to expire unused which are not included in the deferred tax assets listed above. In summary, there are $296.0
million of NOLs available, out of which $231.5 million are limited by IRC Section 382. At December 31, 2018, there is $194.5
million available for immediate use and an additional $5.7 million will free up in 2019.
The income tax expense for the years ended December 31, 2018 and 2017 differed from the amounts computed by applying
the U.S. federal income tax rate of 21% and 34% respectively, to loss before tax expense as a result of foreign taxes, nondeductible
expenses, tax credits generated, true up of net operating loss carryforwards, and increase in the Company’s valuation allowance.
The Company applies the elements of FASB ASC 740-10 regarding accounting for uncertainty in income taxes. This clarifies the
accounting for uncertainty in income taxes recognized in financial statements and required impact of a tax position to be recognized
in the financial statements if that position is more likely than not of being sustained by the taxing authority. As of December 31,
2018 the Company did not have any unrecognized tax benefits and has not accrued any interest or penalties through 2018. The
Company does not expect to have any unrecognized tax benefits within the next twelve months. The Company’s policy is to
recognize interest and penalties related to tax matters within the income tax provision. Tax years beginning in 2014 are generally
subject to examination by taxing authorities, although net operating losses from all years are subject to examinations and adjustments
for at least three years following the year in which the attributes are used. The Company concluded the examination from the
United States Internal Revenue Service for tax year 2014 noting adjustments to the U.S. federal net operating loss carryforwards
and research and development credit carryforwards. No other examinations are in process.
For all years through December 31, 2016, the Company generated research credits but has not conducted a study to document
the qualified activities. This study may result in an adjustment to the Company’s research and development credit carryforwards;
however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A
full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is
required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development
credit carryforwards and the valuation allowance.
As a result of U.S. tax reform legislation, distributions of profits from non-U.S. subsidiaries are not expected to cause a
significant incremental U.S. tax impact in the future. However, distributions may be subject to non-U.S. withholding taxes if profits
are distributed from certain jurisdictions. U.S. federal income taxes have not been provided on undistributed earnings of our
international subsidiaries as it is our intention to reinvest any earnings into the respective subsidiaries. It is not practicable to
estimate the amount of tax that might be payable if some or all of such earnings were to be repatriated due to the legal structure
and complexity of U.S. and local tax laws. As of December 31, 2018 and December 31, 2017 there are no undistributed earnings.
We have completed our accounting for the income tax effects of U.S. tax reform legislation and included measurement period
adjustments in 2018. As a result of the reduction in the U.S. corporate income tax rate, the Company revalued its ending net deferred
tax assets as of December 31, 2017 which resulted in a provisional benefit of $46.1 million which was offset by an associated
change in the valuation allowance.
14. Commitments and contingencies
Operating leases
The Company leases office space in South Plainfield, New Jersey for its principal office under three noncancelable
operating leases through May 2022, August 2024 and October 2024 in addition to office space in various countries for international
employees primarily through workspace providers. Rent expense was approximately $2.7 million, $2.2 million, and $2.2 million
for the years ended December 31, 2018, 2017, and 2016, respectively. The Company also leases certain office equipment under
operating leases.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
14. Commitments and contingencies (Continued)
Future minimum lease payments as of December 31, 2018 are as follows:
2019
2020
2021
2022
2023 and thereafter
Total
Other contingencies
$
$
3,216
2,900
2,409
2,082
3,321
13,928
Under various agreements, the Company will be required to pay royalties and milestone payments upon the successful
development and commercialization of products. The Company has entered into funding agreements with The Wellcome Trust
Limited (Wellcome Trust) for the research and development of small molecule compounds in connection with its oncology and
antibacterial programs. As the Company has discontinued development under its antibacterial program, it no longer expects that
milestone and royalty payments from the Company to Wellcome Trust will apply under that agreement, resulting in a change to
the total amount of development and regulatory milestone payments the Company may become obligated to pay for this program.
Under the oncology program funding agreement, to the extent that the Company develops and commercializes program intellectual
property on a for-profit basis itself or in collaboration with a partner (provided the Company retains overall control of worldwide
commercialization), the Company may become obligated to pay to Wellcome Trust development and regulatory milestone payments
and single-digit royalties on sales of any research program product. The Company’s obligation to pay such royalties would continue
on a country-by-country basis until the longer of the expiration of the last patent in the program intellectual property in such country
covering the research program product and the expiration of market exclusivity of such product in such country. The Company
made the first development milestone payment of $0.8 million to Wellcome Trust under the oncology program funding agreement
during the second quarter of 2016. Additional milestone payments up to an aggregate of $22.4 million may become payable by
the Company to Wellcome Trust under this agreement.
The Company has also entered into a collaboration agreement with the SMA Foundation. The Company may become obligated
to pay the SMA Foundation single- digit royalties on worldwide net product sales of any collaboration product that is successfully
developed and subsequently commercialized or, if the Company outlicenses rights to a collaboration product, a specified percentage
of certain payments the Company receives from its licensee. The Company is not obligated to make such payments unless and
until annual sales of a collaboration product exceed a designated threshold. The Company’s obligation to make such payments
would end upon its payment to the SMA Foundation of a specified amount.
Pursuant to the Merger Agreement with Agilis, the Company is required to pay $40.0 million of development milestone
payments no later than the second anniversary of the closing of the Merger, regardless of whether the applicable milestones have
been achieved. The Company may also be obligated to pay additional development, regulatory approval, and net sales milestones
and net sales royalties. Refer to Note 3 for further details.
The Company also has a Collaboration and License Agreement with Akcea for the commercialization of Tegsedi and
Waylivra, and products containing those compounds in countries in Latin America and the Caribbean. Pursuant to the agreement,
the Company paid Akcea an upfront licensing fee, which included an initial payment of $12.0 million. An additional $6.0 million
is payable within 30 days after receipt of regulatory approval of Waylivra from the FDA or the EMA, whichever occurs earlier.
In addition, Akcea is eligible to receive milestone payments, on a Product-by-Product basis, of $4.0 million upon receipt of
regulatory approval for a product from ANVISA, the Brazilian Health Regulatory Authority, subject to a maximum aggregate
amount of $8.0 million for all such products. Akcea is also entitled to receive royalty payments subject to certain terms set forth
in the Akcea Collaboration and License Agreement.
The Company has employment agreements with certain employees which require the funding of a specific level of
payments, if certain events, such as a change in control or termination without cause, occur. Additionally, the Company has royalty
payments associated with Translarna and Emflaza product net sales, payable quarterly or annually in accordance with the terms
of the related agreements.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
14. Commitments and contingencies (Continued)
From time to time in the ordinary course of our business, we are subject to claims, legal proceedings and disputes,
including as a result of patients seeking to participate in our clinical trials or otherwise gain access to our product candidates.
We are not currently aware of any material legal proceedings against us.
15. Geographic information
The Company views its operations and manages its business in one operating segment. The following table presents
financial information based on the geographic location of the facilities of the Company as of and for the years ended:
Total assets
Property and equipment, net
Revenue
Total assets
Property and equipment, net
Revenue
16. 401(k) plan
Year Ended December 31, 2018
United States
Non-US
Total
1,013,977
10,497
93,694
$
$
$
105,245
2,197
171,040
$
$
$
1,119,222
12,694
264,734
Year Ended December 31, 2017
United States
Non-US
Total
278,108
6,272
49,155
$
$
$
113,545
2,104
145,237
$
$
$
391,653
8,376
194,392
$
$
$
$
$
$
The Company maintains a 401(k) plan for its employees. Employee contributions are voluntary. The Company may match
employee contributions in amounts to be determined at the Company’s sole discretion. The Company provides an 92% matching
contribution for up to the first 6% of each contributing employee’s base salary contributions. The Company made matching
contributions to the 401(k) plan and recorded expense of approximately $2.2 million, $1.6 million and $1.1 million for the years
ended December 31, 2018, 2017 and 2016, respectively.
17. Restructuring
In March 2016, the Company commenced implementation of a reorganization of its operations intended to improve efficiency
and better align the Company’s costs and employment structure with its strategic plans. The Company completed its reorganization
in June 2016 and recorded a one-time charge of $2.5 million for the year ended December 31, 2016. The total $2.5 million in one-
time charges is related to work-force reduction, recorded in research and development and selling, general and administrative
expenses in the accompanying statement of operations. All restructuring payments were made prior to December 31, 2017 and as
such, the balance of accrued restructuring expenses was $0 as of December 31, 2017 and December 31, 2018, respectively.
18. Intangible assets and goodwill
Definite-lived intangibles
On April 20, 2017, the Company completed its previously announced acquisition of all rights to Emflaza pursuant to the
Asset Purchase Agreement, dated March 15, 2017, and amended on April 20, 2017, by and between the Company and Marathon.
The assets acquired by the Company in the Transaction include intellectual property rights related to Emflaza, inventories of
Emflaza, and certain contractual rights related to Emflaza. In accordance with ASU No. 2017-01, the Company determined that
substantially all of the fair value is concentrated in the Emflaza rights intangible asset and as such accounted for the transaction
as an asset acquisition under ASC 805-50 and recorded an intangible asset of $148.4 million.
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
18. Intangible assets and goodwill (Continued)
The Emflaza rights intangible asset is being amortized to cost of product sales over its expected useful life of approximately
7 years on a straight line basis.
Marathon is entitled to receive contingent payments from the Company based on annual net sales of Emflaza beginning
in 2018, up to a specified aggregate maximum amount over the expected commercial life of the asset. In accordance with the
guidance for an asset acquisition, the Company will record the milestone payment when it becomes payable to Marathon and
increase the cost basis for the Emflaza rights intangible asset.
For the twelve month period ended December 31, 2018, the Company recorded $14.4 million of milestone payments due
to net sales of Emflaza, which were added to the cost basis for the Emflaza rights intangible asset and will be amortized prospectively
on a straight-line basis over the remaining life of the asset. As of December 31, 2018, a milestone payable to Marathon of $6.0
million was recorded on the balance sheet within accrued expenses.
For the twelve month periods ended December 31, 2018 and 2017, the Company recognized amortization expense of
$22.9 million and $15.4 million, respectively, related to the Emflaza rights intangible asset, resulting in accumulated amortization
of $38.3 million as of December 31, 2018.The estimated future amortization of the Emflaza rights intangible asset is expected to
be as follows:
2019
2020
2021
2022
2023 and thereafter
Total
Indefinite-lived intangibles
As of December 31, 2018
$
$
24,283
24,276
24,277
24,277
27,418
124,531
In connection with the acquisition of Agilis (Note 3), the Company acquired rights to PTC-AADC, for the treatment of
AADC deficiency. AADC deficiency is a rare CNS disorder arising from reductions in the enzyme AADC that result from mutations
in the dopa decarboxylase gene. The Agilis platform also includes a gene therapy asset targeting Friedreich ataxia, a rare and life-
shortening neurodegenerative disease caused by a single defect in the FXN gene which causes reduced production of the frataxin
protein. An investigational new drug ("IND") submission with the FDA for this program is expected in late 2019. Additionally,
the Agilis platform includes two other gene therapy programs targeting CNS disorders, including Angelman syndrome, a rare,
genetic, neurological disorder characterized by severe developmental delays.
In accordance with the acquisition method of accounting, the Company allocated the acquisition cost for the Merger to
the underlying assets acquired and liabilities assumed, based upon the estimated fair values of those assets and liabilities at the
date of acquisition. The Company classified the fair value of the acquired IPR&D as indefinite lived intangible assets until the
successful completion or abandonment of the associated research and development efforts. The value allocated to the indefinite
lived intangible assets was $576.5 million.
Goodwill
As a result of the Merger on August 23, 2018, the Company recorded $82.3 million of goodwill, which included a
measurement period adjustment of $18.0 million recorded during the three month period ended December 31, 2018. This adjustment
was related to the finalization of the fair values assigned to the intangible assets and corresponding deferred tax liability, the
contingent consideration, and the deferred consideration. Refer to Note 3 for further details.
Collaboration and Licensing Agreement
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PTC Therapeutics, Inc.
Notes to consolidated financial statements (Continued)
December 31, 2018
(In thousands except share and per share amount)
18. Intangible assets and goodwill (Continued)
On August 1, 2018, the Company entered into a Collaboration and License Agreement with Akcea for the
commercialization of Tegsedi and Waylivra, and products containing those compounds in countries in Latin America and the
Caribbean. Pursuant to the agreement, the Company paid Akcea an upfront licensing fee, which included an initial payment of
$12.0 million. An additional $6.0 million is payable within 30 days after receipt of regulatory approval of Waylivra from the United
States Food and Drug Administration or the European Medicines Agency, whichever occurs earlier. The Company evaluated the
agreement under the guidance in ASC 730 and concluded that the acquired rights to commercialize the products had no alternative
future use as of the date of the Merger. Accordingly, the $12.0 million was charged to research and development expense in the
consolidated statements of operations for the twelve month period ended December 31, 2018. The Company recently filed a request
for marketing authorizations for Tegsedi with ANVISA. Waylivra is currently under regulatory review in the EU.
19. Subsequent events
In January 2019, the Company closed an underwritten public offering of its common stock pursuant to a registration
statement on Form S-3. The Company issued and sold an aggregate of 7,563,725 shares of common stock under the registration
statement at a public offering price of $30.20 per share, including 843,725 shares issued upon exercise by the underwriter of its
option to purchase additional shares in February 2019. The Company received net proceeds of approximately $224.1 million after
deducting underwriting discounts and commissions and other offering expenses payable by the Company.
20. Selected quarterly financial data (Unaudited)
The following financial information reflects all normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results of the interim periods. Summarized quarterly data for 2018 and 2017 are as follows:
2018:
Net product revenue
Collaboration and grant revenue
Operating expenses
Loss from operations
Net loss
Basic and diluted net loss per common share(1)
2017:
Net product revenue
Collaboration and grant revenue
Operating expenses
(Loss) income from operations
Net (loss) income
For the quarters ending
March 31
June 30
September 30
December 31
$
55,981
$
68,170
$
53,021
$
85,833
81
72,805
(16,743)
(19,263)
(0.46) $
573
74,317
(5,574)
(9,520)
(0.21) $
570
101,821
(48,230)
(50,969)
(1.06) $
505
131,476
(45,138)
(48,330)
(0.96)
26,442
$
47,891
$
41,780
$
105
52,902
(26,355)
(29,057)
71
60,459
(12,497)
(17,475)
73
72,745
(30,892)
(33,738)
57,953
20,077
72,578
5,452
1,270
0.03
$
$
Basic and diluted net (loss) income per common share(1)(2)
$
(0.85) $
(0.44) $
(0.82) $
(1) The amounts were computed independently for each quarter and the sum of the quarters may not total the annual
amounts.
(2) Diluted net income per common share for the quarter ending December 31, 2017 excludes the conversion of the
Convertible Notes as the effect of their inclusion is anti-dilutive during the period.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (principal executive officer) and Principal Financial Officer
(principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2018. The
term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s
management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding
required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures
as of December 31, 2018, our Chief Executive Officer and Principal Financial Officer concluded that, as of such date, our disclosure
controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company.
Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process
designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the
company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those
policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of our company are being made only in accordance with authorizations of management and directors
of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of our company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting
principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, with the participation of our Chief Executive Officer (principal executive officer) and Principal Financial Officer
(principal financial officer), assessed the effectiveness of our internal control over financial reporting as of December 31, 2018.
In making this assessment, our management used the criteria set forth in the Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management
concluded that our internal control over financial reporting was effective as of December 31, 2018 based on those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2018, has been audited by Ernst & Young LLP,
an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the year ended December 31, 2018 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of PTC Therapeutics, Inc.
Opinion on Internal Control over Financial Reporting
We have audited PTC Therapeutics, Inc.’s internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, PTC Therapeutics, Inc. (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the accompanying consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related
consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 2018, and the related notes and our report dated March 1, 2019 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Iselin, New Jersey
March 1, 2019
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Item 9B. Other Information.
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item as set forth under the captions “Proposal 1—Election of Directors”, “Executive Officers”,
“Section 16(a) Beneficial Ownership Reporting Compliance”, “Corporate Governance—Code of Conduct”, “Corporate
Governance—Director Nominations”, “Corporate Governance—Board Committees and Audit Committee”, and “Stockholder
Proposals and Nominations for Director” in our Proxy Statement for the 2019 Annual Meeting of Shareholders is incorporated in
this Annual Report on Form 10-K by reference.
Code of Ethics
We have adopted a written Code of Business Conduct and Ethics, which is a code of ethics that applies to our directors, officers
and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or
persons performing similar functions. We have posted a current copy of the Code of Business Conduct and Ethics on the Corporate
Governance page of the Investors section of our website, www.ptcbio.com, and is available in print to any person who requests it.
We intend to post on our website all disclosures that are required by applicable law, the rules of the Securities and Exchange
Commission or the Nasdaq Global Select Market concerning any amendment to, or waiver from, any provision of the Code of
Business Conduct and Ethics.
Item 11. Executive Compensation
The information required by this item as set forth in under the captions “Executive Compensation”, “2018 Director Compensation”,
“Corporate Governance—Risk Oversight” and “Corporate Governance—Compensation Committee Interlocks and Insider
Participation” in our Proxy Statement for the 2019 Annual Meeting of Shareholders is incorporated in this Annual Report on
Form 10-K by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item as set forth under the captions “Equity Compensation Plan Information” and “Principal
Stockholders” in our Proxy Statement for the 2019 Annual Meeting of Shareholders is incorporated in this Annual Report on
Form 10-K by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item as set forth under the captions “Corporate Governance—Policies and Procedures for Related
Person Transactions”, “Corporate Governance—Related Person Transactions”, and “Corporate Governance—Director
Independence” in our Proxy Statement for the 2019 Annual Meeting of Shareholders is incorporated in this Annual Report on
Form 10-K by reference.
Item 14. Principal Accountant Fees and Services
The information required by this item as set forth under the caption “Proposal 2—Ratification of Election of Independent Registered
Public Accounting Firm” in our Proxy Statement for the 2019 Annual Meeting of Shareholders is incorporated in this Annual
Report on Form 10-K by reference.
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Item 15. Exhibits and Financial Statement Schedules
Financial Statements
PART IV
The following statements and supplementary data are included in Part II, Item 8. of the Annual Report on Form 10-K.
•
•
•
•
•
•
•
Exhibits
Reports of independent registered public accounting firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding
the exhibits hereto and such listing is incorporated herein by reference.
Exhibit Index
Exhibit
Number
2.1†
2.2
2.3†
3.1
3.2
4.1
Description of Exhibit
Asset Purchase Agreement, dated March 15, 2017, between PTC Therapeutics, Inc. and Complete Pharma
Holdings, LLC (f/k/a Marathon Pharmaceuticals, LLC) (incorporated by reference to Exhibit 2.1 to the
Current Report on Form 8-K filed by the Registrant on March 16, 2017)
Amendment to Asset Purchase Agreement, dated April 20, 2017, between PTC Therapeutics, Inc. and
Complete Pharma Holdings, LLC (f/k/a Marathon Pharmaceuticals, LLC) (incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K filed by the Registrant on April 20, 2017)
Agreement and Plan of Merger, dated July 19, 2018, by and among PTC Therapeutics, Inc., Agility Merger
Sub, Inc., Agilis Biotherapeutics, Inc. and, solely in its capacity as equityholder representative, Shareholder
Representative Services LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K
filed by the Registrant on July 19, 2018)
Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.3 to the
Registration Statement on Form S-1, as amended (File No. 333-188657), of the Registrant)
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Current
Report on Form 8-K filed by the Registrant on April 21, 2017)
Specimen Stock Certificate evidencing the shares of common stock (incorporated by reference to Exhibit 4.1
to the Registration Statement on Form S-1, as amended (File No. 333-188657), of the Registrant)
10.1+ 1998 Employee, Director and Consultant Stock Option Plan, as amended (incorporated by reference to
Exhibit 10.1 to the Registration Statement on Form S-1, as amended (File No. 333-188657), of the
Registrant)
10.2+ Form of Incentive Stock Option Certificate under 1998 Employee, Director and Consultant Stock Option
Plan (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1, as amended (File
No. 333-188657), of the Registrant)
10.3+ Form of Non-Qualified Stock Option Certificate under 1998 Employee, Director and Consultant Stock
Option Plan (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-1, as
amended (File No. 333-188657), of the Registrant)
10.4+ 2009 Equity and Long Term Incentive Plan, as amended (incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-1, as amended (File No. 333-188657), of the Registrant)
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Exhibit
Number
Description of Exhibit
10.5+ Form of Notice of Award for Incentive Stock Option under 2009 Equity and Long Term Incentive Plan
(incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1, as amended (File
No. 333-188657), of the Registrant)
10.6+ Form of Notice of Award for Nonstatutory Stock Option under 2009 Equity and Long Term Incentive Plan
(incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1, as amended (File
No. 333-188657), of the Registrant)
10.7+ Form of Restricted Stock Agreement under 2009 Equity and Long Term Incentive Plan (incorporated by
reference to Exhibit 10.19 to the Registration Statement on Form S-1, as amended (File No. 333-188657), of
the Registrant)
10.8+ 2013 Stock Incentive Plan (incorporated by reference to Exhibit 10.7 to the Registration Statement on
Form S-1, as amended (File No. 333-188657), of the Registrant)
10.9+ Form of Restricted Stock Agreement under 2013 Stock Incentive Plan (incorporated by reference to
Exhibit 10.8 to the Registration Statement on Form S-1, as amended (File No. 333-188657), of the
Registrant)
10.10+ Form of Nonstatutory Stock Option Agreement under 2013 Stock Incentive Plan (incorporated by reference
to Exhibit 10.9 to the Registration Statement on Form S-1, as amended (File No. 333-188657), of the
Registrant)
10.11+ 2013 Long Term Incentive Plan (incorporated by reference to Exhibit 10.10 to the Registration Statement on
Form S-1, as amended (File No. 333-188657), of the Registrant)
10.12+ Form of Incentive Stock Option Agreement under 2013 Long Term Incentive Plan—2013/2014
(incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1, as amended (File
No. 333-188657), of the Registrant)
10.13+ Form of Nonstatutory Stock Option Agreement under 2013 Long Term Incentive Plan—2013/2014
(incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1, as amended (File
No. 333-188657), of the Registrant)
10.14+ Form of Nonqualified Stock Option Agreement Inducement Grant Agreement—2014-2019 (incorporated by
reference to Exhibit 10.14 to the Annual Report on Form 10-K filed by the Registrant on March 2, 2015)
10.15+ Form of Incentive Stock Option Agreement under 2013 Long Term Incentive Plan—2014-2019
(incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K filed by the Registrant on
March 2, 2015)
10.16+ Form of Nonstatutory Stock Option Agreement under 2013 Long Term Incentive Plan—2014-2019
(incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K filed by the Registrant on
March 2, 2015)
10.17+ Form of Nonstatutory Stock Option Agreement under 2013 Long Term Incentive Plan—Non-employee
Director (incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K filed by the
Registrant on February 29, 2016)
10.18+ Form of Restricted Stock Unit Agreement under 2013 Long Term Incentive Plan —2016-2019 (incorporated
by reference to Exhibit 10.32 to the Annual Report on Form 10-K filed by the Registrant on February 29,
2016)
10.19+ Form of Restricted Stock Agreement under 2013 Long Term Incentive Plan —2017-2019 (incorporated by
reference to Exhibit 10.19 to the Annual Report on Form 10-K filed by the Registrant on March 16, 2017)
10.20+
Form of Nonqualified Restricted Stock Award Agreement Inducement Grant Agreement-2018 (incorporated
by reference to Exhibit 99.3 to the Registration Statement on Form S-8 (File No. 333-229126), of the
Registrant)
10.21
Lease Agreement, dated as of July 11, 2000, as amended, between the Registrant and 46.24 Associates L.P.
(incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1, as amended (File
No. 333-188657), of the Registrant)
10.22† License and Collaboration Agreement, dated as of November 23, 2011, as amended, by and among the
Registrant, F. Hoffmann-La Roche Ltd and Hoffmann-La Roche, Inc. and Spinal Muscular Atrophy
Foundation (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1, as
amended (File No. 333-188657), of the Registrant)
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Exhibit
Number
Description of Exhibit
10.23† Sponsored Research Agreement, as amended dated as of June 1, 2006, by and between the Registrant and
Spinal Muscular Atrophy Foundation (incorporated by reference to Exhibit 10.15 to the Registration
Statement on Form S-1, as amended (File No. 333-188657), of the Registrant)
10.24† Funding Agreement, dated as of May 26, 2010, by and between the Registrant and The Wellcome Trust
Limited (incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-1, as amended
(File No. 333-188657), of the Registrant)
10.25† Funding Agreement, dated as of December 21, 2011, by and between the Registrant and The Wellcome Trust
Limited (incorporated by reference to Exhibit 10.17 to the Registration Statement on Form S-1, as amended
(File No. 333-188657), of the Registrant)
10.26+ Amended and Restated Employment Agreement between the Registrant and Stuart W. Peltz (incorporated by
reference to Exhibit 10.20 to the Registration Statement on Form S-1, as amended (File No. 333-188657), of
the Registrant)
10.27+ Consulting Services Agreement between PTC Therapeutics, Inc. and Spiegel Consulting LLC, dated April
22, 2016 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the
Registrant on April 27, 2016)
10.28+ Inducement Stock Option Award—Nonstatutory Stock Option Agreement dated February 27, 2014 between
the Registrant and Robert J. Spiegel (incorporated by reference to Exhibit 99.2 to the Registration Statement
on Form S-8 (File No. 333-194323), of the Registrant)
10.29+ Amended and Restated Employment Agreement between the Registrant and Mark E. Boulding (incorporated
by reference to Exhibit 10.22 to the Registration Statement on Form S-1, as amended (File
No. 333-188657), of the Registrant)
10.30+ Amended and Restated Employment Agreement between the Registrant and Neil Almstead (incorporated by
reference to Exhibit 10.24 to the Registration Statement on Form S-1, as amended (File No. 333-188657), of
the Registrant)
10.31†
10.32†
10.33
10.34
10.35
10.36
10.37+
10.38+
10.39†
Exclusive License and Supply Agreement, dated as of May 12, 2015, as amended, by and between Faes
Farma, S.A. and Complete Pharma Holdings, LLC (f/k/a Marathon Pharmaceuticals, LLC), as assigned by
Complete Pharma Holdings, LLC to the Registrant on April 20, 2017 (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Registrant on August 9, 2017)
Commercial Manufacturing Agreement, dated as of September 18, 2015, as amended, by and between
Alcami Corporation (f/k/a/ AAI Pharma Services Corp.) and Complete Pharma Holdings, LLC (f/k/a
Marathon Pharmaceuticals, LLC), as assigned by Complete Pharma Holdings, LLC to the Registrant on
April 20, 2017 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by the
Registrant on August 9, 2017)
Credit and Security Agreement, dated May 5, 2017, by and among PTC Therapeutics Inc., MidCap Financial
Trust and the additional lenders thereto (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed by the Registrant on May 8, 2017)
Amendment No. 1 and Limited Consent to Credit and Security Agreement, dated of as July 19, 2018, by and
among PTC Therapeutics, Inc., MidCap Financial Trust, and the Lenders as defined therein (incorporated by
reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Registrant on July 19, 2018)
Pledge Agreement, dated May 5, 2017, by and among PTC Therapeutics Inc., each of the subsidiaries listed
thereto as pledgers and MidCap Financial Trust (incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K filed by the Registrant on May 8, 2017)
Intellectual Property Security Agreement, dated May 5, 2017, by and among PTC Therapeutics Inc. and
MidCap Financial Trust (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
by the Registrant on May 8, 2017)
Employment Agreement, as amended, between the Registrant and Marcio Souza (incorporated by reference
to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed by the Registrant on August 9, 2017)
Employment Agreement, as amended, between the Registrant and Christine Utter (incorporated by reference
to Exhibit 10.7 to the Quarterly Report on Form 10-Q filed by the Registrant on August 9, 2017)
Collaborative Research Agreement, dated September 30, 2015, as amended, by and between National
Taiwan University and Agilis Biotherapeutics, Inc. (formerly Agilis Biotherapeutics, LLC) (incorporated by
reference to Exhibit 10.3 on Form 10-Q filed by Registrant on November 5, 2018)
185
Table of Contents
Exhibit
Number
10.40†
10.42†
10.43
Description of Exhibit
License and Technology Transfer Agreement, dated December 23, 2015, by and between National Taiwan
University and Agilis Biotherapeutics, Inc. (formerly Agilis Biotherapeutics, LLC) (incorporated by
reference to Exhibit 10.3 on Form 10-Q filed by Registrant on November 5, 2018)
Collaboration and License Agreement, dated August 1, 2018, by and between PTC Therapeutics
International Limited and Akcea Therapeutics, Inc. (incorporated by reference to Exhibit 10.3 on Form 10-Q
filed by Registrant on November 5, 2018)
Indenture (including Form of Notes), dated as of August 14, 2015, by and between PTC Therapeutics, Inc.
and U.S. Bank National Association, a national banking association, as trustee (incorporated by reference to
Exhibit 4.1 to the Current Report on Form 8-K filed by the Registrant on August 14, 2015)
10.44
2016 Employee Stock Purchase Plan (incorporated by reference to Exhibit A to the Definitive Proxy
Statement on Schedule 14A filed by the Registrant on April 28, 2016)
21.1
Subsidiaries of the Registrant (incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-
K filed by the Registrant on March 16, 2017)
23.1
Consent of Independent Registered Public Accounting Firm
24.1
Power of attorney (included on the signature page to this Form 10-K)
31.1
31.2
32.1
32.2
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Database
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
†
+
Confidential treatment has been granted for certain portions that are omitted from this exhibit. The omitted information
has been filed separately with the U.S. Securities and Exchange Commission (the “SEC”) pursuant to the registrant’s
application for confidential treatment. In addition, schedules have been omitted from this exhibit pursuant to Item 601(b)
(2) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the SEC upon request;
provided, however, that the registrant may request confidential treatment for any document so furnished.
Management contract, compensatory plan or arrangement.
Stockholders may obtain (without charge) a copy of this Annual Report on Form 10-K (including the financial statements
and financials statement schedules) and a copy of any exhibit thereto (upon payment of a fee limited to our reasonable
expenses in furnishing such exhibit) by writing to PTC Therapeutics, Inc., 100 Corporate Court, South Plainfield, New
Jersey 07080.
Item 16. Form 10-K Summary
None.
186
Table of Contents
Pursuant to the requirements to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 1, 2019
By:
/s/ STUART W. PELTZ
Stuart W. Peltz, Ph.D.
Chief Executive Officer
(Principal Executive Officer)
PTC THERAPEUTICS, INC.
POWER OF ATTORNEY
We, the undersigned officers and directors of PTC Therapeutics, Inc., hereby severally constitute and appoint Stuart W. Peltz
and Mark E. Boulding, and each of them singly (with full power to each of them to act alone), our true and lawful attorneys-in-
fact and agents, with full power of substitution and resubstitution in each of them for him and in his name, place and stead, and
in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: March 1, 2019
Dated: March 1, 2019
Dated: March 1, 2019
Dated: March 1, 2019
Dated: March 1, 2019
Dated: March 1, 2019
Dated: March 1, 2019
/s/ STUART W. PELTZ
Stuart W. Peltz
Chief Executive Officer and Director
/s/ CHRISTINE UTTER
Christine Utter
Principal Financial Officer
(Principal Financial and Accounting Officer)
/s/ MICHAEL SCHMERTZLER
Michael Schmertzler
Director
/s/ ALLAN JACOBSON
Allan Jacobson
Director
/s/ STEPHANIE S. OKEY
Stephanie S. Okey
Director
/s/ EMMA REEVE
Emma Reeve
Director
/s/ DAVID P. SOUTHWELL
David P. Southwell
Director
By:
By:
By:
By:
By:
By:
By:
187
Table of Contents
Dated: March 1, 2019
Dated: March 1, 2019
Dated: March 1, 2019
By:
By:
By:
/s/ GLENN D. STEELE
Glenn D. Steele
Director
/s/ DAWN SVORONOS
Dawn Svoronos
Director
/s/ JEROME B. ZELDIS
Jerome B. Zeldis
Director
188
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-194323) pertaining to the 2013 Long Term Incentive Plan, and the Inducement
Stock Option Award,
(2) Registration Statement (Form S-8 No. 333-189962) pertaining to the 2013 Long Term Incentive Plan, the 2013 Stock Incentive
Plan, the 2009 Equity and Long Term Incentive Plan, as amended, and the 1998 Employee, Director and Consultant Stock
Option Plan, as amended,
(3) Registration Statement (Form S-8 No. 333-203485) pertaining to the Inducement Stock Option Awards (April 2014 - January
2015),
(4) Registration Statement (Form S-8 No. 333-208830) pertaining to the 2013 Long Term Incentive Plan and Inducement Stock
Option Awards (February 2015 - October 2015),
(5) Registration Statement (Form S-8 No. 333-211997) pertaining to the 2016 Employee Stock Purchase Plan and the Inducement
Stock Option Awards (December 2015 - April 2016),
(6) Registration Statement (Form S-8 No. 333-215407) pertaining to the 2013 Long Term Incentive Plan and the Inducement
Stock Option Awards (September 2016 - December 2016),
(7) Registration Statement (Form S-3 No. 333-220151) of PTC Therapeutics, Inc.,
(8) Registration Statement (Form S-8 No. 333-222391) pertaining to the 2013 Long Term Incentive Plan and the Inducement
Stock Option Awards (January 2017 - December 2017),
(9) Registration Statement (Form S-8 No. 333-229126) pertaining to the 2013 Long Term Incentive Plan Inducement Grant
Awards (January 2018 - December 2018)
of our reports dated March 1, 2019, with respect to the consolidated financial statements of PTC Therapeutics, Inc. and the
effectiveness of internal control over financial reporting of PTC Therapeutics, Inc. included in this Annual Report (Form 10-K)
of PTC Therapeutics, Inc. for the year ended December 31, 2018.
/s/ ERNST & YOUNG LLP
Iselin, New Jersey
March 1, 2019
Exhibit 31.1
I, Stuart W. Peltz, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of PTC Therapeutics, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: March 1, 2019
By:
/s/ STUART W. PELTZ
Stuart W. Peltz
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Christine Utter, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of PTC Therapeutics, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: March 1, 2019
By:
/s/ CHRISTINE UTTER
Christine Utter
Principal Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of PTC Therapeutics, Inc. (the "Company") for the period ended
December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned,
Stuart W. Peltz, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his
knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: March 1, 2019
By:
/s/ STUART W. PELTZ
Stuart W. Peltz
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of PTC Therapeutics, Inc. (the "Company") for the period ended
December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned,
Christine Utter, Principal Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his
knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: March 1, 2019
By:
/s/ CHRISTINE UTTER
Christine Utter
Principal Financial Officer
(Principal Financial and Accounting Officer)
Board of Directors
Michael Schmertzler
Chairman of the Board
PTC Therapeutics, Inc.
Allan Jacobson, Ph.D.
Gerald L. and Zelda S.
Haidak Distinguished
Professor of Cell Biology
University of
Massachusetts
Medical School
Stephanie Okey
Senior Vice President,
Head of North America,
Rare Diseases &
U.S. General Manager,
Rare Disease Business Unit
Genzyme
Stuart W. Peltz, Ph.D.
Chief Executive Officer
PTC Therapeutics, Inc.
Emma Reeve
Chief Financial Officer
Constellation
Pharmaceuticals, Inc.
David P. Southwell
Chief Executive Officer
Tscan Therapeutics, Inc.
Glenn D. Steele, Jr.,
M.D., Ph.D.
Chairman
xG Health Solutions
Dawn Svoronos
Former President of
Europe/Canada
Merck
Jerome B. Zeldis,
M.D., Ph.D.
Chief Medical Officer &
President of
Clinical Development
Sorrento Therapeutics, Inc.
Stock Performance Graph*
The following graph illustrates a comparison of the total cumulative stockholder return
on the Common Stock of PTC Therapeutics’ Stock from investing on January 1, 2018
through December 31, 2018, in two indices: the NASDAQ Biotechnology Index (NBI) and
the NASDAQ Composite Index (IXIC). Data for the NASDAQ Biotechnology Index (NBI) and the
NASDAQ Composite Index (IXIC) assume reinvestment of dividends. The stockholder return
shown in the graph below is not necessarily indicative of future performance, and we do not
make or endorse any predictions as to future stockholder returns.
$500
$400
$300
$200
$100
$0
PTCT
NASDAQ Composite
NASDAQ Biotech
* The information contained in this Stock Performance Graph shall not be deemed “soliciting material” or to be
“filed” with the SEC, for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the
Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorpo-
rated by reference into any filing of under the Securities Act of 1933 or Securities Exchange Act of 1934, each
as amended, except to the extent that we specifically incorporate it by reference into such filing.
$100 Investment
in Stock or Index
Dec 31,
2013
Dec 31,
2014
Dec 31,
2015
Dec 31,
2016
Dec 31,
2017
Dec 31,
2018
PTC Therapeutics, Inc.
(PTCT)
NASDAQ Composite
(IXIC)
NASDAQ Biotechnology
Index (NBI)
$100
$305
$191
$64
$98
$202
$100
$113
$120
$129
$165
$159
$100
$134
$149
$117
$142
$128
Executive
Committee
Stuart W. Peltz, Ph.D.
Chief Executive Officer
Neil Almstead, Ph.D.
Chief Technical Operations Officer
Mark E. Boulding
Executive Vice President
and Chief Legal Officer
Mary Frances Harmon
Senior Vice President
Corporate Relations
Mark J. Pykett, V.M.D., Ph.D.
Chief Scientific Officer
Martin Rexroad
Senior Vice President
Human Resources
Megan Sniecinski
Senior Vice President
Business Operations
and Program Management
Marcio Souza
Chief Operating Officer
Christine Utter
Principal Financial Officer and Treasurer
Stockholder
Information
Market Information
PTC’s common stock trades on
the NASDAQ Global Market under
the ticker symbol PTCT.
Global Corporate Headquarters
PTC Therapeutics, Inc.
100 Corporate Court
South Plainfield, NJ 07080
PTC Therapeutics
International Limited
5th Floor
3 Grand Canal Plaza
Grand Canal Street Upper
Dublin 4 Ireland
Annual Meeting
The Annual Meeting of Stockholders
will be held on Wednesday, June 12th
at 9am Eastern Time at the Embassy Suites
Hotel, 121 Centennial Ave,
Piscataway Township, NJ 08854
Transfer Agent
American Stock Transfer
6201 15th Avenue
Brooklyn, NY 11219
Independent Registered
Public Accounting Firm
Ernst and Young
99 Wood Avenue South
Iselin, NJ 08830
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Global Corporate Headquarters
PTC Therapeutics, Inc.
100 Corporate Court
South Plainfield, NJ 07080 USA
PTC Therapeutics International Limited
5th Floor
3 Grand Canal Plaza
Grand Canal Street Upper
Dublin 4 Ireland
For more information visit
www.ptcbio.com