Sarepta Therapeutics
Annual Report 2013

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K(Mark One) xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2013Or ¨TRANSITION REPORT PURSUANT TO SECTION 13 Or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number: 001-14895 Sarepta Therapeutics, Inc.(Exact name of registrant as specified in its charter) Delaware 93-0797222(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification Number)215 First StreetSuite 415Cambridge, MA 02142(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (857) 242-3700Securities registered pursuant to Section 12(b) of the Act: Tile of Each Class Name of Exchange on Which RegisteredCommon Stock, $0.0001 par value The NASDAQ Stock Market LLC(The 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. Yes x No ¨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 xIndicate 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 1934during 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 filingrequirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File requiredto 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 thatthe registrant was required to submit and post such files). Yes x 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, andwill not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer x Accelerated filer ¨Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No xThe aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2013 was approximately$1,225,412,000.The number of outstanding shares of the registrant’s common stock as of the close of business on February 24, 2014 was 37,775,169. DOCUMENTS INCORPORATED BY REFERENCEThe registrant has incorporated by reference into Part III of this Annual Report on Form 10-K, portions of its definitive Proxy Statement for its 2014annual meeting to be filed with the Commission no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. Table of ContentsSarepta Therapeutics, Inc.FORM 10-K INDEX Page PART I 3 Item 1. Business 3 Item 1A. Risk Factors 31 Item 1B. Unresolved Staff Comments 51 Item 2. Properties 51 Item 3. Legal Proceedings 52 Item 4. Mine Safety Disclosures 52 PART II 53 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 53 Item 6. Selected Financial Data 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 56 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 68 Item 8. Financial Statements and Supplementary Data 68 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 69 Item 9A. Controls and Procedures 69 Item 9B. Other Information 72 PART III 73 Item 10. Directors, Executive Officers and Corporate Governance 73 Item 11. Executive Compensation 73 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 73 Item 13. Certain Relationships and Related Transactions, and Director Independence 73 Item 14. Principal Accounting Fees and Services 73 PART IV 74 Item 15. Exhibits, Financial Statement Schedules 74 -i-Table of ContentsForward-Looking InformationThis Annual Report on Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”section in Item 7, and other materials accompanying this Annual Report on Form 10-K contain forward-looking statements or incorporate byreference forward-looking statements. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of1934, as amended. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,”“seek” and other similar expressions. You should read these statements carefully because they discuss future expectations, contain projections offuture results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans,objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statementsinclude, but are not limited to: • our expectations regarding the development and clinical benefits of our product candidates; • the results of our research and development efforts and the efficacy of our PMO-based chemistries and other RNA-based technology; • our expectations regarding our ability to become a leading developer and marketer of RNA-based therapeutics; • the efficacy, potency and utility of our product candidates in the treatment of rare and infectious diseases, and their potential to treat abroad number of human diseases; • our expectations regarding the results of preclinical and clinical testing of our product candidates; • our expectations regarding the timing for initiating a pivotal clinical study, the design of a pivotal study and for filing a new drugapplication (NDA) for eteplirsen with the approval of the U.S. Food and Drug Administration (FDA); • our expectations regarding the timing, completion and receipt of results from our ongoing development programs; • the timing of and requirements the Company must comply with to receive any required approvals from the FDA or other regulatoryapprovals for our products outside of the United States; • the impact of regulations as well as regulatory decisions by the FDA and other regulatory agencies on the Company, the development ofour product candidates and the Company’s financial and contractual obligations; • our expectations regarding the markets for our products; • acceptance of our products, if introduced, in the marketplace; • the possible impact of competitive products, product development, manufacturing, commercialization and technological difficulties; • our expectations regarding partnering opportunities and other strategic transactions; • the extent of protection that our patents provide and our pending patent applications may provide, if patents issue from such applications,to our technologies and programs; • our plans to file additional patent applications to enhance and protect our existing intellectual property portfolio; • our ability to invalidate some or all of the claims covered by patents issued to competitors; • our estimates regarding our future revenues, research and development expenses, other expenses, payments to third parties and changesin staffing levels; -1-Table of Contents • our estimates regarding how long our currently available cash and cash equivalents will be sufficient to finance our operations andstatements about our future capital needs; • our ability to increase the scale of our manufacturing to provide our product to patients in larger scale clinical trials or in potentialcommercial quantities and meet regulatory and company quality control requirements; • our ability to operate our business without infringing the intellectual property rights of others; • our expectations about funding from government and other sources; and • other factors set forth below under the heading “Risk Factors”.All forward-looking statements are based on information available to us on the date of this Annual Report on Form 10-K and we will not updateany of the forward-looking statements after the date of this Annual Report on Form 10-K, except as required by law. Our actual results could differmaterially from those discussed in this Annual Report on Form 10-K. The forward-looking statements contained in this Annual Report on Form 10-K,and other written and oral forward-looking statements made by us from time to time, are subject to certain risks and uncertainties that could causeactual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but arenot limited to, those discussed in Part I, Item 1 “Business” and Item 1A “Risk Factors” of this Annual Report on Form 10-K. -2-Table of ContentsPART IItem 1. Business.OverviewWe are a biopharmaceutical company focused on the discovery and development of unique RNA-based therapeutics for the treatment of rare andinfectious diseases. Applying our proprietary, highly-differentiated and innovative platform technologies, we are able to target a broad range of diseases anddisorders through distinct RNA-based mechanisms of action. We are primarily focused on rapidly advancing the development of our potentially disease-modifying Duchenne muscular dystrophy (DMD) drug candidates, including our lead product candidate, eteplirsen. We are also focused on developingtherapeutics for the treatment of infectious diseases, including our lead infectious disease program aimed at the development of a drug candidate for theMarburg hemorrhagic fever virus. By building our infectious disease programs which are primarily funded and supported by the U.S. Department of Defense(DoD), and leveraging our highly-differentiated, proprietary technology platforms, we are seeking to further develop our research and developmentcompetencies and identify additional product candidates.Our highly-differentiated RNA-based technologies work at the most fundamental level of biology and potentially could have a meaningful impact acrossa broad range of human diseases and disorders. Our lead program focuses on the development of disease-modifying therapeutic candidates for DMD, a raregenetic muscle-wasting disease caused by the absence of dystrophin, a protein necessary for muscle function. Currently, there are no approved disease-modifying therapies for DMD. Eteplirsen is our lead therapeutic candidate for DMD. If we are successful in our development efforts, eteplirsen will address asevere unmet medical need. Last year, we completed a U.S.-based Phase IIb clinical trial for eteplirsen that was initiated in August 2011. Following completionof this study in early 2012, we initiated an open label extension study with the same participants from the original Phase IIb placebo-controlled trial. We areworking with the FDA to initiate a pivotal clinical study in 2014 and to determine the possibilities under expedited regulatory programs for eteplirsen.We are also leveraging the capabilities of our RNA-based technology platforms to develop therapeutics for the treatment of infectious diseases. The DoDhas provided significant financial support in the past for the development of therapeutics against Ebola, Marburg, Dengue and influenza viruses. We haveattracted DoD’s support based in part on our ability to rapidly respond to pathogenic threats by quickly identifying, manufacturing and evaluating noveltherapeutic candidates.The basis for our novel RNA-based therapeutics is our phosphorodiamidate-linked morpholino oligomer, or PMO, chemistries. Unlike other RNA-based therapeutics, which are often used to down-regulate gene expression, our technologies can be used to selectively up-regulate or down-regulate theproduction of a target protein, or direct the expression of novel proteins involved in human diseases and disorders. Further, we believe the charge-neutral natureof our PMO-based molecules may have the potential to reduce off-target effects, such as immune stimulatory effects often seen in alternative RNA-basedtechnologies. We believe that our highly-differentiated, novel, proprietary and innovative RNA-based technology platforms, based on charge neutralmorpholino oligomers, may represent a significant improvement over traditional RNA-based technologies.On July 12, 2012, our common stock began trading on The NASDAQ Global Market on a split-adjusted basis following a one-for-six reverse stocksplit that was effective on July 11, 2012. As of January 2, 2014, our Common Stock is quoted on The NASDAQ Global Select Market. Unless otherwisenoted, all share amounts, share prices and exercise prices included throughout this report give effect to the July 2012 one-for-six reverse stock split.Since our inception in 1980, we have incurred losses of $543.2 million, substantially all of which resulted from expenditures related to research anddevelopment, general and administrative charges and losses on changes in warrant valuation partially offset by revenue generated from research contracts withand grants primarily from -3-Table of Contentsthe DoD. As of December 31, 2013, we have completed all of our contracts with the DoD except for the July 2010 contract for the development of therapeuticsagainst the Marburg virus. The period of performance for our August 2012 contract with the DoD concluded in the third quarter of 2013. In November 2012we also entered into a consortium agreement with various parties that received an E.U. Health Innovation-1 2012 Collaborative research grant to supportdevelopment of an exon 53-skipping therapeutic, based on our PMO chemistry, for which minimal revenues have been earned to date. We have not generatedany material revenue from product sales to date, and there can be no assurance that revenues from product sales will be achieved. Moreover, even if we doachieve revenue from product sales, we are likely to continue to incur operating losses in the near term.As of December 31, 2013, we had $264.9 million of cash, cash equivalents and invested cash, comprised of $257.0 million of cash and cashequivalents and $7.9 million of restricted investments, which we believe, taking into consideration our outstanding warrants, is sufficient to fund our currentoperational plan for the next twelve months. Should our funding from the DoD cease or be delayed, we would likely curtail certain infectious disease researchand development efforts unless additional funding was obtained. We are also likely to pursue additional cash resources through public or private financings,seeking additional government contracts, and by establishing collaborations or licensing our technologies to other companies.We were originally incorporated in the State of Oregon on July 22, 1980 and on June 6, 2013, we reincorporated in the State of Delaware. Our principalexecutive offices are located at 215 First Street, Suite 415, Cambridge, MA 02142 and our telephone number is (857) 242-3700. Our common stock trades onThe NASDAQ Global Select Market under the symbol “SRPT.”Where You Can Find Additional InformationWe make available free of charge through our corporate website, www.sarepta.com, our annual reports, quarterly reports, current reports, proxystatements and all amendments to those reports as soon as reasonably practicable after such material is electronically filed or furnished with the SEC. Thesereports may also be obtained without charge by submitting a written request via mail to Investor Relations, Sarepta Therapeutics, Inc., 215 First Street, Suite415, Cambridge, MA 02142 or by e-mail to investorrelations@sarepta.com. Our Internet website and the information contained therein or incorporated thereinare not intended to be incorporated into this Annual Report on Form 10-K. In addition, the public may read and copy any materials we file or furnish with theSecurities and Exchange Commission, or the SEC, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or may obtaininformation on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Moreover, the SEC maintains an Internet site that containsreports, proxy and information statements, and other information regarding reports that we file or furnish electronically with the SEC at www.sec.gov.Objectives and Business StrategyWe believe that our highly-differentiated, proprietary RNA-based technology platforms can be used to develop novel pharmaceutical products to treat abroad range of diseases and address key unmet medical needs. We intend to leverage our RNA-based technology platforms, organizational capabilities andresources to become a leading developer and marketer of RNA-based therapeutics, including for the treatment of rare and infectious diseases, with a diversifiedportfolio of product candidates and approved products. In pursuit of this objective, we intend to engage in the following activities: • advancing the development of eteplirsen and our other drug candidates for the treatment of DMD to realize the product opportunities of suchcandidates and provide significant clinical benefits; • successfully executing our government funded infectious disease therapeutic programs and building on and leveraging our experience with suchprograms to further develop our research and development capabilities and garner additional external funding; and -4-Table of Contents • leveraging our highly-differentiated, proprietary RNA-based technology platforms to identify product candidates in additional therapeutic areasand explore various strategic opportunities, including potential partnering, licensing or collaboration arrangements with industry partners.Development ProgramsOur currently active RNA-based drug programs are being clinically evaluated for the treatment of DMD and have also demonstrated promising antiviralactivity in infectious diseases such as Marburg and H1N1 influenza in certain animal models. Our active lead product candidates are at various stages ofdevelopment summarized below. Program Indication Mechanism Chemistry DevelopmentStage Developer /CollaboratorEteplirsen DMD (exon 51) Exon Skipping PMO Phase IIb* ProprietaryAVI-7288 Marburg virus TranslationSuppression PMOplus Phase I Proprietary/U.S.GovernmentAVI-7100 H1N1 influenzavirus TranslationSuppression PMOplus Phase I Proprietary/U.S.Government *We announced results from our Phase IIb clinical study in eteplirsen in April 2012 and are currently conducting a long-term open label extension phase tothis clinical trial.For purposes of the table above, “Development Stage” indicates the most advanced stage of development that has been completed or is ongoing. In thetable above, under the heading “Development Stage,” “Phase IIb” indicates clinical safety and efficacy testing in a small patient population, and “Phase I”indicates initial clinical safety testing in healthy volunteers or a limited patient population, or trials directed toward understanding the mechanisms ormetabolism of the drug.Duchenne Muscular Dystrophy ProgramDuchenne muscular dystrophy, or DMD, is one of the most common fatal genetic disorders affecting children (primarily boys) around the world. DMDis a devastating and incurable muscle-wasting disease associated with specific mutations in the gene that codes for dystrophin, a protein that plays a keystructural role in muscle fiber function. The absence of dystrophin in muscle cells leads to significant cell damage and ultimately causes muscle cell death andfibrotic replacement. The disease occurs in approximately one in every 3,500 male births worldwide. Females are rarely affected by the disorder. Initialsymptoms, which usually appear between the ages of three and five, include progressive muscle weakness of the legs and pelvis, manifested as difficultywalking, running or climbing stairs, which eventually spreads to the arms, neck, and other areas. By age ten, braces may be required for walking, and manyindividuals require full-time use of a wheelchair before age 12. Eventually muscular degeneration progresses to the point of complete paralysis. Diseaseprogression is also typically associated with respiratory muscle dysfunction and a corresponding difficulty in breathing, which may require ventilatorysupport, and cardiac muscle dysfunction which may lead to heart failure. DMD is ultimately fatal and death usually occurs before the age of 30. There iscurrently no approved disease modifying treatment or cure for DMD.The yearly cost of care for individuals with DMD is high and increases with disease progression. Although DMD is a rare disease, we believe itrepresents a substantial product opportunity due to the severity and inexorable progression of the symptoms.Our lead program is designed to address specific gene mutations that result in DMD by forcing the genetic machinery to skip over an adjacentcontiguous piece (i.e, one or more exons) of RNA and, thus, restore the ability of the cell to express a new, truncated but functional, dystrophin protein. Webelieve that the expression of -5-®®Table of Contentsthis truncated dystrophin protein may restore, prevent or slow deterioration of muscle function, as exemplified by the less severe muscular dystrophyphenotype, called Becker muscular dystrophy.Eteplirsen. Eteplirsen is an antisense PMO-based therapeutic in clinical development for the treatment of individuals with DMD who have an error inthe gene coding for dystrophin that can be treated by skipping exon 51. Eteplirsen targets the most frequent series of mutations that cause DMD. Eteplirsenhas been granted orphan drug designation in the United States and European Union. In 2007, the FDA granted eteplirsen fast track status and we arecontinuing to discuss with FDA the possibility of expedited regulatory programs for eteplirsen based on the Phase IIb data. See “Government Regulation” foradditional information.In October 2010, we announced results from a clinical trial of eteplirsen, AVI Study 28. Data from this study were published in The Lancet in July2011. AVI Study 28 was a Phase Ib/IIa open label, dose-ranging, clinical trial assessing the safety, tolerability, pharmacokinetics and exploratory efficacy ofeteplirsen in ambulatory individuals with DMD. Participants in AVI Study 28 were between the ages of five and 15 with errors in the gene coding fordystrophin, which were amenable to treatment by skipping exon 51. Participants were dosed once per week for 12 weeks. A total of 19 participants wereenrolled and these individuals were assigned to one of six dose cohorts of 0.5, 1.0, 2.0, 4.0, 10.0 or 20.0 mg/kg. Of the 19 participants enrolled, 18 received atleast ten of the 12 doses planned in this trial. After completion of dosing, participants were followed for an additional 14 weeks. Muscle biopsies were takenbefore treatment and 17 participants had a second biopsy at week 14, two weeks after administration of the final dose. The primary objective of the trial wasto assess the safety of eteplirsen at these doses over the 26-week duration of the trial. Secondary trial objectives included assessment of plasmapharmacokinetics, urinary elimination and exploratory endpoints evaluating biological activity and clinical performance. This trial was conducted byinvestigators in the United Kingdom at the University College London Institute of Child Health / Great Ormond Street Hospital in London and at the RoyalVictoria Infirmary in Newcastle-Upon-Tyne. In AVI Study 28, (i) eteplirsen induced exon 51 skipping in all cohorts and new dystrophin protein expression incohort 3; (ii) eteplirsen was well-tolerated in all participants with no drug-related serious adverse events or severe adverse events, except that one participantexhibited deteriorating cardiac function, which was considered probably disease related; (iii) adverse events were mostly mild or moderate in intensity, notdose-related, and none were considered probably or definitely related to eteplirsen; and (iv) there was no detectable immune response to newly made dystrophin.Based on the AVI 28 study results, we initiated a Phase IIb trial for eteplirsen in August 2011, AVI 4658-us-201, or Study 201, at NationwideChildren’s Hospital in Columbus, Ohio and we announced the results from this study in April 2012. This was a randomized, double-blind, placebo-controlled study to assess the efficacy, safety, tolerability and pharmacokinetics of eteplirsen administered intravenously in two different doses over 24 weeksfor the treatment of ambulant boys with DMD. Exploratory clinical measures of ambulation, muscle function and strength were also captured and evaluatedduring the course of the trial. Study 201 included 12 participants and muscle biopsies of all participants were performed prior to initiation of treatment. The12 participants with a genotypically-confirmed appropriate genetic mutation were randomized into one of three treatment groups with four participants in eachgroup. The first treatment group received a weekly intravenous administration of eteplirsen at a dose of 50.0 mg/kg. The second treatment group received aweekly intravenous administration of eteplirsen at a dose of 30.0 mg/kg. The third and final treatment group received a weekly administration of placebo.Participants receiving the 50.0 mg/kg dose received a second biopsy at 12 weeks after initiation of treatment, and participants receiving the 30.0 mg/kg dosereceived a second biopsy at 24 weeks after initiation of treatment. The results from Study 201 determined that treatment with eteplirsen met the primaryefficacy endpoint in the study. Eteplirsen administered once weekly at 30mg/kg over 24 weeks resulted in a statistically significant (p < 0.002) increase innovel dystrophin (22.5% dystrophin-positive fibers as a percentage of normal) compared to no increase in the placebo group. In the study, a shorter durationof eteplirsen treatment, 12 weeks, did not show a significant increase in novel dystrophin (0.79% dystrophin-positive fibers as a percentage of normal; p-valueNS), despite administration of the drug at a higher dose (50mg/kg once weekly). No significant improvements in clinical outcomes in the treated groups wereobserved compared to placebo. -6-Table of ContentsAll participants in Study 201 were enrolled in an open-label extension study 4658-us-202, or Study 202, following the completion of Study 201 and allparticipants, including those from the placebo group in Study 201, are receiving either 30.0 mg/kg or 50.0 mg/kg for the duration of Study 202. The purposeof Study 202 is to evaluate the ongoing safety, efficacy and tolerability of eteplirsen. The primary efficacy endpoint was the change from baseline at week 48in the percentage of dystrophin-positive fibers in muscle biopsy tissue as measured by immunohistochemistry. The primary clinical outcome measure was thechange from baseline to week 48 on the six minute walk test, or the 6MWT. Study 202 is now in a long-term extension phase in which patients continue to befollowed for safety and clinical outcomes approximately every 12 weeks through week 108 (which includes the original 28 weeks of Study 201).On July 24, 2012, we announced interim results from Study 202 which indicated that treatment with eteplirsen over 36 weeks achieved a significantclinical benefit on the primary clinical outcome measure, the 6MWT, over a placebo/delayed treatment cohort. Eteplirsen administered once weekly at50mg/kg over 36 weeks resulted in a 69.4 meter benefit compared to patients who received placebo for 24 weeks followed by 12 weeks of treatment witheteplirsen. In the predefined prospective analysis of the study’s intent-to-treat population on the primary clinical outcome measure, the change in 6MWTdistance from baseline, eteplirsen-treated patients who received 50mg/kg of the drug weekly demonstrated a decline of 8.7 meters in distance walked frombaseline (mean=396.0 meters), while patients who received placebo/delayed-eteplirsen treatment for 36 weeks showed a decline of 78.0 meters from baseline(mean=394.5 meters), for a statistically significant treatment benefit of 69.4 meters over 36 weeks (p < 0.019). There was no statistically significantdifference in the 6MWT between the cohort of patients who received 30mg/kg weekly of eteplirsen and the placebo/delayed treatment cohort. The safety profileof eteplirsen was evaluated across all subjects through the 36 weeks eteplirsen was administered and there were no treatment-related adverse events, no seriousadverse events and no discontinuations. Furthermore, no treatment-related changes were detected on any safety laboratory parameters, including severalbiomarkers for renal function.On October 3, 2012, we announced 48-week results from Study 202 which indicated that treatment with eteplirsen met the predefined primary efficacyendpoint, increase in novel dystrophin, and achieved a significant clinical benefit on the predefined primary clinical outcome measure, the 6MWT, over theplacebo/delayed treatment cohort. Eteplirsen administered once weekly at either 30 mg/kg or 50 mg/kg for 48 weeks (n=8) resulted in a statistically significantincrease (p<0.001) in dystrophin-positive fibers to 47.0% of normal. The placebo/delayed treatment cohort, which had received 24 weeks of eteplirsen at either30 mg/kg or 50 mg/kg following 24 weeks of placebo (n=4), also showed a statistically significant increase in dystrophin-positive fibers to 38.3% of normal(p<0.009).In the predefined analysis of the study’s intent-to-treat population on the primary clinical outcome measure, the change in 6MWT distance from baselineat week 48, eteplirsen-treated patients who received 50 mg/kg of the drug weekly (n=4) demonstrated an increase of 21.0 meters in distance walked frombaseline (mean=396.0 meters), while patients who received placebo/delayed-eteplirsen treatment (n=4) showed a decline of 68.4 meters from baseline(mean=394.5 meters), for a statistically significant treatment benefit of 89.4 meters over 48 weeks (p=0.016, using analysis of covariance for ranked datausing mixed model repeated measures). There was no statistically significant difference between the cohort of patients who received 30 mg/kg weekly ofeteplirsen and the placebo/delayed treatment cohort. The safety profile of eteplirsen was evaluated across all subjects through 48 weeks and there were notreatment-related adverse events, no serious adverse events, and no discontinuations. Furthermore, no clinically significant treatment-related changes weredetected on any safety laboratory parameters, including several biomarkers for renal function.On December 7, 2012, we announced updated data from Study 202 which showed patients treated with eteplirsen and evaluable on ambulatorymeasures (modified Intent to Treat population, or the mITT population) for 62 weeks maintained a statistically significant clinical benefit on the primaryclinical outcome measure, the 6MWT, compared to patients who received placebo for 24 weeks followed by 38 weeks of eteplirsen treatment. In the mITTpopulation, which includes evaluable patients from both the 30mg/kg and 50mg/kg dose cohorts, -7-Table of Contentspatients treated with eteplirsen for 62 weeks demonstrated a statistically significant benefit (p < 0.007) of 62 meters over the placebo/delayed-treatment cohortusing a mixed-model repeated measure statistical test. The mITT population utilized for the 62 week analysis consisted of 10 of the enrolled 12 patients (4eteplirsen-treated patients receiving 50 mg/kg weekly, 2 eteplirsen-treated patients receiving 30 mg/kg weekly, and 4 placebo/delayed-treatment patients), andexcluded two patients who showed signs of rapid disease progression and lost ambulation by week 24. The eteplirsen treatment cohort (n=6) continued to showdisease stabilization with less than a 5% decline in walking distance on the 6MWT from baseline. The placebo/delayed-treatment cohort (n=4) alsodemonstrated stability in walking distance from week 36 through week 62 with a less than 10 meter change over this timeframe, the period in whichdystrophin was likely produced, with confirmation of significant dystrophin levels at week 48 through analysis of muscle biopsies in these patients.The safety profile of eteplirsen was evaluated across all patients through week 62 and there were no clinically significant treatment-related adverseevents, no serious adverse events, and no discontinuations. One patient had a laboratory treatment-related adverse event, a transient elevation of urine proteinon a urine dipstick test, however this elevation was not observed on a 24-hour urine protein measurement and resulted in no clinical symptoms or interruptionof treatment. This patient did not show elevations of the specific renal markers of cystatin C or KIM-1. Across both the treatment and placebo/delayedtreatment cohorts there is evidence of continued stabilization on pulmonary function tests, echocardiogram, muscle strength and clinical laboratory tests overthe 62 weeks.Results from the mITT population, which combines the evaluable eteplirsen-treated patients across the 30mg/kg and 50mg/kg cohorts, have beenpreviously reported and will be used as the primary assessment of ambulatory clinical measures for the remainder of Study 202. Given there was nosignificant difference between the 30 mg/kg and 50 mg/kg arms on the production of dystrophin through 48 weeks, we believe this mITT population is themost appropriate to assess dystrophin production and its potential predictive benefits on ambulatory clinical outcomes, such as the 6MWT.On April 5, 2013, we announced that, after 74 weeks, patients in the 30 mg/kg and 50 mg/kg dose cohorts in the mITT population (n=6) showed astatistically significant treatment benefit of 65.2 meters (p < 0.004) when compared to the placebo/delayed-treatment cohort (n=4). The eteplirsen-treated patientsin the mITT population demonstrated less than a 5 percent decline (13.4 meters) from baseline in walking ability. After experiencing a substantial declineearlier in the study, the placebo/delayed-treatment cohort also demonstrated stabilization in walking ability from week 36 through 74, the period in whichmeaningful levels of dystrophin were likely produced, with a less than 10 meter decline over this timeframe. Through 74 weeks, eteplirsen was well toleratedand there were no clinically significant treatment-related adverse events, serious adverse events, hospitalizations or discontinuations. As previously reported at62 weeks, one patient had a transient elevation of urine protein on a laboratory urine dipstick test, which resolved and resulted in no clinical symptoms. Thepatient continued treatment without interruption and remained free of proteinuria through week 74. Across both the eteplirsen (mITT) and placebo/delayed-treatment cohorts, there was evidence of continued stabilization on clinical laboratory tests, echocardiogram, pulmonary function tests and muscle strengththrough 74 weeks of participating in Study 202.On June 19, 2013, we announced that after 84 weeks, patients in the 30 mg/kg and 50 mg/kg dose cohorts in the mITT population (n=6) showed astatistically significant treatment benefit of 46.4 meters (p < 0.045) when compared to the placebo/delayed-treatment cohort (n=4). The eteplirsen-treated patientsin the mITT population demonstrated less than a 6 percent decline (20.5 meters) from baseline in walking ability. The placebo/delayed-treatment cohort alsodemonstrated stabilization in walking ability from Week 36 through 84, the period from which meaningful levels of dystrophin were likely produced, with anincrease of 3.3 meters over this timeframe. These analyses were based on the maximum 6MWT score when the test was performed on two consecutive days.Through 84 weeks, eteplirsen was well tolerated and there were no clinically significant treatment-related adverse events, no serious adverse events,hospitalizations or discontinuations. One boy in the placebo/delayed-treatment cohort was not able to perform the 6MWT at the Week 84 clinic visit due to aphysical injury unrelated -8-Table of Contentsto treatment, and therefore had no 6MWT data captured at the Week 84 time point. The boy has recovered from the injury, continues to be ambulatory and isexpected to be evaluated on the 6MWT at future clinic visits. Across all patients in the eteplirsen and placebo/delayed-treatment cohorts, there was evidence ofcontinued stabilization on clinical laboratory tests, echocardiograms, pulmonary function tests and measures of muscle strength through 84 weeks ofparticipating in Study 202.On September 26, 2013, we announced that after 96 weeks, patients in the 30 mg/kg and 50 mg/kg eteplirsen cohorts in the mITT population (n=6)experienced less than a 5 percent decline (17.5 meters) from baseline in walking ability. A statistically significant treatment benefit of 70.8 meters (p < 0.001)was observed for the mITT population compared with the placebo/delayed-treatment cohort (n=4). The placebo/delayed-treatment cohort also demonstratedstabilization in walking ability from Week 36 through 96, the period from which meaningful levels of dystrophin were likely produced, with a decline of18.5 meters over this timeframe. These analyses were based on the maximum 6MWT score when the test was performed on two consecutive days. Aspreviously reported, a boy in the placebo/delayed-treatment cohort was not able to perform the 6MWT at the Week 84 clinic visit due to a broken ankleassessed by the investigator as a treatment-unrelated adverse event. Although this boy received rehabilitation and was able to perform the 6MWT, his walkingability at the time of the test had not returned to the level observed prior to the injury, and this lower 6MWT distance contributed to the overall decline in theplacebo/delayed-treatment cohort. The decline in walking distance observed in this cohort from Week 36 improves from a decline of 18.5 meters to a decline of4.7 meters when this patient’s 96-week test score is excluded from the analysis. Through 96 weeks, eteplirsen was well tolerated and there were no reportedclinically significant treatment-related adverse events, no treatment-related serious adverse events, hospitalizations or discontinuations. Across patients in theeteplirsen and placebo/delayed-treatment cohorts, there is evidence of continued stabilization on clinical laboratory tests, echocardiograms, pulmonary functiontests and measures of muscle strength through 84 weeks of participating in Study 202.On January 15, 2014, we announced that at 120 weeks, patients in the 30 mg/kg and 50 mg/kg eteplirsen cohorts who were able to perform the 6MWT(modified Intent-to-Treat or mITT population; n=6) experienced a decline of 13.9 meters, or less than 5 percent, from baseline in walking ability. Astatistically significant treatment benefit of 64.9 meters (p < 0.006) was observed for the mITT population compared with the placebo/delayed-treatment cohort(n=4). The placebo/delayed-treatment cohort also demonstrated stabilization in walking ability for more than 1.5 years, from Week 36 through 120, the periodfrom which meaningful levels of dystrophin were likely produced, with a decline of 9.5 meters over this timeframe. These analyses were based on themaximum 6MWT score when the test was performed on two consecutive days. In addition, on February 5, 2014, we announced that results through morethan two years of treatment showed stable pulmonary function in the Intent-to-Treat (ITT) study population (N=12). Through 120 weeks, eteplirsen was welltolerated and there were no reported clinically significant treatment-related adverse events and no treatment-related serious adverse events. In addition, there wereno treatment-related hospitalizations or discontinuations.We will continue to have discussions with the FDA during the first quarter of 2014 regarding the design of the pivotal study, the clinical results from ourPhase IIb study of eteplirsen and the possibility of expedited regulatory programs for eteplirsen based on the Phase IIb data. Based on feedback from thesemeetings, we will make a determination regarding the most appropriate regulatory path for pursuing regulatory approval of eteplirsen. Any such determinationwill be further informed by subsequent meetings with the FDA. Regardless of the approval process and path ultimately pursued, we anticipate initiating apivotal clinical study for eteplirsen and commencing dosing during the second or third quarter of 2014.Pan-Exon Strategy. In addition to our lead product candidate, eteplirsen, we are pursuing development of additional exon-skipping drugs, to supportour broad-based development program for the treatment of DMD. For example, as of December 31, 2013, we have pre-clinical studies under way for exon 45-skipping and exon 53-skipping therapeutics, a lead sequence identified for an exon-50 skipping therapeutic and lead sequence selection under way for exon 44,exon 52, exon 55 and exon 8-skipping therapeutics. -9-Table of ContentsTo support certain activities to enable an Investigational New Drug, or IND, for an exon 45-skipping therapeutic, we are collaborating with Children’sNational Medical Center in Washington, D.C. and the Carolinas Medical Center (in Charlotte, N.C.). This collaboration is funded primarily through twogrants, one from DoD’s Congressionally Directed Medical Research Program to Children’s National Medical Center and the other from the National Institute ofNeurological Disorders and Stroke to the Carolinas Medical Center. This funding is intended to pursue the most promising treatments for DMD. Thecollaboration will support a series of Good Laboratory Practice, or GLP, toxicology studies for an exon 45-skipping drug candidate based on our PMOchemistry.To support certain clinical proof of concept studies and IND-enabling activities for an exon 53-skipping therapeutic, we announced in November 2012that we are collaborating with University College London’s scientist, Professor Francesco Muntoni, M.D., the Dubowitz Neuromuscular Centre, the Instituteof Child Health and other scientists from the European Union and the United States. In connection with this collaboration, the consortium received an E.U.Health Innovation-1 2012 Collaborative research grant to support development of an exon 53-skipping therapeutic, based on our PMO chemistry. Targetingexon 53 with this technology will potentially address one of the most prevalent sets of mutations in DMD that are amenable to exon-skipping (deletion of exons42-52, 45-52, 47-52, 48-52, 49-52, 50-52, or 52) by potentially restoring the cellular machinery’s ability to produce a functional dystrophin protein.To support certain IND-enabling activities for an exon 50-skipping therapeutic, we entered into a Cooperative Research and Development Agreement, orCRADA, in August 2012 with the National Institutes of Health, or NIH, which was anticipated to be supported through in-kind research conducted either bythe Therapeutics for Rare and Neglected Diseases program or by contract research organizations. We and NIH mutually agreed to terminate the CRADA inFebruary 2013 and we are now developing exon 50 utilizing our own research and development capabilities. We do not anticipate any significant changes inIND filing timelines due to the termination.These collaborations and our DMD program, which includes eteplirsen, are part of our larger pan-exon strategy for the development of drug candidatesto address the most prevalent exon deletions in the DMD population. Because the majority of DMD patients have exon deletions that cluster together, a smallnumber of exon-skipping therapies will potentially be disease-modifying for a relatively large percentage of DMD patients. Approximately 75-80% of the totalDMD population is potentially treatable with exon-skipping therapeutics. According to an article by Aartsma-Rus et. al published in 2009 in the HumanGenome Variation Society Journal, of the exon skipping amenable population, exon 51 skipping is applicable to the largest sub-group, equal to approximately13%. Skipping of exons 50, 45, 44, 52, 55 and 8 is applicable to approximately 4%, 8%, 6%, 4%, 2% and 2%, respectively.Infectious Disease ProgramsWith the financial support of the U.S. government, we are currently implementing our RNA-based technology platforms in our infectious diseaseprograms for the development of therapeutics to treat infectious diseases, such as Marburg and influenza. In the past, DoD has provided significant financialsupport for our development of therapeutics designed to treat Ebola, Marburg and influenza viruses. We have also entered into an agreement with the NationalInstitute of Allergy and Infectious Diseases, or NIAID, part of NIH, under which NIAID is providing clinical support for the development of our therapeuticcandidate for the treatment of influenza.Our current arrangement with DoD supports development of our Marburg drug candidate, AVI-7288, including activities necessary to obtain approvalof an NDA by the FDA, if DoD exercises all of its options under the arrangement. On August 29, 2012, we entered into an additional agreement with DoDrelated to the Marburg virus to evaluate the feasibility of an intramuscular route of administration using AVI-7288 and completed the performance of ourobligations under this agreement in the third quarter of 2013. Under a separate arrangement, -10-Table of ContentsDoD similarly provided funding to advance the development of our H1N1 influenza drug candidate, AVI-7100, through an IND application with the FDA andto preclinically evaluate its therapeutic potential against H5N1 (avian flu), Tamiflu resistant H1N1 (pandemic flu) and H3N2 (seasonal flu) whichconcluded in 2011. In December 2012, we entered into an agreement with NIAID to support further development of AVI-7100. Under the agreement, NIAIDresearchers are allowed to proceed with a Phase I, study to assess the safety, tolerability and pharmacokinetics of single and multiple doses of AVI-7100 inhealthy volunteers. Per the terms of the agreement, we provided AVI-7100 to NIAID and in return, we will have the right to use the data from this clinical studyto support future development of AVI-7100.Without continued government support of these programs we would likely significantly curtail our development efforts with respect to these programs.Future funding and support is subject to availability of budgeted funds from DoD and the Department of Health and Human Services, or DHHS, asgovernment support for some of our infectious disease programs has previously been discontinued or not renewed due to government budget constraints. Forexample, our current arrangement with DoD initially provided for support of the development of our Ebola virus drug candidate; however, on October 2,2012, the Company received notice from DoD that the Ebola portion of the arrangement was terminated for the convenience of the government due to fundingconstraints. The Company previously received a stop-work order for the Ebola portion of the arrangement with DoD which was in effect from August 2, 2012through the termination on October 2, 2012. The termination only applies to the Ebola portion of the arrangement with DoD and the Marburg portion remainsactively in development under the DoD arrangement. Additionally, the period of performance for our June 2010 H1N1 influenza contract with DoD expired inJune 2011. Additional research for this antiviral program is being conducted by NIAID as described elsewhere in this report.In the periods presented in this report, substantially all of our revenues were derived from research and development contracts with and grants from theU.S. government. As of December 31, 2013, we had completed all of our contracts with the U.S. government except for the Marburg portion of the July 2010agreement for the development of therapeutics against Marburg and Ebola viruses. For a more detailed description of our contracts with the U.S. government,see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—U.S. Government Contracts” and “Note 6—GovernmentContracts” of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.Hemorrhagic Fever Virus Programs. Our infectious disease therapeutic programs use our translation suppression technology and apply ourproprietary PMO-plus chemistry backbone, an advanced generation of our base PMO chemistry backbone that selectively introduces positive backbonecharges to improve selective interaction between the drug and its target. Our translation suppressing technology is based on Translation Suppressing Oligomerswhich are PMO-based compounds that stop or suppress the translation of a specific protein by binding to their specific target sequence in mRNA. We arepursuing development and regulatory approval of our Marburg hemorrhagic fever virus product candidate under the FDA’s “Animal Rule.” The AnimalRule provides that under certain circumstances, where it is unethical or not feasible to conduct human efficacy studies, the FDA may grant marketingapproval based on adequate and well-controlled animal studies when the results of those studies establish that the drug or biological product is reasonablylikely to produce clinical benefit in humans. Demonstration of the product’s safety in humans is still required. See “Government Regulation—Animal Rule”for additional information.Marburg virus. AVI-7288 is designed for post-exposure prophylaxis after documented or suspected exposure to Marburg virus. Marburg hemorrhagicfever is a severe and often fatal disease in humans that was first recognized in 1967. It is caused by an RNA virus of the Filoviridae family and is understoodto be endemic to Africa. The Marburg virus is classified as a Category A bioterrorism agent by the Centers for Disease Control and Prevention, or CDC, andwas determined to be a material threat to national security by the Secretary of Homeland Security in 2006. Onset of the disease is often sudden and thesymptoms include fever, chills, nausea, vomiting, chest pain and diarrhea. Increasingly severe symptoms may also include massive hemorrhaging andmultiple organ dysfunction. There are currently no treatments for Marburg virus infection beyond supportive care -11-®®Table of Contentsand the mortality rate is very high. For Marburg virus infection, our lead product candidate is currently AVI-7288. Previously, our lead product candidate forMarburg virus infection was AVI-6003 which is a combination of AVI-7287 and AVI-7288; however, in February 2012, we announced that we receivedagreement from the FDA to remove AVI-7287 and we are now proceeding with a single oligomer approach, AVI-7288, given that efficacy in non-humanprimates has been demonstrated to be attributable to this single oligomer. During the 2012 fiscal year, we completed Phase I single ascending-dose studies inhealthy volunteers with our candidates for the treatment of Ebola virus and Marburg virus and in July 2012, we announced results from a non-human primatestudy of the efficacy of AVI-7288. In September 2012, we announced that the FDA has granted fast track status for the development of AVI-7288 and ourproduct candidate against Ebola, AVI-7537. In March 2013, with the support of DoD’s Joint Project Manager Medical Countermeasure Systems, in non-human primate study, we completed an evaluation of the feasibility of in intramuscular route of administration using AVI-7288, including an evaluation of thetolerability, pharmacokinetics, and efficacy of intramuscular AVI-7288. The data showed that intramuscular administration of AVI-7288 resulted in survivalrates up to 100 percent in treated subjects, similar to efficacy observed in previous studies that evaluated the drug when administered by intravenous injection.In May 2013, we initiated dosing of AVI-7288 in a Phase I multiple ascending dose study which we expect to complete in the first quarter of 2014. In February2014, we announced positive safety results from a Phase I multiple ascending dose study of AVI-7288 in healthy volunteers.Ebola virus. AVI-7537 is a single agent designed for post-exposure prophylaxis after documented or suspected exposure to the Ebola virus. Thehemorrhagic fever caused by the Ebola virus is severe and often fatal in humans and there are currently no treatments for Ebola beyond supportive care. AVI-6002, a combination of AVI-7537 and AVI-7539, was previously our product candidate for the Ebola virus. However, based on our evaluation of the efficacyof AVI-7537 as a single agent versus a combination with AVI-7539 which demonstrated that efficacy could be attributed to the single oligomer AVI-7537, wetransitioned our focus to this product candidate in 2012. Although we believe AVI-7537 has the potential to be a therapeutic option for the Ebola virus, wesuspended our development efforts with respect to our Ebola program after the August 2012 stop-work order and subsequent termination for convenience byDoD of support for this program in 2012. The termination only applies to the Ebola portion of our arrangement with DoD and the Marburg portion remains ineffect.Development Status of Hemorrhagic Fever Virus Programs. Non-human primates infected with Marburg virus and treated with our precursorproduct candidate, AVI-6003, achieved 100% survival and primates infected with Ebola virus and treated with, AVI-6002, achieved 80% survival, in eachcase compared to universal lethality in both control groups. In addition to survival, primates treated with AVI-6002 and AVI-6003 have demonstrated decreasesin levels of viremia, in harmful inflammatory indicators and in virus induced liver damage. Additional data have also demonstrated that the survivinganimals were resistant to viral infection after subsequent injection with the virus.During the 2012 fiscal year, we completed Phase I single ascending-dose studies in healthy adult volunteers with its drug candidates for the treatment ofEbola virus and Marburg virus demonstrating positive safety data for each therapeutic candidate. In February 2012, we announced positive safety resultsfrom all six cohorts of our Phase I single ascending dose trials of AVI-6002 and AVI-6003. For each group, safety, clinical laboratory and renal biomarkerresults through five days after treatment were reviewed by an independent Data and Safety Monitoring Board, or DSMB, which issued recommendations forboth studies to progress as planned to multiple ascending dose studies after no safety concerns were identified. The Phase I single ascending dose trials weredesigned to characterize the safety, tolerability and pharmacokinetics of each therapeutic candidate in healthy adult volunteers. In the two studies, a total of 60healthy human subjects (five per group) were enrolled into six sequential dose groups (0.01, 0.1, 1.0, 3.0, 6.0 or 9.0 mg/kg). Within each group, four subjectsreceived the indicated dose of the therapeutic and one subject received placebo. Final, unblinded safety and pharmacokinetic results for all subjects werecompleted in 2012.In July 2012, we announced that AVI-7288 demonstrated up to 100% survival in a non-human primate study exploring the drug’s effect when theinitiation of treatment is delayed to various time points post-infection. -12-Table of ContentsThis study showed a high degree of survival between 83% and 100% in each of four post-exposure cohorts that received daily treatments with AVI-7288beginning one-, 24-, 48-, or 96-hours after infection, compared to 0% survival in the placebo-treated control group.In March 2013, we announced positive results from a non-human primate study of AVI-7288. The data showed that intramuscular administration ofAVI-7288 resulted in survival rates up to 100 percent in treated subjects, similar to efficacy observed in previous studies that evaluated the drug whenadministered by intravenous injection.We initiated a Phase I multiple ascending dose study in May 2013, designed to characterize the safety, tolerability and pharmacokinetics of multipledoses of AVI-7288 in healthy adult volunteers. The randomized, double-blind placebo-controlled study has been overseen by an independent DSMB, whichreviewed the safety and clinical laboratory data after each dose cohort prior to enrolling the next higher dose cohort. The final cohort completed dosing in thefirst quarter of 2014. In February 2014, we announced positive safety results from a Phase I multiple ascending dose study of AVI-7288 in healthy volunteers.An independent DSMB reviewed the safety profile and recommended proceeding with further development of AVI-7288 at doses up to 16 mg/kg. Subject toapproval under the existing contract with the Joint Project Manager Transformational Medical Technologies program (renamed Medical CountermeasureSystems in 2013) of the DoD (the “JMP-MCS”), further development of AVI-7288 is planned pursuant to FDA’s Animal Efficacy Rule.Influenza Program. Our infectious disease therapeutic programs are also focused on the development of our product candidates designed to treatpandemic influenza viruses. AVI-7100 is our lead product candidate for the treatment of influenza and employs our PMO-plus technology. In December 2012,we entered into an agreement with NIAID which permits NIAID to conduct a Phase I single and multiple ascending dose study with AVI-7100. In June 2010, wewere awarded a contract under DoD’s Transformational Medical Technologies, or TMT, program (renamed Medical Technologies Systems in 2013), whichfunded our activities to develop AVI-7100 as a medical countermeasure against the pandemic H1N1 influenza virus. The period of performance for thiscontract ended in June 2011. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—U.S. Government Contracts”and “Note 6—Government Contracts” of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additionalinformation.Symptoms of H1N1 influenza include fever, cough, runny nose, headache, chills and fatigue. Many people infected with H1N1 also have respiratorysymptoms without a fever. Severe illness and deaths have also occurred. The CDC estimated that between April 2009 and April 2010 there were up to89 million cases of H1N1 infection in the United States. The CDC also estimated that there were up to 403,000 H1N1-related hospitalizations in the UnitedStates during the same time period.The TMT program established a contract with us to conduct a rapid response exercise against a real-world emerging threat like the pandemic H1N1virus. The intent of the exercise was to demonstrate our capability to efficiently respond to a real-world emerging viral threat by rapidly designing andproducing multiple therapeutic candidates and evaluating preclinical efficacy. Initially the exercise involved identifying target sequences against H1N1,designing several drug candidates utilizing proprietary derivatives of our PMO chemistry, and then manufacturing the candidates in sufficient quantity forlimited preclinical testing. We successfully accomplished these steps in approximately one week, demonstrating our ability to rapidly respond to a real-worldviral threat utilizing our RNA-based technology platforms.Subsequently, we evaluated the preclinical activity of AVI-7100 and found that it showed a favorable safety profile in ferrets, rats and monkeys. Inseparate ferret studies, AVI-7100 demonstrated activity as a potentiator of Tamiflu and activity towards preventing transmission of Tamiflu-resistant H1N1.In June 2011, we initiated dosing of AVI-7100 via intravenous infusion in single-ascending doses in up to 48 healthy adult volunteers. The first dosecohort in this Phase I, randomized, double-blind, placebo-controlled -13-®®®Table of Contentsstudy was completed and received a favorable review from the DSMB to proceed to the next dose escalation. The period of performance under this DoDcontract subsequently ended and, as a result, continued development was suspended until we entered into the clinical trial agreement with NIAID.Under the December 2012 agreement with NIAID, NIAID researchers are allowed to proceed with a Phase I, double-blind, placebo-controlled, dose-escalating study to assess the safety, tolerability and pharmacokinetics of single and multiple doses of an intravenous formulation of AVI-7100 in healthyvolunteers. Per the terms of the agreement, we provided AVI-7100 to NIAID and in return, we will have the right to use the data from this clinical study tosupport future development of AVI-7100.Discovery Stage Program OverviewOur PMO-chemistries are highly-differentiated from other RNA technologies, including antisense, siRNA and RNAi. Unlike these technologies, whichare often used for down-regulation of gene expression, ours can be used to selectively up-regulate or down-regulate the expression of proteins involved in humandiseases and disorders, or direct the production of novel proteins with clinically relevant properties.In addition to our pan-exon strategy for DMD, our preclinical research efforts are focused on the creation of product candidates for the treatment of otherneuromuscular, infectious and rare diseases.Chemistry TechnologyOur core chemistry is based on phosphorodiamidate-linked morpholino oligomers, or PMOs, and this core chemistry has been safely dosed in over 400patients. PMOs are synthetic molecules based on a fundamental redesign of the natural nucleic acid structure of DNA and RNA. PMOs bind tocomplementary sequences of RNA by standard Watson-Crick nucleic acid base-pairing and control gene expression by steric blockade of targeted RNA.Structurally, the key difference between PMOs and naturally occurring DNA and RNA is that while PMOs, like DNA and RNA, have nucleic acid bases,those bases are bound to synthetic morpholine rings instead of deoxyribose (in DNA) or ribose (in RNA) rings, and they are linked throughphosphorodiamidate groups instead of phosphate groups. Replacement of anionic phosphates with the charge-neutral phosphorodiamidate groups eliminatesionization in the usual physiological pH range, thus PMOs in organisms or cells are uncharged molecules. Because of these modifications, PMOs areespecially resistant to degradation by plasma and intracellular enzymes. Unlike some other RNA-based technologies, including siRNAs and other types ofantisense, PMOs rely on steric blocking rather than cellular enzymatic activity for their biological effects. In this way, PMOs operate fundamentally differentlyfrom other well-known RNA-based technologies.We have developed three new PMO-based chemistry platforms in addition to our original PMO-based technology. We believe that the novel, favorablecharacteristics intrinsic in these new platforms will allow for the development of drug candidates with superior delivery, specificity, therapeutic windows anddrug-like properties.PPMO. The first of these novel chemistries is based on peptide conjugated PMOs, or PPMOs, in which cellular uptake of the PMO component, as wellas its potency and specificity of tissue targeting, may be significantly enhanced.PMO-plus. The second of these chemistries, PMOplus, includes the addition of selectively introduced positive charges to the PMO backbone. Webelieve that while PMO-plus has potentially broad therapeutic applications, it has thus far shown to be particularly effective in increasing the potency ofPMO-based oligomers.PMO-X™. The third of these chemistries, PMO-X™, involves novel, selective, and proprietary backbone chemistry modifications. We believe PMO-X™ may provide enhanced in vivo potency for our drug candidates, as well as greater flexibility in modulation of their tissue targeting, cellular delivery anduptake. -14-®®®Table of ContentsWe intend to continue to support our internal research and development efforts in order to advance our proprietary chemistries and to develop newanalogues that may provide additional benefits in key characteristics of drug performance.Mechanisms of ActionHumans have far fewer genes than the number of unique proteins expressed in the human proteome. The genetic information stored in human DNA isnot contiguous. Short DNA stretches, called exons that code for fragments of the protein are separated by long non-coding pieces of DNA called introns.During processing of precursor or pre-mRNA, which is copied from the DNA template, introns are removed and exons spliced together to create the maturemRNA, from which a functional protein can be made. Pre-mRNA copied from a gene can be spliced through alternative paths, such that different exons arecombined, creating multiple mRNAs and, hence, generate multiple proteins from a single gene.Our PMO-based molecules are designed to sterically block the access of cellular machinery to pre-mRNA and mRNA without degrading the RNA.Through this selective targeting, two distinct biologic mechanisms of action can be initiated: (1) modulation of pre-mRNA splicing (also commonly describedas splice switching, exon skipping or directed alternative splicing) and (2) inhibition of mRNA translation (also commonly described as translationsuppression). Through these mechanisms, steric-blocking oligonucleotides can repair defective RNA, up or down-regulate the production of selected proteins,or produce novel or remodeled proteins.Material AgreementsWe believe that our RNA-based technology could be broadly applicable for the potential development of pharmaceutical products in many therapeuticareas. To further exploit our core technology, we have and may continue to enter into research, development or commercialization alliances with universities,hospitals, independent research centers, non-profit organizations and pharmaceutical and biotechnology companies for specific molecular targets or selecteddisease indications. We may also selectively pursue opportunities to access certain intellectual property rights that complement our internal portfolio throughlicense agreements or other arrangements.U.S. Department of Defense and DHHS AgreementsWe currently have contracts with DoD and its agencies and DHHS and its agencies that fund and/or support our programs. For a more detaileddescription of our contracts with the U.S. government, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—U.S.Government Contracts” below and “Note 6—Government Contracts” of the consolidated financial statements included elsewhere in this Annual Report onForm 10-K. Our contracts with the government may be subject to renegotiation or termination at the election of the government. For a description of the risks weface relating to such rights of the government see “Risk Factors—Risks Relating to Our Business”.University of Western AustraliaIn November 2008, we entered into an exclusive license agreement with the University of Western Australia, or UWA, for certain patents and technicalinformation relating to the use of certain antisense sequences for the treatment of DMD and in April 2013, we entered into an agreement with UWA underwhich this license agreement was amended and restated, referred to in this report as the Amended and Restated UWA License Agreement. The Amended andRestated UWA License Agreement grants us specific rights to the treatment of DMD by inducing the skipping of certain exons. Our lead clinical candidate,eteplirsen, falls under the scope of the license granted under the Amended and Restated UWA License Agreement. Any future drug candidates developed for thetreatment of DMD by exon skipping may or may not fall under the scope of the Amended and Restated UWA License Agreement. -15-Table of ContentsUnder the Amended and Restated UWA License Agreement, we are required to meet certain performance diligence obligations related to development andcommercialization of products developed under the license. We believe we are currently in compliance with these obligations. In 2013, we made an initialupfront payment to UWA of $1.1 million upon execution of the Amended and Restated UWA License Agreement. We may be required to make additionalpayments to UWA of up to $6 million in the aggregate based on successful achievement of certain regulatory and commercialization-related milestones ofeteplirsen and up to five additional product candidates and also may be required to pay royalties ranging from a fraction of a percent to the low single-digitpercentages on net sales of products covered by issued patents licensed from UWA during the term of the Amended and Restated UWA License Agreement. Weare not under any current obligation to make royalty payments to UWA until a product candidate is approved for commercial sale.The terms of the Amended and Restated UWA License Agreement will expire on a country-by-country basis on the expiration date of the last to expirevalid claim or patent within the patents licensed to us under this agreement or upon the earliest to occur of the following: • failure by us or UWA to cure a breach or default of any material obligation we each have under the agreement after notice from the non-breachingparty within the specified time periods; • a mutual agreement to terminate the agreement; • by UWA in the event a party passes a resolution to wind-up or if a receiver, administrator, trustee or person performing similar functions isappointed by a court or liquidator over any of our assets; or • upon our notice to UWA that we no longer desire to commercialize products covered under the agreement.Currently, the latest date on which an issued patent covered by our agreement with UWA expires is April 2026, however, pending patents could result ina later expiration date.Strategic AlliancesIsis—Ercole AgreementIn May 2003, Ercole Biotechnology, Inc., or Ercole, and Isis Pharmaceuticals, Inc., or Isis, entered into a collaboration and license agreement related toRNA splicing. Research collaboration activity defined in the agreement expired in 2006. In March 2008, we acquired all of the stock of Ercole in exchange for5,811,721 shares of our common stock, which was valued at approximately $8.4 million, and the assumption of approximately $1.8 million in liabilities ofErcole. We also issued warrants to purchase our common stock (also classified as equity), which were valued at $437,000, in exchange for certain outstandingwarrants issued by Ercole. In connection with the March 2008 acquisition, we assumed Ercole’s obligations under the Isis agreement. This agreement containsseveral cross-licenses between the parties granting each party certain exclusive and nonexclusive rights under a selected set of the other parties’ patents andpatent applications for the research, development, and commercialization of antisense therapeutics using RNA splicing with respect to certain gene targets.Subject to the satisfaction of certain milestones triggering the obligation to make any such payments, we may be obligated to make milestone paymentsto Isis of up to $23.4 million in the aggregate for each product developed under a licensed patent under this agreement.As of December 31, 2013, we have not made, and are not under any current obligation to make, any such milestone payments, as the conditionstriggering any such milestone payment obligations have not been satisfied. The range of percentage royalty payments required to be made by us under theterms of this agreement is from a fraction of a percent to mid single-digit percentages. We believe that our DMD, Ebola, Marburg and influenza programs willnot fall under the scope of this agreement and therefore will not be subject to milestone or royalty obligations under its provisions. -16-Table of ContentsSubject to the satisfaction of certain milestones triggering the obligation to make any such payments, Isis may be obligated to make milestone paymentsto us of up to $21.1 million in the aggregate for each product developed under a licensed patent under this agreement. As of December 31, 2013, Isis has notmade, and is not under any current obligation to make, any such milestone payments, as the conditions triggering any such milestone payment obligationshave not been satisfied. The percentage royalty payments required to be made by Isis under the terms of this agreement is a fraction of a percent. As to anyproduct commercialized under the agreement, the agreement will terminate on the expiration date of the last to expire licensed patent covering such product. Thelast to expire Sarepta owned patent covered under this agreement expires on September 9, 2014. The last Isis owned patent covered under this agreement expireson March 27, 2028. In addition, either party may terminate this agreement in the event: • a material breach by the other party is not cured within a specified period of time; or • the other party commences bankruptcy, reorganization, liquidation or receivership proceedings or upon the assignment of a substantial portion ofthe assets for the benefit of creditors by the other party with certain exceptions.Charley’s Fund AgreementIn October 2007, Charley’s Fund, Inc., or Charley’s Fund, a nonprofit organization that funds drug development and discovery initiatives specific toDMD, awarded us a $2.45 million research grant and, in May 2009, the grant authorization was increased to a total of $5.0 million. Pursuant to the relatedsponsored research agreement, the grant was provided to support the development of product candidates related to exon 50 skipping using our proprietary exonskipping technologies. As of December 31, 2013, Charley’s Fund has made payments of approximately $3.4 million to us. Revenue associated with thisresearch and development arrangement is recognized based on the proportional performance method, using the payment received method. To date, we haverecognized $60,000 as revenue, but did not recognize any revenue for the years ended December 31, 2013, 2012 and 2011. We do not expect to receive anyincremental funding under the grant and have deferred $3.3 million of previous receipts which are anticipated to be recognized as revenue once we complete theremaining milestones.Under the terms of the sponsored research agreement, as amended, if we and any of our strategic partners elect to discontinue the development andcommercialization of any product containing any molecular candidate arising or derived from the research sponsored by Charley’s Fund for reasons other thansafety or efficacy, we must grant to Charley’s Fund an exclusive, royalty-bearing, fully-paid, worldwide license, with right of sublicense, to any suchproduct. Depending on whether and when Charley’s Fund obtains a license to any such product, percentage royalty payments on net sales required to be madeby Charley’s Fund to us under the terms of the sponsored research agreement, as amended, would be in the mid-single-digits. Under the terms of thesponsored research agreement, as amended, if we are able to successfully commercialize any molecular candidate arising or derived from the researchsponsored by Charley’s Fund either through sales of products or through licensing or partnership arrangements with a third party that include rights for suchthird party to sell, distribute, promote or market such products or the underlying intellectual property, then we are obligated to repay the research funds paid tous by Charley’s Fund, up to an amount equal to the total amount of funds provided by Charley’s Fund to us. In connection with this repayment obligation,we agreed that we would pay a mid range single-digit percentage royalty on net sales of products containing any molecular candidate arising or derived from theresearch sponsored by Charley’s Fund and a mid-teens amount of any upfront cash and/or milestone payments received from a licensing or partnershiparrangement with a third party with respect to such products (in each case, up to an amount equal to the total amount of funds provided by Charley’s Fund tous). This agreement will terminate by its own terms at the completion of the research being sponsored by Charley’s Fund. The Sarepta technology upon whichthe agreement is based is covered by certain patents, the last of which expires following the termination of the agreement.Previously, we noted unexpected toxicology findings in the kidney as part of our series of preclinical studies for AVI-5038, our PMO-based candidatedesigned for the treatment of individuals with DMD who have an error -17-Table of Contentsin the gene coding for dystrophin that can be treated by skipping exon 50. We have conducted additional preclinical studies and have not alleviated the toxicityproblem. Pursuant to the terms of our agreement with Charley’s Fund, the receipt of additional funds is tied to the satisfaction of certain clinical milestones.Because of the toxicity issues with AVI-5038, satisfaction of the additional milestones under the agreement is unlikely and we do not expect to receive anyadditional funds from Charley’s Fund.ManufacturingWe believe we have developed proprietary manufacturing techniques that allow synthesis and purification of our product candidates to support clinicaldevelopment. We have entered into certain manufacturing and supply arrangements with third-party suppliers which will in part utilize these techniques tosupport production of certain of our product candidates and their components. We do not have, and do not intend to establish in the near term, any of our owninternal mid-to-large scale manufacturing capabilities to support our product candidates.For our current development programs we have entered into supply agreements with certain large pharmaceutical manufacturing firms for the productionof the custom raw materials required for PMO production and the active pharmaceutical ingredients, or APIs, for our product candidates.For our DMD program, we are working with our existing manufacturers to increase our API production capacity from small-scale to mid-scale. During2014, we will also evaluate whether to increase our API production capacity to a commercial scale. This decision will depend in significant part on ourdiscussions with the FDA in 2014 as well as our expectations regarding clinical trial needs and the potential feasibility and timing of an NDA filing andsubsequent commercialization.There are a limited number of companies that can produce raw materials and APIs in the quantities and with the quality and purity that we require forour DMD development efforts. Due to their technical expertise, experience in manufacturing our product candidates and sophistication of their manufacturingfacilities and quality systems, we are considering our existing manufacturers, as well as other manufacturers with relevant expertise, for the further scale-up ofthe production of raw materials and APIs for our DMD program. Establishing a relationship with alternative suppliers can be a lengthy process and mightcause delays in our development efforts. If we are required to seek alternative supply arrangements, the resulting delays and potential inability to find asuitable replacement could materially and adversely impact our business.Manufacturers and suppliers of product candidates are subject to the FDA’s current Good Manufacturing Practices, or cGMP, requirements, and otherrules and regulations prescribed by foreign regulatory authorities. We depend on our third-party suppliers and manufacturers for continued compliance withcGMP requirements and applicable foreign standards.Sales and Marketing StrategyWe have not obtained regulatory approval for any of our product candidates and thus have not yet established a commercial organization or distributioncapabilities. Due to the rare nature of DMD and the lack of disease-modifying treatments, patients suffering from DMD, together with their physicians, oftenhave a high degree of organization and are well informed, which may simplify the identification of a target population for eteplirsen, our lead productcandidate, if it is approved. We believe that, if approved for commercial sale, it will be possible to commercialize eteplirsen with a relatively small specialtysales force that calls on the physicians, foundations and other patient-advocacy groups focused on DMD. Our current expectation is to commercializeeteplirsen ourselves in the United States and plan to recruit a sales force and take other steps to establish the necessary commercial infrastructure at such timeas we believe that eteplirsen is approaching marketing approval. We will continue to evaluate whether to market our DMD product candidates outside of theUnited States ourselves or enter into arrangements with other pharmaceutical or biotechnology companies for the marketing and sale of our products outsidethe United States either globally or on a country-by-country basis. -18-Table of ContentsPatents and Proprietary RightsOur success depends in part upon our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination ofintellectual property rights, including patents, trade secrets, copyrights and trademarks, as well as regulatory exclusivity and contractual protections.We seek patent protection for certain of our proprietary technologies by filing patent applications in the United States and other countries. As ofFebruary 28, 2014, we owned or controlled approximately 312 U.S. and corresponding foreign patents and 186 U.S. and corresponding foreign patentapplications. We intend to protect our proprietary technology with additional filings as appropriate.Our patents and patent applications are directed to our product candidates as well as to our RNA-based technology platforms. Although we believe ourpatents and patent applications provide us with a competitive advantage, the ability to fully realize the potential for exclusivity based on our patent positionscan be uncertain as they typically involve complex legal and factual questions. Even if patent claims are allowed, the claims may not issue, or in the event ofissuance, may not be sufficient to protect the technology owned by or licensed to us or our collaborators. Even if our patents and patent applications doprovide our product candidates and platform technology with a basis for exclusivity, we and our collaborators may not be able to develop or commercializesuch product candidates or platform technology due to patent positions held by a third party. For example, our competitor Prosensa has rights to EuropeanPatent No. EP 1619249. We opposed this patent in the Opposition Division of the European Patent Office, or the Opposition Division, and in November2011, we announced that, although we succeeded in invalidating some of the patent’s claims, the Opposition Division maintained in amended form certainclaims of this patent relating to the treatment of DMD by skipping dystrophin exons 51 and 46. We and Prosensa both appealed this decision in June 2013;however, pending final resolution of this matter, the patent at issue may provide the basis for Prosensa or other parties that have rights to such patent to assertthat our drug eteplirsen infringes on such patent. The outcome of the appeal cannot be predicted or determined as of the date of this report. If as part of anyappeal in the European Union we are unsuccessful in invalidating Prosensa’s claims that were maintained by the Opposition Division or if claims previouslyinvalidated by the Opposition Division are restored on appeal, our ability to commercialize both eteplirsen and other therapeutic candidates for our pan-exonstrategy could be materially impaired. We are also aware of certain pending and granted claims that have been issued to Prosensa in Japan that may provide thebasis for Prosensa or other parties to assert that eteplirsen infringes on such claims. We believe we have a basis to invalidate some or all of these claims and areevaluating the potential initiation of invalidation proceedings. Because we have not yet initiated an invalidation proceeding in Japan, the outcome and timing ofany such proceeding cannot be predicted or determined as of the date of this report. We are also aware of certain claims that Prosensa has rights to in theUnited States that may provide the basis for Prosensa or other parties that have rights to these claims to assert that our drug eteplirsen infringes on suchclaims. We believe we have valid defenses to any such allegations or a basis to invalidate some or all of these claims and do not believe that Prosensa’s grantedclaims and pending claims should they be granted should be deemed to prevent our ability to commercialize eteplirsen in the United States; however, as notedbelow, the biotechnology intellectual property landscape continues to evolve and we cannot be certain of this assessment. The DMD patent landscape iscontinually evolving and multiple parties, both commercial entities and academic institutions, may have rights to claims that could provide these parties abasis to assert that our product candidates infringe on these claims. Similarly, we may be able to assert that certain activities engaged in by these partiesinfringe on our patent rights. There has been, and we believe that there will continue to be, significant litigation in the biopharmaceutical and pharmaceuticalindustries regarding patent and other intellectual property rights. We cannot be certain that other third parties will not assert patent infringement in the futurewith respect to any of our development programs.Our product candidates and our technology are primarily protected by composition of matter and use patents and patent applications. Currently, ourlead clinical product candidates are AVI-7288 (Marburg), AVI-7100 (Influenza) and AVI-4658 (Eteplirsen). We own issued patents covering composition andmethods of use for AVI-7288 in the United States. We have exclusively licensed patents covering composition of matter and methods of use for AVI-4658 in theUnited States and Europe. Additionally, we have pending patent applications -19-Table of Contentsfor composition and methods of use for AVI-7100 and issued and/or pending patent applications for composition and methods of use for other productcandidates in the United States, Canada, South America, Europe, Asia, Australia, New Zealand, and/or the Middle East. Patent protection based on currentlygranted patents and patents granting from currently pending patent applications covering our product candidates and our technology will expire over thefollowing time frames: Product Candidate / Technology Expiration of Patent Protection*Eteplirsen 2025 (patents) – 2030 (patents)Other DMD exons 2025 (patents) – 2034 (patent applications)Exon-skipping 2013 (patents) – 2023 (patents)Antivirals (Ebola, Marburg, Dengue and Influenza) 2022 (patents) – 2030 (patents)Chemistry (PPMO, PMOplus and PMO-X™) 2024 (patents) – 2032 (patent applications)Antibacterials 2018 (patents) – 2031 (patent applications)Other rare diseases 2025 (patent applications) – 2034 (patent applications)Other targets and programs 2019 (patents) – 2034 (patent applications) *Stated expiration dates do not account for any patent term extension or pediatric extensions that may be available in the United States and certain foreignjurisdictions.In addition to patent protection, we also rely on trade secrets and proprietary know-how, especially when we do not believe that patent protection isappropriate or can be obtained. Our policy is to require each of our employees, consultants and advisors to execute a confidentiality and inventions assignmentagreement before beginning their employment, consulting or advisory relationship with us. These agreements generally provide that the individual must keepconfidential and not disclose to other parties any confidential information developed or learned by the individual during the course of their relationship with usexcept in limited circumstances. These agreements also generally provide that we shall own all inventions conceived by the individual in the course ofrendering services to us.We are the owner of four federal trademark registrations in the United States: AVI BioPharma, Cytoporter, PMO-plus and NeuGene. We havepending trademark applications in the United States for the following trademarks: PMO-X™; Sarepta™; Sarepta Therapeutics™ and the SareptaTherapeutics logo; Let’s Skip Ahead™; The Promise of Science, Realized™; Transformation, Within Reach™; and Turning Discovery Into Recovery™. Inthe European Union, we have trademark registrations for AVI BioPharma and Sarepta and pending applications for the following trademarks: the SareptaTherapeutics logo; The Promise of Science, Realized™; Transformation, Within Reach™; and Turning Discovery Into Recovery™. We have licensed certaintechnology to supplement and support certain of our core technologies. We have certain obligations and minimum royalties under those agreements, whichcosts are not material to our business and can be terminated at our discretion with minimal notice.Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of the use, formulation andstructure of our product candidates, and the methods used to manufacture them, as well as successfully defending these patents against third-party challenges.Our ability to protect our product candidates from unauthorized making, using, selling, offering to sell or importing by third parties is dependent on the extentto which we have rights under valid and enforceable patents that cover these activities.We do not have patents or patent applications in every jurisdiction where there is a potential commercial market for our product candidates. For each ofour programs, our decision to seek patent protection in specific foreign markets, in addition to the United States, is based on many factors, including: • our available resources; • the number and types of patents already filed or pending; • the likelihood of success of the product candidate; -20-®®®®®®®Table of Contents • the size of the commercial market; • the presence of a potential competitor in the market; and • whether the legal authorities in the market effectively enforce patent rights.We continually evaluate our patent portfolio and patent strategy and believe our owned and licensed patents and patent applications provide us with acompetitive advantage; however, if markets where we do not have patents or patent applications become commercially important, our business may beadversely affected.The patent positions of pharmaceutical, biotechnology and other life sciences companies can be highly uncertain and involve complex legal and factualquestions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology patents hasemerged to date in the United States, and tests used for determining the patentability of patent claims in all technologies are in flux. In addition, there is noassurance as to the degree and range of protections any of our patents, if issued, may afford us or whether patents will be issued. For example, patents whichmay be issued to us may be subjected to further governmental review that may ultimately result in the reduction of their scope of protection, and pendingpatent applications may have their requested breadth of protection significantly limited before being issued, if issued at all. The pharmaceutical, biotechnologyand other life sciences patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws inthe United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may beallowed or enforced in the patents that we own or have licensed or in third-party patents. Further, since publication of discoveries in scientific or patentliterature often lags behind actual discoveries, there is no assurance that we were the first creator of inventions covered by our pending patent applications, orthat we were the first to file patent applications for these inventions.Government RegulationThe testing, manufacturing, labeling, advertising, promotion, distribution, exportion and marketing of our products are subject to extensive regulationby governmental authorities in the United States and in other countries. In the United States, the FDA, under the Federal Food, Drug and Cosmetic Act and itsimplementing regulations, regulates pharmaceutical products. Failure to comply with applicable U.S. requirements may subject us to administrative or judicialsanctions, such as FDA refusal to approve pending NDAs, withdrawal of approval of approved products, warning letters, untitled letters, product recalls,product seizures, total or partial suspension of production or distribution, injunctions, civil penalties and/or criminal prosecution.Drug Approval ProcessTo obtain FDA approval of a product candidate, we must, among other things, submit data providing substantial evidence of safety and efficacy of theproduct, as well as detailed information on the manufacture and composition of the product candidate and proposed labeling. The testing and collection of dataand the preparation of necessary applications are expensive and time-consuming. The FDA may not act quickly or favorably in reviewing these applications,and we may encounter significant difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us from marketing our products.The steps required before a drug may be approved for marketing in the United States generally include the following, with exceptions noted in the sectioncaptioned “Government Regulation—Animal Rule”: • preclinical laboratory tests and animal tests; • submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials commence; • adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug product for each indication; -21-Table of Contents • the submission to the FDA of an NDA; • satisfactory completion of an FDA inspection of the manufacturing facilities at which the product is made to assess compliance with cGMP; • satisfactory FDA audit of the clinical trial site(s) that generated the data in support of the NDA and also potentially the nonclinical site(s); and • FDA review and approval of the NDA.Preclinical studies may include laboratory evaluations of the product chemistry, toxicity, and formulation, as well as animal studies to assess thepotential safety and efficacy of the product candidate. The conduct of the preclinical tests and formulation of the compounds for testing must comply withfederal regulations and requirements. The results of the preclinical studies, together with manufacturing information and analytical data, are submitted to theFDA as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically 30 days afterreceipt by the FDA, unless the FDA raises concerns or questions about the conduct of the clinical trials as described in the protocol submitted as part of theIND prior to that time. In this case, the trials are placed on clinical hold, and the IND sponsor and the FDA must resolve any outstanding concerns beforeclinical trials can proceed.Clinical trials involve the administration of the product candidate to healthy volunteers or participants under the supervision of a qualified principalinvestigator. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety, and theeffectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted in accordance with theFDA’s good clinical practices requirements and state subject rights laws. Further, each clinical trial must be reviewed and approved by an independentinstitutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted. The IRB will consider, among other things,clinical trial design, participant informed consent, ethical factors, the safety of human subjects, and the possible liability of the institution. The FDA mayorder the partial, temporary or permanent discontinuation of a clinical trial at any time or impose other sanctions if it believes that the clinical trial is not beingconducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial subjects. The IRB may also require the clinical trial atthat site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.Clinical trials typically are conducted in three sequential phases prior to approval, but the phases may overlap. A fourth, or post-approval, phase mayinclude additional clinical studies. These phases generally include the following; however, in the rare disease space, the number of subjects involved in eachphase can be significantly less than the general parameters set forth below: • Phase I. Phase I clinical trials involve the initial introduction of the drug into human subjects. These studies are designed to determine the safety ofusually single doses of the compound and determine any dose limiting intolerance, as well as evidence of the metabolism and pharmacokinetics ofthe drug in humans. Phase I studies usually involve less than 100 subjects and are most commonly conducted in healthy adult volunteers. • Phase II. Phase II clinical trials usually involve studies in a limited patient population to evaluate the efficacy of the drug for specific, targetedindications, to determine dosage tolerance and optimal dosage, and to identify possible adverse effects and safety risks. Phase II studies usuallyinvolve patients with the disease under investigation and numbers may vary from several dozen to several hundred. • Phase III. If a compound is found to be potentially effective and to have an acceptable safety profile in Phase II (or sometimes Phase I) studies, theclinical trial program will be expanded to further confirm clinical efficacy, optimal dosage and safety within an expanded patient population whichmay involve -22-Table of Contents geographically dispersed clinical trial sites. Phase III studies usually include several hundred to several thousand patients. Generally, two adequateand well-controlled Phase III clinical trials are required by the FDA for approval of an NDA. • Phase IV. Phase IV clinical trials are studies required of or agreed to by a sponsor that are conducted after the FDA has approved a product formarketing. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and todocument a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a companyhas ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or partof any Phase IV clinical trial requirement. Failure to promptly conduct Phase IV clinical trials could result in withdrawal of approval for productsapproved under accelerated approval regulations.A company seeking marketing approval for a new drug in the United States must submit to the FDA the results of the preclinical and clinical trials,together with, among other things, detailed information on the manufacture and composition of the product candidate and proposed labeling, in the form of anNDA, including payment of a user fee. The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information ratherthan accepting an NDA for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policiesagreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has ten months in which to complete its initial review of a standard NDAand respond to the applicant, and six months for a priority NDA. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs. Thereview process and the PDUFA goal date may be extended by three months if the FDA requests or the NDA sponsor otherwise provides additional informationor clarification regarding information already provided in the submission within the last three months before the PDUFA goal date. If the FDA’s evaluations ofthe NDA and the clinical and manufacturing procedures and facilities are favorable, the FDA may issue an approval letter. If the FDA finds deficiencies in theNDA, it may issue a complete response letter, which contains the conditions that must be met in order to secure final approval of the NDA. If and when thoseconditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter, authorizing commercial marketing of the drug for certainindications. If the FDA’s evaluation of the NDA submission and the clinical and manufacturing procedures and facilities is not favorable, the FDA mayrefuse to approve the NDA. Sponsors that receive a complete response letter may submit to the FDA information that represents a complete response to theissues identified by the FDA. Resubmissions by the NDA sponsor in response to a complete response letter trigger new review periods of varying length(typically two to six months) based on the content of the resubmission. The FDA may also refer an application to an appropriate advisory committee, typicallya panel of clinicians, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by therecommendations of the advisory committee.A sponsor may also seek approval of its drug candidates under programs designed to accelerate the FDA’s review and approval of NDAs. For instance,a sponsor may seek FDA designation of a drug candidate as a “fast track product.” Fast track products are those products intended for the treatment of aserious or life-threatening disease or condition and which demonstrate the potential to address unmet medical needs for such disease or condition. If fast trackdesignation is obtained, the FDA may initiate early, frequent, communication and begin reviewing sections of an NDA before the application is complete. This“rolling review” is available if the applicant provides, and the FDA approves, a schedule for the remaining information. We were granted fast track status foreteplirsen in 2007 and we announced in September 2012 that the FDA granted fast track status for the development of both AVI-7288 and AVI-7537.The Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted and signed into law in 2012 amended the criteria for the fast trackand accelerated approval pathways and, as a result, the pathways now share many common eligibility criteria. FDASIA provides both sponsor companiesand the FDA greater flexibility with expedited regulatory mechanisms. The statute clarifies that a fast track product may be approved pursuant to anaccelerated approval (Subpart – H) or under the traditional approval process. In addition, FDASIA codified the accelerated approval pathway as separate andapart from fast track pathway, meaning that for drugs -23-Table of Contentsto be eligible for accelerated approval, they do not need to be designated under the fast track pathway. FDASIA reinforces the FDA’s authority to grantaccelerated approval based on surrogate endpoints that are “reasonably likely to predict clinical benefit,” and provides for a more expansive use of non-surrogate clinical endpoints by authorizing the FDA to grant accelerated approval based on the use of clinical endpoints that can be measured earlier in thedevelopment process than irreversible morbidity or mortality, and that are reasonably likely to predict an effect on irreversible morbidity or mortality “or otherclinical benefit.” In determining whether to grant accelerated approval, the FDA must consider the severity, rarity, or prevalence of the condition and theavailability or lack of alternative treatments. Approvals of this kind typically include requirements for appropriate post-approval Phase IV clinical trials.FDASIA retains this requirement and further requires those studies to verify and describe the predicted effect on irreversible morbidity or mortality or otherclinical benefit. We had various meetings with the FDA in 2013 and will continue to have meetings with the FDA during 2014 to discuss the clinical resultsfrom our Phase IIb study of eteplirsen and most appropriate regulatory review pathway based on these data. In addition, we also plan to have discussions withthe FDA to finalize the pivotal clinical study design for eteplirsen. Based on feedback from these meetings, we will continue to pursue the most appropriateregulatory path for regulatory review and approval of eteplirsen. Our determination will be further informed by subsequent meetings with the FDA.Additionally, FDASIA established a new, expedited regulatory mechanism referred to as breakthrough therapy designation. Breakthrough therapydesignation, fast track, and accelerated approval are not mutually exclusive and are meant to serve different purposes. The breakthrough therapy designationis focused on expediting the development and review process and by itself does not create an alternate ground for product approval. A sponsor may seek FDAdesignation of a drug candidate as a “breakthrough therapy” if the drug is intended, alone or in combination with one or more other drugs, to treat a serious orlife-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapieson one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA issued draft guidanceentitled “Expedited Programs for Serious Conditions––Drugs and Biologics” in June 2013 and if deemed necessary, is required to amend its regulations byJuly 2014. We will continue to evaluate, with input from the FDA, which expedited programs are appropriate to incorporate in our regulatory approach foreteplirsen and our other DMD product candidates.Finally, drug candidates, upon submission of an NDA, may also be eligible for “priority review,” or review within a six month timeframe from the datea complete NDA is accepted for filing, if a sponsor shows that its drug candidate provides a significant improvement compared to marketed drugs.While FDASIA provides certain authorities and direction to the FDA, it is unclear how the FDA will interpret and implement FDASIA provisions, inparticular, in considering what the appropriate regulatory approval pathway is for eteplirsen. We cannot be sure that any of our drug candidates will qualifyfor any of these expedited development, review and approval programs, or that, if a drug does qualify, that the product candidates will be approved, will beaccepted as part of any such program or that the review time will be shorter than a standard review.Often, even after a drug has been approved by the FDA for sale, the FDA may require that certain post-approval requirements be satisfied, including theconduct of additional clinical studies. If such post-approval conditions are not satisfied, the FDA may withdraw its approval of the drug. In addition, holdersof an approved NDA are required to: • report certain adverse reactions to the FDA; • submit annual and periodic reports summarizing product information and safety data; • comply with certain requirements concerning advertising and promotional labeling for their products; and • continue to have quality control and manufacturing procedures conform to cGMP after approval. -24-Table of ContentsThe FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing; this latter effort includes assessment ofcompliance with cGMP. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintaincGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approvedNDA, including withdrawal of the product from the market.Many other countries and jurisdictions have similar drug development and regulatory review processes. We have conducted clinical trials in the UnitedKingdom and intend to submit for marketing approval in countries other than the United States. Therefore, we will have to comply with the legal andregulatory requirements in the countries where we conduct trials and submit for marketing approval.Animal RuleIn the case of product candidates that are intended to treat rare life-threatening diseases, such as infection caused by exposure to various hemorrhagicfever viruses, conducting controlled clinical trials to determine efficacy may be unethical or unfeasible. Under regulations issued by the FDA in 2002, oftenreferred to as the “Animal Rule,” the approval of such products can be based on clinical data from trials in healthy human subjects that demonstrate adequatesafety, and immunogenicity and efficacy data from adequate and well-controlled animal studies. Among other requirements, the animal studies must establishthat the drug or biological product is reasonably likely to produce clinical benefits in humans. Because the FDA must agree that data derived from animalstudies may be extrapolated to establish safety and effectiveness in humans, seeking approval under the Animal Rule adds significant time, complexity anduncertainty to the testing and approval process. No animal model is established as predicting human outcomes in the prevention or treatment of any filovirusdisease. We have yet to demonstrate the predictive value of our animal studies to the FDA’s satisfaction. In addition, products approved under the AnimalRule are subject to additional requirements including post-marketing study requirements, restrictions imposed on marketing or distribution or requirements toprovide information to patients. The Animal Rule is a rarely-used regulatory pathway and most of the products approved to-date under the Animal Rule havebuilt upon existing indications with human data to support efficacy. Additional clarity on Animal Rule requirements is not anticipated until the FDA releasesan updated version of its draft guidance on the Animal Rule that was first published in January 2009.Emergency Use AuthorizationThe Commissioner of the FDA, under delegated authority from the Secretary of DHHS may, under certain circumstances, issue an Emergency UseAuthorization, or EUA, that would permit the use of an unapproved drug product or unapproved use of an approved drug product. Before an EUA may beissued, the Secretary must declare an emergency based on one of the following grounds: • a determination by the Secretary of the Department of Homeland Security that there is a domestic emergency, or a significant potential for adomestic emergency, involving a heightened risk of attack with a specified biological, chemical, radiological or nuclear agent or agents; • a determination by the Secretary of DoD that there is a military emergency, or a significant potential for a military emergency, involving aheightened risk to U.S. military forces of attack with a specified biological, chemical, radiological, or nuclear agent or agents; or • a determination by the Secretary of DHHS of a public health emergency that effects or has the significant potential to affect, national security, andthat involves a specified biological, chemical, radiological, or nuclear agent or agents, or a specified disease or condition that may be attributableto such agent or agents.In order to be the subject of an EUA, the FDA Commissioner must conclude that, based on the totality of scientific evidence available, it is reasonable tobelieve that the product may be effective in diagnosing, treating, or preventing a disease attributable to the agents described above; that the product’s potentialbenefits outweigh its potential risks; and that there is no adequate, approved alternative to the product. -25-Table of ContentsThe Pandemic and All-Hazards Preparedness Reauthorization Act of 2013 (PAHPRA) enhanced existing EUA requirements, including by: • Providing clearer authority for the FDA to issue EUAs—before a chemical, biological, radiological or nuclear emergency occurs—to enablestakeholders to prepare for use of unapproved medical products, or unapproved uses of approved products, if certain criteria are met (referred toas pre-event EUAs) • Allowing the FDA to issue an EUA based on the HHS Secretary’s determination that there is a potential for a public health emergency involving achemical, biological, radiological or nuclear threat agent (not only based on an actual emergency) • Expanding the time period for collection and analysis of information about a medical countermeasure’s safety and effectiveness for a reasonableperiod beyond the effective period of the EUA • Expressly permitting FDA, as part of issuance of an EUA, to categorize the complexity of an in vitro diagnostic device to indicate whether the testcan be performed at a point-of-care setting or only in a more sophisticated laboratoryThe FDA strongly encourages an entity with a possible candidate product, particularly one at an advanced stage of development, to contact the FDACenter responsible for the candidate product before a determination of actual or potential emergency. Such an entity may submit a request for consideration thatincludes data to demonstrate that, based on the totality of scientific evidence available, it is reasonable to believe that the product may be effective indiagnosing, treating, or preventing the serious or life-threatening disease or condition. This is called a pre-EUA submission and its purpose is to allow FDAreview considering that during an emergency, the time available for the submission and review of an EUA request may be severely limited. We intend to workwith DoD in the future on a pre-EUA submission with respect to our product candidate intended to treat Marburg in order to inform and expedite the FDA’sissuance of an EUA, should one become necessary in the event of an emergency or potential emergency.Orphan Drug Designation and ExclusivityIn the United States, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000individuals in the United States, or more than 200,000 individuals in the United States for which there is no reasonable expectation that the cost of developingand making available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. In theUnited States, orphan drug designation must be requested before submitting an application for marketing approval. An orphan drug designation does notshorten the duration of the regulatory review and approval process. The approval of an orphan designation request does not alter the standard regulatoryrequirements and process for obtaining marketing approval. Safety and efficacy of a compound must be established through adequate and well-controlledstudies. If a product which has an orphan drug designation subsequently receives FDA approval for the indication for which it has such designation, theproduct is entitled to an orphan drug exclusivity period, which means the FDA may not grant approval to any other application to market the same drug forthe same indication for a period of seven years, except in limited circumstances, such as where an alternative product demonstrates clinical superiority to theproduct with orphan exclusivity. In addition, holders of exclusivity for orphan drugs are expected to assure the availability of sufficient quantities of theirorphan drugs to meet the needs of patients. Failure to do so could result in the withdrawal of marketing exclusivity for the drug. Distinct from orphan drugexclusivity, the FDA may provide six months of pediatric exclusivity to a sponsor of an NDA, if the sponsor conducted a pediatric study or studies of suchproduct. This process is initiated by the FDA as a written request for pediatric studies that applies to sponsor’s product. If the sponsor conducts qualifyingstudies and the studies are accepted by the FDA, then an additional six months of pediatric exclusivity will attach to any periods of regulatory exclusivity suchas orphan drug exclusivity and new chemical entity exclusivity, and any Orange Book listed patents for the listed product. Competitors may receive approvalof different drugs or biologics for the indications for which a prior approved orphan drug has exclusivity. We have been granted orphan drug designation foreteplirsen, AVI-7288, AVI-7537 and AVI-5038 in the United States. -26-Table of ContentsThe European Orphan Drug Regulation as applied by the European Medicines Agency (EMA) is considered for drugs intended to diagnose, prevent ortreat a life-threatening or very serious condition afflicting five or fewer out of 10,000 people in the European Union, including compounds that for serious andchronic conditions would likely not be marketed without incentives due to low market return on the sponsor’s development investment. The medicinal productconsidered should be of significant benefit to those affected by the condition as compared to previously approved products for the same indication. Benefits ofbeing granted orphan drug designation are significant, including ten years of market exclusivity. During this ten-year period, the EMA may not accept a newmarketing application for a similar drug for the same therapeutic indication as the orphan drug. Distinct from orphan drug exclusivity, the EMA may providea sponsor having an approved Pediatric Investigation Plan (PIP) or pediatric exclusivity waiver, which may lead to a two-year period of market exclusivitybeyond the original ten-year period of orphan drug exclusivity. We have been granted orphan drug designation for eteplirsen and AVI-5038 in the EuropeanUnion.Other Regulatory RequirementsIn addition to regulation by the FDA and certain state regulatory agencies, we are also subject to a variety of foreign regulations governing clinical trialsand the marketing of other products. Outside of the United States, our ability to market a product depends upon receiving a marketing authorization from theappropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widelyfrom country to country. In any country, however, we will only be permitted to commercialize our products if the appropriate regulatory authority is satisfiedthat we have presented adequate evidence of safety, quality and efficacy. Whether or not FDA approval has been obtained, approval of a product by thecomparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing of the product in those countries. The timeneeded to secure approval may be longer or shorter than that required for FDA approval. The regulatory approval and oversight process in other countriesincludes all of the risks associated with regulation by the FDA and certain state regulatory agencies as described above.Pharmaceutical Pricing and ReimbursementIn both U.S. and foreign markets, our ability to commercialize our products successfully, and to attract commercialization partners for our products,depends in significant part on the availability of adequate financial coverage and reimbursement from third-party payers, including, in the United States,governmental payers such as the Medicare and Medicaid programs, managed care organizations, and private health insurers. Third-party payers areincreasingly challenging the prices charged for medicines and examining their cost effectiveness, in addition to their safety and efficacy. We may need toconduct expensive pharmacoeconomic studies in order to demonstrate the cost effectiveness of our products. Even with the availability of such studies, ourproducts may be considered less safe, less effective or less cost-effective than alternative products, and third-party payers may not provide coverage andreimbursement for our product candidates, in whole or in part.Political, economic and regulatory influences are subjecting the healthcare industry in the United States to fundamental changes. There have been, andwe expect there will continue to be, legislative and regulatory proposals to change the healthcare system in ways that could significantly affect our business,including the Patient Protection and Affordable Care Act of 2010. We anticipate that the U.S. Congress, state legislatures and the private sector will continue toconsider and may adopt healthcare policies intended to curb rising healthcare costs. These cost containment measures include: • controls on government funded reimbursement for drugs; • mandatory discounts under certain government sponsored programs; • controls on healthcare providers; • challenges to the pricing of drugs or limits or prohibitions on reimbursement for specific products through other means; -27-Table of Contents • reform of drug importation laws; and • expansion of use of managed care systems in which healthcare providers contract to provide comprehensive healthcare for a fixed cost per person.We are unable to predict what additional legislation, regulations or policies, if any, relating to the healthcare industry or third party coverage andreimbursement may be enacted in the future or what effect such legislation, regulations or policies would have on our business. Any cost containmentmeasures, including those listed above, or other healthcare system reforms that are adopted could have a material adverse effect on our business prospects.CompetitionThe pharmaceutical and biotechnology industries are intensely competitive, and any product candidate developed by us would likely compete withexisting drugs and therapies. There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies andresearch organizations that compete with us in developing various approaches to the treatment of rare and infectious diseases. Many of these organizations havesubstantially greater financial, technical, manufacturing and marketing resources than we have. Several of them have developed or are developing therapiesthat could be used for treatment of the same diseases that we are targeting. In addition, many of these competitors have significantly greater commercialinfrastructures than we have. Our ability to compete successfully will depend largely on: • our ability to complete clinical development and obtain regulatory approvals for our product candidates; • the efficacy, safety and reliability of our product candidates; • the timing and scope of regulatory approvals; • product acceptance by physicians and other health-care providers; • protection of our proprietary rights and the level of generic competition; • the speed at which we develop product candidates; • our ability to supply commercial quantities of a product to the market; • obtaining reimbursement for product use in approved indications; • our ability to recruit and retain skilled employees; and • the availability of substantial capital resources to fund development and commercialization activities, including the availability of funding fromthe U.S. government.DMD Program Competition. Currently, no product has been approved for the treatment of DMD. Companies including, but not limited to, Prosensa(which announced it regained rights to Drisaparsen and all other programs for the treatment of DMD from GlaxoSmithKline plc, or GSK, in January 2014),and PTC Therapeutics, Inc., or PTC, have product candidates in development for the treatment of DMD. PTC has an exon 51 skipping product candidate inearly development while Prosensa is reviewing its Phase III data to determine whether it can seek approval of its exon 51 skipping product candidatedrisaparsen. Several companies have recently entered into collaborations or other agreements for the development of product candidates, including messengerRNA, gene or small molecule therapies that are potential competitors for therapies being developed in the muscular dystrophy, neuromuscular and rare diseasespace, including Biogen Idec, Inc., Isis Pharmaceuticals, Inc., Alexion Pharmaceuticals, Inc., PTC, Sanofi, Alnylam Pharmaceuticals, Inc., or Alnylam,Moderna Therapeutics, Inc., Summit plc and Oxford University.The Prosensa / GSK program commenced treatment in December 2010 in a Phase III clinical study in ambulant individuals with DMD who have adystrophin gene mutation amenable to treatment by skipping -28-Table of Contentsexon 51. Prosensa’s candidate for skipping exon 51, GSK2402968, utilizes a different chemistry, 2’O-methyl-phosphorothioate, which has the potential fordifferent performance, safety and tolerability characteristics than eteplirsen. This randomized, placebo-controlled study was fully enrolled, with approximately180 participants who were being dosed for 48 weeks. The primary efficacy endpoint for Prosensa’s study was a measure of muscle function using the 6-MWT. In September 2013, GlaxoSmithKline plc and Prosensa announced that the Phase III clinical study of drisaparsen did not meet the primary endpoint ofa statistical significant improvement in the 6 MWT compared to placebo. In September 2010, the Prosensa / GSK program commenced a Phase II double-blind, placebo-controlled study. This study is designed to assess the efficacy of two different dosing regimens of GSK2402968 administered over 24 weeks inDMD patients, and then to continue observing the patients over a second 24-week interval for a total study time frame of 48 weeks. This study completedenrollment with 54 DMD patients in October 2011 and has since concluded. Another study using GSK2402968 in non-ambulatory DMD patients has beeninitiated using a 6 mg/kg dose and is anticipated to enroll 20 patients. Like Prosensa, other companies continue to pursue approval of products for thetreatment of DMD and their products may or may not prove to be safer and/or more efficacious than, or obtain marketing approval before, eteplirsen.Hemorrhagic Fever Virus Programs. No specific treatment has been proven effective, and no approved vaccine currently exists for either Ebola orMarburg. Investigational compounds cannot be tested for efficacy on humans except in outbreak environments so these agents must be tested extensively inanimals and meet strict government regulations. Vaccine development is in the early stages in both the biotechnology industry and by U.S. governmentagencies (e.g., the National Institute of Allergy and Infectious Diseases and the DoD). The government is also supporting early stage research on therapeuticsagainst hemorrhagic fever viruses, including broad-spectrum therapeutics. With respect to therapeutics in advanced development, on January 2014, TekmiraPharmaceuticals Corp. announced it has dosed the first subject in aPhase I human clinical trial for TKM-Ebola, a systemically delivered RNAi therapeutic forthe treatment of Ebola virus infection under a contract with the DoD. We commenced initial human safety studies of our therapeutic candidates againstMarburg and Ebola viruses in May 2011, however, the DoD terminated further funding of our Ebola program in October 2012 and further development of ourMarburg therapeutic candidate will depend on receiving additional funding from the DoD.Influenza Program. Currently, there are two therapeutic products for influenza that have received market approval from the FDA and are recommendedfor use in the United States. These are: (1) oseltamivir (Tamiflu), a Roche Holding and Gilead product; and (2) zanamivir (Relenza), a GSK product. Inaddition to these products, Biota Pharmaceuticals and Daiichi Sankyo’s laninamivir and BioCryst’s peramivir were launched in 2010 in Japan. Currently,funding from the DHHS Biomedical Advanced Research and Development Authority is helping support clinical trials of Biota and Daiichi Sankyo’slaninamivir, BioCryst’s peramivir, Ansun Biopharma’s Fludase, and Romark Laboratories’ nitazoxanide. In addition, other companies have influenzatherapeutic compounds against viral and host targets in various stages of development, including Toyama Chemical’s favipiravir which is in a Phase IIclinical trial in the United States, under a DoD contract with MediVector, Inc., and has completed a Phase III trial in Japan. DHHS is currently seekingadditional antiviral therapeutics for the treatment of influenza infections.In addition to therapeutic products, other companies are focusing development efforts on universal influenza vaccines, including BiondVaxPharmaceuticals Ltd. and Immune Targeting Systems which are in Phase II and Dynavax in Phase I. Successful development of a universal influenza vaccinecould lead to a reduction in the number of influenza cases and, therefore, the market size.Platform Technology. We believe that other biotechnology and pharmaceutical companies share a focus on RNA-based drug discovery anddevelopment. Competitors with respect to our RNA-based technologies include, but are not limited to, Alnylam, Tekmira Pharmaceuticals Corp., Isis,Prosensa, Sanofi Aventis, and Santaris Pharma A/S. We are unaware of any other commercial organization that is developing therapeutics based on a PMOchemistry platform. -29-Table of ContentsResearch and DevelopmentSince our inception, we have focused on the discovery and development of unique RNA-based therapeutics for the treatment of rare and infectiousdiseases. We are primarily focused on rapidly advancing the development of our potentially disease-modifying DMD drug candidates, including our leadproduct candidate, eteplirsen. We are also focused on developing therapeutics for the treatment of infectious diseases, including our lead infectious diseaseprogram aimed at the development of a drug candidate for the Marburg hemorrhagic fever virus. By building our infectious disease programs, which areprimarily funded and supported by the DoD, and leveraging our highly-differentiated, proprietary technology platforms including our next-generation PMOchemistries (PMO-X™, PMO-plus, and PPMO) which we have designed to enhance delivery, target selectivity and drug potency, we are seeking to furtherdevelop our research and development competencies and identify additional product candidates.During 2012, we completed a U.S.-based Phase IIb clinical trial for eteplirsen that was initiated in August 2011. Following completion of this study inearly 2012, we initiated an open label extension study with the same participants from the original Phase IIb placebo-controlled trial. We are working with theFDA to initiate a pivotal clinical study and determine the feasibility of expedited regulatory programs for eteplirsen. The lengthy process of securing FDAapprovals for new drugs requires the expenditure of substantial resources. Accordingly, we cannot currently estimate, with any degree of certainty, the amountof time or money that we will be required to expend in the future on our product candidates prior to their regulatory approval, if such approval is ever granted.Research and development expenses represent a substantial percentage of our total operating expenses, which primarily consist of costs associated withresearch activities as well as costs associated with our product development efforts, conducting preclinical studies, and clinical trial and manufacturing costs.The Company does not maintain or evaluate, and therefore does not allocate, internal research and development costs on a project-by-project basis. As a result,a significant portion of our research and development expenses are not tracked on a project-by-project basis, as the costs may benefit multiple projects.The following table summarizes the primary components of our research and development external expenditures for our principal research anddevelopment programs, and our internal research and development expenditures in the aggregate for each of the years ended December 31, 2013, 2012 and2011. Prior to January 1, 2011, the Company did not track research and development expenditures on a project level, as such, the inception-to-date expensesrepresent the period from January 1, 2011 to December 31, 2013. Year Ended December 31, January 1, 2011 toDecember 31,2013 2013 2012 2011 Research and Development Expense (in thousands) Development programs DMD $43,511 $12,181 $10,420 $66,112 Infectious Diseases 5,701 22,956 28,016 56,673 Internal research and development costs 23,697 17,265 28,426 Total research and development expense $72,909 $52,402 $66,862 EmployeesAs of December 31, 2013, we had 146 employees, 54 of which hold advanced degrees. Of these employees, 98 are engaged directly in research anddevelopment activities and 48 are in administration. None of our employees are covered by collective bargaining agreements and we consider relations with ouremployees to be good. -30-®Table of ContentsItem 1A. Risk Factors.Factors That Could Affect Future ResultsSet forth below and elsewhere in this Annual Report on Form 10-K and in other documents we file with the SEC are descriptions of risks anduncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in thisAnnual Report on Form 10-K. Please review our legend titled “Forward-Looking Information” at the beginning of this Annual Report on Form 10-Kwhich is incorporated herein by reference. Because of the following factors, as well as other variables affecting our operating results, past financialperformance should not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate results ortrends in future periods. The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipateor that we currently deem immaterial also affect our results of operations and financial condition.Risks Relating to Our BusinessOur product candidates are at an early stage of development, and it is possible that none of our product candidates will ever become commercialproducts.Our product candidates are in relatively early stages of development. These product candidates will require significant further development, financialresources and personnel to obtain regulatory approval and develop into commercially viable products, if at all. Currently, eteplirsen in DMD, AVI-7288 inMarburg and AVI-7100 in influenza are in active clinical development. AVI -7537 in Ebola is no longer in clinical development as a result of the October 2012notice we received from the DoD, terminating the program for the development of AVI-7537 for the convenience of the government due to funding constraints.The rest of our product candidates are in preclinical development. We expect that much of our effort and many of our expenditures over the next several yearswill be devoted to development activities associated with eteplirsen and other exon-skipping candidates as part of our larger pan-exon strategy in DMD, ourinfectious disease candidates, our proprietary chemistry, and other potential therapeutic areas that provide long-term market opportunities. With currentresources, we may be restricted or delayed in our ability to develop these and other clinical and preclinical product candidates.Our ability to commercialize any of our product candidates, including eteplirsen, depends on first receiving required regulatory approvals. It is possiblethat our product candidates, including eteplirsen, may never receive regulatory approval, including any designations that would expedite the review orapproval process for various reasons, including: any failure to meet the applicable regulatory requirements to obtain regulatory approval for any of our productcandidates including any failure to conduct a pivotal study with an FDA approved design, file an NDA prior to or in the time-frame suggested by the FDA,demonstrate the safety and effectiveness for any of our product candidates, lack of funding, changes in the regulatory landscape, new scientific developments,including the results for clinical trials of competitor drugs, and the FDA’s interpretation and analysis of such developments in connection with our productcandidates, manufacturing or other reasons. If we are unable to obtain regulatory approval for any of our current product candidates, it could delay oreliminate any potential product commercialization and product revenue for our Company.Even if a product candidate receives regulatory approval, the resulting product may not gain market acceptance among physicians, patients, healthcarepayers and the medical community. Assuming that any of our product candidates receives the required regulatory approvals, commercial success will dependon a number of factors, including but not limited to the following: • establishment and demonstration of clinical efficacy and safety and acceptance of the same by the medical community; • cost-effectiveness of the product; • the availability of adequate reimbursement by third parties, including governmental payers such as the Medicare and Medicaid programs,managed care organizations, and private health insurers; -31-Table of Contents • the product’s potential advantage over alternative treatment methods; • whether the product can be produced in commercial quantities and at acceptable costs; • marketing and distribution support for the product; and • any exclusivities applicable to the product. If we are unable to develop and commercialize any of our product candidates, if development is delayedor if sales revenue from any product candidate that receives marketing approval is insufficient, we may never reach sustained profitability.We have been granted orphan drug status for certain of our product candidates, but there can be no guarantee that we will be able to preventthird parties from developing and commercializing products that are competitive to these product candidates.To date we have been granted orphan status under the Orphan Drug Act by the FDA for: two of our product candidates in DMD (including eteplirsen),AVI-6002 and AVI-7537 for the treatment of Ebola virus and AVI-6003 and AVI-7288 for the treatment of Marburg virus. Generally, product candidatesgranted orphan status are provided with seven years of marketing exclusivity by the FDA upon New Drug Application (NDA) approval, meaning the FDAwill generally not approve applications for product candidates that contain the same active ingredient and are labeled for the same orphan indication. Even ifwe are the first to obtain marketing exclusivity through an approval of an orphan product in the United States, there are limited circumstances under which alater product from a competitor may be approved for the same indication during the seven-year period of marketing exclusivity, such as if the later product isshown to be clinically superior to our product or due to an inability to assure a sufficient quantity of the orphan drug.To date we have been granted orphan drug medicinal product designations in the European Union for our lead drug candidate, eteplirsen, and AVI-5038for the treatment of DMD. Product candidates granted orphan status in Europe can be provided with up to 10 years of marketing exclusivity, meaning thatanother application for marketing authorization of a later similar medicinal product for the same therapeutic indication will generally not be approved inEurope. Pediatric product candidates may be eligible for an additional two years of marketing exclusivity. Although we may have drug candidates that have ormay obtain orphan drug exclusivity in Europe, the orphan designation and associated exclusivity period may be modified for several reasons, including thedesignation criteria may have significantly changed since market authorization of the orphan product, (e.g., product profitability exceeds the criteria for orphandrug designation), there are production or supply problems with the orphan drug, or a competitor drug, although similar, is safer, more effective or otherwiseclinically superior than the initial orphan drug.We are not guaranteed to receive or maintain orphan status for our current or future product candidates and if our product candidates that have beengranted orphan status were to lose their status as orphan drugs or the marketing exclusivity provided for them in the United States or the European Union, ourbusiness and results of operations could be materially adversely affected. While orphan drug status for any of our products would provide market exclusivityin the United States and the European Union, for the time periods specified above, we would not be able to exclude other companies from manufacturingand/or selling products using the same active ingredient for the same indication beyond the exclusivity period applicable to our product on the basis of orphandrug designation. Moreover, we cannot guarantee that another company will not receive approval before we do of an orphan drug application in the UnitedStates or the European Union for a product candidate that has the same active ingredient or is a similar medicinal product, respectively, for the sameindication as any of our drug candidates for which we plan to file for orphan status. If that were to happen, our orphan drug applications for our productcandidate for that indication may not be approved until the competing company’s period of exclusivity has expired in the United State or the European Union.Further, application of the orphan drug regulations in the United States and Europe is uncertain and we cannot predict how the respective regulatory bodieswill interpret and apply the regulations to our or our competitors’ product candidates. -32-Table of ContentsIf we are unable to obtain or maintain required regulatory approvals, we will not be able to commercialize our product candidates, our ability togenerate revenue will be materially impaired and our business will not be successful.The research, testing, manufacturing, labeling, approval, commercialization, marketing, selling and distribution of drug products are subject toextensive regulation by state authorities and the FDA in the United States and other regulatory authorities in other countries, with regulations differing fromcountry to country. Marketing of our product candidates in the United States or foreign countries is not permitted until we obtain the required approvals fromthe FDA or other applicable foreign regulatory authorities. Obtaining marketing approval is generally a lengthy, expensive and uncertain process in the UnitedStates and other countries and approval is not assured for any of our product candidates.Further, the FDA and other foreign regulatory agencies have substantial discretion in the approval process, and the determination of when or whetherregulatory approval, of any type, will be granted for any product candidate we develop. In this regard, even if we believe data collected from clinical trials ofour product candidates are promising and our CMC and related manufacturing processes are satisfactory, the FDA or foreign authorities may disagree withour interpretations and determine such data is not sufficient to accept our application or support approval. Furthermore, the FDA or other foreign regulatoryagencies may approve a product candidate for fewer indications than requested or may grant approval subject to the performance of post-approval orconfirmatory studies for a product candidate. Similarly, the FDA or other foreign regulatory agencies may not approve the labeling claims that are necessary ordesirable for the successful commercialization of our product candidates.In addition, changes in (i) regulatory requirements, (ii) FDA interpretations of scientific developments in diseases targeted by us or our competitors ordata and information we submit to the FDA about our product candidates and (iii) FDA guidance and requirements for approval may occur and we may needto amend clinical trial protocols or our approval strategies, including the timing of our expected filings with the FDA, to reflect or address these changes. Thesechanges or amendments may require us to resubmit our clinical trial protocols to institutional review boards (IRBs) or the FDA for review, which may impactthe costs, timing or successful completion of a clinical trial, NDA filing and regulatory approval for a product candidate. A therapeutic commercial productutilizing our RNA-based technologies and the manufacturing techniques necessary to produce them at commercial scale have never been approved or validatedby any regulatory authority and the FDA may require the Company to make or develop changes in its protocols that will take time and resources, sometimesnot estimable, to develop. In addition, the FDA may not approve of the trial designs, protocols and regulatory filings or the timing of the same that we use forour product candidates, including for the pivotal clinical study and NDA filing for eteplirsen, and the FDA may decline to approve our products, includingeteplirsen, on this basis. Changes in the approval process for our product candidates, including those described above, may require additional studies orrequire the Company to address additional issues or requests that were not originally planned, budgeted for or expected by the Company. Other factors mayalso impact our ability to obtain or impact the timing of approval for our product candidates, affect the receptiveness of regulators to our compounds,protocols or otherwise impact the regulatory process for our drug candidates including regulatory or other setbacks faced by third parties developing similarcompounds or developing drug candidates targeting the same, similar or related diseases as those targeted by our drug candidates. For example, in one of ourmost recent meetings with the FDA, based on recent developments in natural history studies and other data from clinical trials for investigational drugsdeveloped by other companies, the FDA indicated it has considerable doubt about the use of dystrophin as a biomarker and questioned the efficacy supportprovided by the 6MWT in our ongoing open label study. Our exon-skipping therapy uses antisense oligonucleotides and, to date, only one antisenseoligonucleotide has been approved by the FDA for systemic use and no product using antisense oligonucleotides for systemic use has been approved for sale inthe European Union. We cannot be certain that our technology will meet applicable safety and efficacy standards or that we will be able to comply with all therequirements, including those relating to trial design or protocols for studies for our product candidates, of regulatory authorities. Due to these factors, amongothers, our current product candidates or any of our other future product -33-Table of Contentscandidates could take a significantly longer time to gain regulatory approval than we expect or may never gain regulatory approval, which could delay oreliminate any potential commercialization or product revenue for any of our product candidates.We continue to work with the FDA in our pursuit to obtain FDA approval of eteplirsen. The Company believes that the new issues and concerns raisedby the FDA in recent meetings with the Company may result in delays in commencing the Company’s pivotal clinical study as well as its filing of an NDAfor eteplirsen. The Company does not currently have enough information at this time to determine the length of such delays, although we are working towardsbeginning an eteplirsen pivotal clinical study and dosing the first patient in the second or third quarter of 2014. Furthermore, there can be no assurance thatany submission or application will be accepted by the FDA (e.g., refusal to file) or that any expedited or regular development, review or approval will begranted on a timely basis, or at all. The FDA or other foreign authorities could also request additional information or meetings with us or require us to conductfurther studies or CMC-related work (e.g., a complete response letter) prior to considering our application or granting approval of any type. A failure to obtainaccelerated approval or any other form of expedited development, review or approval for eteplirsen or any of our other product candidates would result in alonger time period for commercialization of such product candidate, could potentially increase the cost of development of such product candidate, could have amaterial adverse effect on our financial condition and could harm our competitive position in the marketplace.Additionally, even if we receive regulatory approval for our product candidates, we will be subject to ongoing FDA obligations and oversight, includingadverse event reporting requirements, marketing restrictions and, potentially, other post-marketing obligations such as confirmatory studies, all of which mayresult in significant expense and limit our ability to commercialize any such products. The FDA’s policies may also change and additional governmentregulations may be enacted that could further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adversegovernment regulation that may arise from future legislation or administrative action, either in the United States, or abroad. If we are not able to maintainregulatory compliance, we may be subject to civil and criminal penalties, we may not be permitted to market our products and our business could suffer.Any delay in, or failure to, receive or maintain regulatory approval for any of our product candidates could harm our business and prevent us from evergenerating meaningful revenues or achieving profitability. We will also need to obtain regulatory approval from regulatory authorities in foreign countries tomarket our product candidates in those countries. We have not submitted an application for regulatory approval to market our product candidates in anyforeign jurisdiction. Approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions. If we fail to obtainapprovals from foreign jurisdictions, the geographic market for our product candidates would be limited.Our preclinical and clinical trials may fail to demonstrate acceptable levels of safety and efficacy of our product candidates, which could prevent orsignificantly delay their regulatory approval.To obtain the requisite regulatory approvals to market and sell any of our product candidates, we must demonstrate, through extensive preclinical andclinical studies that the product candidate is safe and effective in humans. Ongoing and future preclinical and clinical trials of our product candidates may notshow sufficient safety or efficacy to obtain regulatory approvals.For example, in 2012, we completed Study 201, a U.S.-based Phase IIb 12 person clinical trial for eteplirsen at 30 mg/kg and 50 mg/kg. Followingcompletion of this study, we initiated Study 202, an ongoing open label extension study with the same participants from Study 201. These trials wereinitiated, in part, to further demonstrate efficacy and safety, including the production of dystrophin, and explore and identify a more consistently effectivedose that may be more appropriate for future clinical trials. While Studies 201 and 202 met their primary endpoints at weeks 24 and 48 respectively, andresults reported for weeks 62, 74, 84, 96 and 120 supported stabilization of disease progression, we cannot assure you that data from the ongoing open label -34-Table of Contentsextension study will be sufficient for regulatory approval or will continue to be positive through the remaining study period. If these extension data are notsufficient to demonstrate safety and efficacy to regulators, do not continue to demonstrate safety and efficacy through the remainder of Study 202, or areinsufficient to identify a consistently effective dose, we expect we will need to make progress in our discussions with regulatory authorities about the designand subsequent execution of any further studies that may be required. Regulatory authorities might require more extensive information or preclinical or clinicaltrials than anticipated. Such clinical trials might include additional open label “extension studies” for all participants, who have previously received eteplirsen,as well as other participants (e.g., non-ambulatory participants), additional placebo-controlled “pivotal” or “confirmatory” study or studies, or otheradditional trials before conducting a pivotal clinical study of the product candidate. Any additional requirements for regulatory approval would increase ourcosts and delay submissions, studies and commercialization of eteplirsen. We may not be able to, or it may be difficult for us to conform to regulatoryguidance, including related to clinical trial design and the timing of NDA filings, and even if we conform to any guidance regulatory authorities provide, itdoes not guarantee receipt of marketing approval, even if we believe our preclinical and clinical trials are successful.Furthermore, success in preclinical and early clinical trials does not ensure that the ongoing Study 202 and later larger-scale trials will be successful nordoes it predict final results. Acceptable results in early trials may not be reproduced in the remainder of the Study 202 extension study or later trials. Forexample, a pivotal clinical study for eteplirsen will likely involve a larger number of patients, will be expensive and will take a substantial amount of time tocomplete. As a result, we may conduct lengthy and expensive clinical trials of our product candidates, only to learn that the product candidate is not aneffective treatment or is not superior to existing approved therapies, or has an unacceptable safety profile, which could prevent or significantly delay regulatoryapproval for such product candidate.We currently rely on certain third-party manufacturers and other third parties for production of our product candidates and our dependence onthese manufacturers may impair the advancement of our research and development programs and the development of our product candidates.We do not currently have the internal ability to manufacture our product candidates in the quantities that we need to conduct our clinical trials and werely upon a limited number of manufacturers to supply our product candidates and the components of our drug substances. We also need to rely onmanufacturers for the production of our product candidates to support our research and development programs. In addition, we rely on other third parties toperform additional steps in the manufacturing process, including filling and labeling of vials and storage of our product candidates. For the foreseeable future,we expect to continue to rely on contract manufacturers and other third parties to produce product candidates and their components, fill vials, and storesufficient quantities of our product candidates for research and development programs, clinical trials and potential commercial supply. For each of oureteplirsen, Marburg and other development programs, based on limited capacity for our specialized manufacturing needs we have had to enter into limited or,at times, non-exclusive sole-source agreements with multinational manufacturing firms for the production of the active pharmaceutical ingredients (APIs) foreteplirsen, Marburg and other therapeutics. There are a limited number of companies that can produce APIs in the quantities and with the quality and puritythat we require. Establishing a relationship with alternative suppliers can be a lengthy process and might cause delays in our development efforts. If we arerequired to seek alternative supply arrangements, the resulting delays and potential inability to find a suitable replacement could materially and adverselyimpact our business.Our product candidates require precise, high-quality manufacturing. The failure to achieve and maintain high quality standards, including failure todetect or control anticipated or unanticipated manufacturing errors, could result in patient injury or death or product recalls. Contract drug manufacturersoften encounter difficulties involving production yields, quality control and quality assurance and shortages of qualified personnel. If our contractmanufacturers or other third parties fail to deliver our product candidates for our research and development programs, clinical use or potential commercialsupply on a timely basis, with sufficient quality, and at commercially reasonable prices, and we fail to find replacement manufacturers or to develop our own -35-Table of Contentsmanufacturing capabilities, we may be required to delay or suspend clinical trials, research and development programs, commercial supply or otherwisediscontinue development and production of our product candidates. In addition, we currently depend on certain third-party vendors, which in some cases maybe sole sources, for the supply of raw materials used to produce our product candidates. If the third-party suppliers were to cease production or otherwise failto supply us with sufficient quantities of quality raw materials and we are unable to contract on acceptable terms for these raw materials with alternativesuppliers, if any, our ability to have our product candidates manufactured in sufficient quantities for preclinical testing, clinical trials, and potentialcommercial use would be adversely affected.We do not yet have all of the agreements necessary for the supply of APIs and raw materials for the production of any of our product candidates inquantities sufficient for the potential commercial demand and we may not be able to establish or maintain sufficient commercial manufacturing arrangementson commercially reasonable terms. Securing commercial quantities of our product candidates and their components from contract manufacturers will requireus to commit significant capital and resources. We may also be required to enter into long-term manufacturing agreements that contain exclusivity provisionsand/or substantial termination penalties. In addition, contract manufacturers have a limited number of facilities in which our product candidates can beproduced and any interruption of the development or operation of those facilities due to events such as order delays for equipment or materials, equipmentmalfunction or failure or damage to the facility by natural disasters could result in the cancellation of shipments, loss of product in the manufacturing processor a shortfall in available product candidates or materials.Our contract manufacturers are required to produce our clinical product candidates under current Good Manufacturing Practice (cGMP) conditions inorder to meet acceptable standards for our clinical trials. If such standards change, the ability of contract manufacturers to produce our product candidates onthe schedule we require for our clinical trials may be affected. In addition, contract manufacturers may not perform their agreements with us or maydiscontinue their business before the time required by us to successfully produce and market our product candidates. We and our contract manufacturers aresubject to periodic unannounced inspection by the FDA and corresponding state and foreign authorities to ensure strict compliance with cGMP and otherapplicable government regulations and corresponding foreign standards. We do not have control over a third-party manufacturer’s compliance with theseregulations and standards. Any difficulties or delays in our contractors’ manufacturing and supply of product candidates or any failure of our contractors tomaintain compliance with the applicable regulations and standards could increase our costs, make us postpone or cancel clinical trials, prevent or delayregulatory approval by the FDA and corresponding state and foreign authorities, prevent the import and/or export of our products, cause us to lose revenue, orcause our products to be recalled or withdrawn.We may not be able to successfully scale-up manufacturing of our product candidates in sufficient quality and quantity, which would delay orprevent us from developing our product candidates and commercializing resulting approved drug products, if any.To date, our product candidates have been manufactured in small quantities for preclinical studies and early stage clinical trials. As we prepare for laterstage clinical trials in eteplirsen and potential commercialization, we are working to increase the scale of production of our drug product in 2014. During 2014,we will also continue to evaluate whether and when to increase API production capacity which will depend in significant part on feedback from the FDA andour expectations regarding if and when we would commence a pivotal clinical study for eteplirsen and any subsequent commercialization. In order to conductlarger or late-stage scale clinical trials for a product candidate and supply sufficient quantities of the resulting drug product and its components, if thatproduct candidate is approved for sale, we will need to manufacture it in larger quantities. We may not be able to successfully increase the manufacturingcapacity for any of our product candidates, whether in collaboration with third-party manufacturers or on our own, in a manner that is timely, safe, compliantwith cGMP or other applicable legal or regulatory standards or cost-effective or at all. If a contract manufacturer makes improvements in the manufacturingprocess for our product candidates, we may not own, or may have to share, -36-Table of Contentsthe intellectual property rights to those improvements. Significant scale-up of manufacturing may require additional processes, technologies and validationstudies, which are costly, may not be successful and which the FDA must review and approve. In addition, quality issues may arise during those scale-upactivities because of the inherent properties of a product candidate itself or of a product candidate in combination with other components added during themanufacturing and packaging process, or during shipping and storage of the finished product or active pharmaceutical ingredients. If we are unable tosuccessfully scale-up manufacture of any of our product candidates in sufficient quality and quantity, the development of that product candidate andregulatory approval or commercial launch for any resulting drug products may be delayed or there may be a shortage in supply, which could significantlyharm our business.In addition, in order to release product and demonstrate stability of product candidates for use in late stage clinical trials (and any subsequent drugproducts for commercial use), our analytical methods must be validated in accordance with regulatory guidelines. We may not be able to successfully validateour analytical methods or demonstrate adequate purity, stability or comparability of the product candidates in a timely or cost-effective manner or at all. If weare unable to successfully validate our analytical methods or to demonstrate adequate purity, stability, or comparability, the development of our productcandidates and regulatory approval or commercial launch for any resulting drug products may be delayed, which could significantly harm our business.We rely on U.S. government contracts to support certain research and development programs and for substantially all of our revenue. If the U.S.government fails to fund such programs on a timely basis or at all, or such contracts are terminated, the results of our operations could bematerially and adversely affected.We rely on U.S. government contracts and awards to fund and support certain development programs, including the Marburg program which accountsfor substantially all of our current revenue. The funding of U.S. government programs is subject to Congressional appropriations. Congress generallyappropriates funds on a fiscal year basis even though a program may extend over several fiscal years, as is the case with our DoD contract for the developmentof our Marburg product candidate. Consequently, programs are often only partially funded initially and additional funds are committed only as Congressmakes further appropriations. If appropriations for one of our programs become unavailable, or are reduced or delayed, our contracts may be terminated oradjusted by the U.S. government, which could have a negative impact on our future revenue under such contract or subcontract. From time to time, when aformal appropriation bill has not been signed into law before the end of the U.S. government’s fiscal year, Congress may pass a continuing resolution thatauthorizes agencies of the U.S. government to continue to operate, generally at the same funding levels from the prior year, but does not authorize new spendinginitiatives, during a certain period. During such a period, or until the regular appropriation bills are passed, delays can occur in U.S. government procurementdue to lack of funding and such delays can affect our operations during the period of delay. The DoD operated under such a continuing resolution for the U.S.government’s fiscal year 2013. Additionally, on March 1, 2013, a sequestration went into effect which implements across-the-board cuts to U.S. governmentagencies, totaling $1.2 trillion over 10 years. These cuts are to be split 50-50 between domestic and defense discretionary spending. The DoD had to make $47billion in cuts before September 30, 2013. While Congress struck a two-year budget deal to provide sequester relief in 2014 and 2015, the deal lessens the cutsbut does not cancel the sequestration. These and other potential budget cuts by the U.S. government as well as the effects of U.S. government shutdowns couldhave widespread ramifications including on the DoD’s procurement and research and development programs. Sequestration may result in a reduction of fundsavailable for new procurements, but existing contracts may also be reduced in scope, terminated, or partially terminated. The Department of Health andHuman Services (DHHS)’ Special Reserve Fund, a $5.6 billion advanced appropriation to be used over 10 years to purchase medical countermeasures,expired at the end of the 2013 fiscal year. Going forward, Congress plans to replenish the Special Reserve Fund through the annual appropriations processintroducing uncertainty with respect to availability of funding from year to year. As a result, the viability of the DHHS and its agencies as a partner andpotential customer is uncertain.In addition, U.S. government contracts generally also permit the U.S. government to terminate or renegotiate the contract, in whole or in part, withoutprior notice, at the U.S. government’s convenience or for -37-Table of Contentsdefault based on performance. From time to time, we receive communications from the U.S. government regarding our performance, including requests for usto provide additional information and/or take certain steps to remedy noted deficiencies. While we work closely with our contacts at the U.S. government andbelieve we can adequately address issues raised through such communications, there is no guarantee that we will be able to adequately respond to all requestsor remedy all deficiencies cited. If one of our contracts is terminated for convenience, we would generally be entitled to payments for our allowable costs andwould receive some allowance for profit on the work performed. If one of our contracts is terminated for default, we would generally be entitled to payments forour work that has been completed to that point. A termination arising out of our default could expose us to liability and have a negative impact on our ability toobtain future contracts. Furthermore, if we fail to satisfy certain performance or deliverable requirements or to adhere to development timelines, revenuesassociated with the satisfaction of such requirements or timelines may be delayed or may not be realized.The termination of one or more of these U.S. government contracts, whether due to lack of funding, for convenience, for our failure to perform, orotherwise, or the occurrence of delays or product failures in connection with one or more of these contracts, could negatively impact our financial condition.For example, on October 2, 2012, we received notice from the DoD that the program for the development of our Ebola product candidate was terminated for theconvenience of the U.S. government due to funding constraints. We had previously received a stop-work order for the Ebola program which was in effect fromAugust 2, 2012 through the termination on October 2, 2012. If the U.S. government terminates or reduces the Marburg development program or contract, ourbusiness could be materially and adversely affected. Furthermore, we can give no assurance that we would be able to procure new U.S. government contractsto offset the revenue lost as a result of termination of any of our existing contracts. Even if our Marburg contract is not terminated and is completed, there is noassurance that we will receive future U.S. government contracts.Even if we successfully complete development of our Marburg and influenza product candidates, the major, if not only, potential purchaser is the U.S.government. The lack of a commercial market makes us reliant upon the U.S. government to determine and communicate the market for biodefensecountermeasures and U.S. government purchasing is subject to evolving threat assessments and shifting political priorities, which exacerbate marketuncertainties. Within the DoD, the war fighter has evolving requirements including but not limited to those related to route of exposure, time to treat, andmanufacturing demands. The FDA’s requirements under the Animal Rule are also evolving which may result in additional studies being needed to characterizeappropriate animal models. It is unclear whether funding will continue to be available to address evolving DoD and FDA requirements, and until future studiesare completed, it is unclear whether our product candidates will successfully meet these requirements. If they do not, the DoD may choose to terminate thecontract. Additionally, manufacturing demands may be such as to require enhancements to our manufacturing infrastructure, which DoD may not be able tofund through our existing research and development contract. With respect to the civilian sector, Marburg and influenza viruses are among the top publichealth threats, yet the broader demand for our product candidates remains uncertain.This expected dependence on U.S. government purchases presents additional challenges, since the U.S. government is incentivized to negotiate prices forcountermeasures to just above their marginal cost of production, which would severely limit our profit potential. If companies resist low prices, the U.S.government can, in extreme cases, threaten compulsory licensing or purchase patent-breaching generics. -38-Table of ContentsOur U.S. government contracts may be terminated and we may be liable for penalties under a variety of procurement rules and regulations andchanges in government regulations or practices could adversely affect our profitability, cash balances or growth prospects.We must comply with laws and regulations relating to the formation, administration and performance of U.S. government contracts, which affect howwe do business with our customers. Such laws and regulations may potentially impose added costs on our business and our failure to comply with them maylead to penalties and the termination of our U.S. government contracts. Some significant regulations that affect us include: • the Federal Acquisition Regulation and supplements, which regulate the formation, administration and performance of U.S. government contracts; • the Truth in Negotiations Act, which requires certification and disclosure of cost and pricing data in connection with contract negotiations; and • the Cost Accounting Standards, which impose accounting requirements that govern our right to reimbursement under certain cost-basedgovernment contracts.Our contracts with the DoD are subject to periodic review and investigation. If such a review or investigation identifies improper or illegal activities, wemay be subject to civil or criminal penalties or administrative sanctions, including the termination of contracts, forfeiture of profits, the triggering of pricereduction clauses, suspension of payments, fines and suspension or debarment from doing business with U.S. government agencies. We could also sufferharm to our reputation if allegations of impropriety were made against us, which would impair our ability to win awards of contracts in the future or receiverenewals of existing contracts.In addition, U.S. government agencies routinely audit and review their contractors’ performance on contracts, cost structure, pricing practices andcompliance with applicable laws, regulations and standards. They also review the adequacy of, and a contractor’s compliance with, its internal controlsystems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Such audits mayresult in adjustments to our contract costs, and any costs found to be improperly allocated will not be reimbursed. We have recorded contract revenues for theperiods presented in this report based upon costs we expect to realize upon final audit; however, we do not know the outcome of any future audits andadjustments and, if future audit adjustments exceed our estimates, our results of operations could be adversely affected. Additionally, we may be required toenter into agreements and subcontracts with third parties, including suppliers, consultants and other third party contractors in order to satisfy our contractualobligations pursuant to our agreements with the DoD. Any such agreement also has to be compliant with the terms of our government grants. Negotiating andentering into such arrangements can be time-consuming and we may not be able to reach agreement with such third parties. Any delay or inability to enter intosuch arrangements or entering into such arrangements in a manner that is non-compliant with the terms of our grants, may result in violations of our contractswith the DoD.Clinical trials for our product candidates are expensive and time consuming, may take longer than we expect or may not be completed at all, andtheir outcomes are uncertain.We have completed a Phase Ib/II clinical trial for eteplirsen in the UK and announced results in October 2010, which were published in The Lancet inJuly 2011. We have also completed a U.S.-based Phase IIb placebo-controlled trial in eteplirsen and announced results in April 2012. Following completion ofthis study, we initiated an open label extension study with the same participants from the original Phase IIb placebo-controlled trial and announced 48-weekresults on October 3, 2012, 62-week results on December 7, 2012, 74-week results on April 5, 2013, 84-week results on June 19, 2013, 96-week results onSeptember 26, 2013 and 120-week results on January 15, 2014. We expect to commence additional trials of eteplirsen and other product candidates in thefuture based on feedback from the FDA. Each of our clinical trials requires the investment of substantial planning, expense and time, and the timing of thecommencement, continuation and completion of -39-Table of Contentsthese clinical trials may be subject to significant delays relating to various causes including new positions, issues and requests made by the FDA based onscientific developments and data from other drugs being developed by other companies for the treatment of diseases similar to or related to those targeted by ourproduct candidates. Participant enrollment is a function of many factors, including the size of the relevant population, the proximity of participants to clinicalsites, the eligibility criteria for the trial, the existence of competing clinical trials and the availability of alternative or new treatments.We depend on medical institutions and clinical research organizations (CROs), to conduct our clinical trials in compliance with Good Clinical Practice(GCP) and to the extent they fail to enroll participants for our clinical trials, fail to conduct the study to GCP standards or are delayed for a significant time inthe execution of our trials, including achieving full enrollment, we may be affected by increased costs, program delays or both, which may harm ourbusiness. In addition, we have in the past conducted clinical trials in foreign countries and may do so again in the future, which may subject us to furtherdelays and expenses as a result of increased drug shipment costs, additional regulatory requirements and the engagement of foreign CROs, as well as expose usto risks associated with less experienced clinical investigators who are unknown to the FDA, and different standards of medical care. Foreign currencytransactions insofar as changes in the relative value of the U.S. dollar to the foreign currency where the trial is being conducted may impact our actual costs. Inaddition, for some programs, such as DMD and Marburg infection, there are currently no approved drugs to compare against and an agreement about how tomeasure efficacy has yet to be reached with the FDA and then demonstrated.Clinical trials must be conducted in accordance with FDA or other applicable foreign government guidelines and are subject to oversight by the FDA,other foreign governmental agencies and IRBs at the medical institutions where the clinical trials are conducted. The FDA or other foreign governmentalagencies or we ourselves could delay, suspend or halt our clinical trials of a product candidate for numerous reasons, including: • Scientific developments and data available for investigational drugs being developed by third parties for the treatment of the same, similar orrelated diseases to those targeted by our product candidates; • deficiencies in the trial design; • deficiencies in the conduct of the clinical trial including failure to conduct the clinical trial in accordance with regulatory requirements or clinicalprotocols; • deficiencies in the clinical trial operations or trial sites resulting in the imposition of a clinical hold; • the product candidate may have unforeseen adverse side effects, including fatalities, or a determination may be made that a clinical trial presentsunacceptable health risks; • the methods and time required to determine whether the product candidate is effective may take longer than expected; • fatalities or other adverse events arising during a clinical trial that may not be related to clinical trial treatments; • the product candidate may appear to be no more effective than current therapies; • the quality or stability of the product candidate may fail to conform to acceptable standards; • our inability to produce or obtain sufficient quantities of the product candidate to complete the trials; • our inability to reach agreement on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensivenegotiation and may vary significantly among different CROs and trial sites; • our inability to obtain IRB approval to conduct a clinical trial at a prospective site; • our inability to obtain regulatory approval to conduct a clinical trial; • lack of adequate funding to continue the clinical trial, including the occurrence of unforeseen costs due to enrollment delays, requirements toconduct additional trials and studies and increased expenses associated with the services of our CROs and other third parties; -40-Table of Contents • our inability to recruit and enroll individuals to participate in clinical trials for reasons including lack of patients or competition from otherclinical trial programs for the same or similar indications; or • our inability to retain participants who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack ofefficacy or personal issues, or who are lost to further follow-up.In addition, we may experience significant setbacks in advanced clinical trials, even after promising results in earlier trials, such as unexpected adverseevents that occur when our product candidates are combined with other therapies and drugs or given to larger populations, which often occur in later-stageclinical trials. In addition, clinical results are frequently susceptible to varying interpretations by regulatory authorities that may delay, limit or preventregulatory approvals. Also, patient advocacy groups and parents of trial participants may demand additional clinical trials or continued access to therapieseven if our interpretation of clinical results received thus far leads us to determine that additional clinical trials or continued access are unwarranted. Anydisagreement with patient advocacy groups or parents of trial participants may require management’s time and attention and may result in legal proceedingsbeing instituted against us, which could be expensive, time-consuming and distracting, and may result in a delay of the program. Negative interpretation ofour data by us or regulatory authorities or inconclusive results or adverse medical events, including participant fatalities that may be attributable to ourproduct candidates during a clinical trial may necessitate that it be redesigned, repeated or terminated. Further, some of our clinical trials may be overseen byan independent data and safety monitoring board (DSMB) and a DSMB may determine to delay or suspend one or more of these trials due to safety or futilityfindings based on events occurring during a clinical trial. Any such delay, suspension, termination or request to repeat or redesign a trial could increase ourcosts and prevent or significantly delay our ability to commercialize our product candidates.The Animal Rule is a seldom-used approach to seeking approval of a new drug and our infectious disease program may not meet therequirements for this path to regulatory approval.Clinical trials cannot be used to assess the efficacy of most biodefense countermeasures against rare and lethal pathogens due to ethical considerationsand the relative infrequency of naturally occurring cases. In the United States, we plan to develop the therapeutic product candidate to treat Marburg virususing the Animal Rule regulatory mechanism. Pursuant to the Animal Rule, the sponsor of a drug product must demonstrate efficacy in animal models andsafety in humans. There is no guarantee that the FDA will agree to this approach to the development of our infectious disease product candidate, consideringthat no validated animal model has been established as predicting human outcomes in the prevention or treatment of any filovirus disease. Animal modelsrepresent, at best, a rough approximation of efficacy in humans, and, as such, countermeasures developed using animal models will be untested until theiruse in humans during an emergency. We have yet to demonstrate the predictive value of our animal studies to the FDA’s satisfaction. If we fail to do so, we willhave to demonstrate efficacy of AVI-7288 through adequate well-controlled trials in humans in order to obtain regulatory approval of this product in the UnitedStates, which, if possible given that known Marburg outbreaks have only occurred sporadically in Africa, will greatly add to the time and expense required tocommercialize this product. Furthermore, the Animal Rule mechanism has been used only rarely and questions remain regarding the FDA’s interpretation andimplementation. Of the few times this mechanism has been used as the basis of approval, most of the products approved built upon existing indications withhuman data to support efficacy previously approved products which had considerable prior human experience. We do not have any experience successfullynavigating this approach to drug approval. Even if the Animal Rule represents a viable approach to seeking approval of AVI-7288, it may present challengesfor gaining final regulatory approval for this product candidate, including an extended timeline to approval and less predictable study requirements. Inaddition, the FDA would require post-marketing human efficacy studies if the countermeasure is used in humans, which would most likely be in theaftermath of a bioterrorist attack. The ability to reliably perform efficacy clinical trials in the midst of a national crisis is uncertain.The timing and conduct of animal studies may be further constrained given that filoviruses are classified for use only in BSL-4 laboratories. There arelimited laboratories and staff world-wide that can work with these live -41-Table of Contentsviruses and companies will be competing for the limited availability of this critical infrastructure to test their countermeasures. Furthermore, we anticipatelimits in conforming to good laboratory practice (GLP) requirements given the requirement for BSL-4 containment.We have incurred operating losses since our inception and we may not achieve or sustain profitability.We had an operating loss of $90.3 million for the year ended December 31, 2013 and incurred an operating loss of $29.7 million for the year endedDecember 31, 2012. As of December 31, 2013, our accumulated deficit was $543.2 million and substantially all of our revenues to date have been derivedfrom research and development contracts with the DoD. We have not yet generated any material revenue from product sales and have incurred expenses relatedto research and development of our technology and product candidates, from general and administrative expenses that we have incurred while building ourbusiness infrastructure and acquired in-process research and development resulting from two acquisitions. We anticipate that our expenses will increasesubstantially if and as we: • continue our research, preclinical and clinical development of our product candidates; • acquire or in-license other product candidates; • initiate additional clinical trials for our product candidates; • seek marketing approvals for our product candidates that successfully complete clinical trials; • ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketingapproval; • maintain, expand and protect our intellectual property portfolio; • increase manufacturing capabilities; • hire additional clinical, quality control and scientific personnel; and • add operational, financial and management information systems and personnel, including personnel to support our product development andplanned future commercialization efforts.Our ability to achieve and maintain profitability depends on our ability to raise additional capital, partner one or more programs, complete developmentof our product candidates, obtain regulatory approvals and market our approved products, if any. It is uncertain when, if ever, we will become profitable andif we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remainprofitable would decrease the value of the company and could impair our ability to raise capital, maintain our research and development efforts, expand ourbusiness or continue our operations.We will likely need additional funds to conduct our planned research, development and manufacturing efforts. If we fail to attract significantcapital or fail to enter into strategic relationships, we may be unable to continue to develop our product candidates.We will likely require additional capital from time to time in the future in order to continue the development of product candidates in our pipeline and toexpand our product portfolio. The actual amount of funds that we may need will be determined by many factors, some of which are beyond our control. Thesefactors include the success of our research and development efforts, the status of our preclinical and clinical testing, costs and timing relating to securingregulatory approvals and obtaining new patent rights, regulatory changes, competitive and technological developments in the market and futurecommercialization expenses related to any product sales, marketing, manufacturing and distribution. An unforeseen change in these factors, or others, mightincrease our need for additional capital.We would expect to seek additional financing from the sale and issuance of equity or equity-linked or debt securities, and we cannot predict thatfinancing will be available when and as we need financing or that, if -42-Table of Contentsavailable, the financing terms will be commercially reasonable. If we are unable to obtain additional financing when and if we require it or on commerciallyreasonable terms, it would have a material adverse effect on our business and results of operations.If we are able to consummate such financings, the trading price of our common stock could be adversely affected and/or the terms of such financingsmay adversely affect the interests of our existing stockholders. To the extent we issue additional equity securities or convertible securities, our existingstockholders could experience substantial dilution in their economic and voting rights. For example, through December 31, 2013, we sold an aggregate ofapproximately 3.4 million shares of our common stock in connection with our July 2013 at-the-market equity offering program. 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 capitalexpenditures or declaring dividends.Further, we may also enter into relationships with pharmaceutical or biotechnology companies to perform research and development with respect to ourtechnologies, research programs or to conduct clinical trials and to market our product candidates. Other than pre-clinical collaborations withacademic/research institutions and government entities for the development of additional exon-skipping product candidates for the treatment of DMD and aproduct candidate for the treatment of influenza, we currently do not have a strategic relationship with a third party to perform research or development usingour technologies or assist us in funding the continued development and commercialization of any of our programs or product candidates other than that withthe U.S. government. Such relationships may require us to relinquish valuable rights to our technologies, future revenue streams, research programs orproduct candidates or to grant licenses on terms that may not be favorable to us.We rely on third parties to provide services in connection with our preclinical and clinical development programs. The inadequate performance byor loss of any of these service providers could affect our product candidate development.Several third parties provide services in connection with our preclinical and clinical development programs, including in vitro and in vivo studies,assay and reagent development, immunohistochemistry, toxicology, pharmacokinetics, clinical assessments, data monitoring and management and statisticalanalysis and other outsourced activities. If these service providers do not adequately perform the services for which we have contracted or cease to continueoperations and we are not able to quickly find a replacement provider or we lose information or items associated with our product candidates, our developmentprograms may be delayed.Our RNA-based, or antisense, technology has not been incorporated into a therapeutic commercial product and is still at a relatively early stage ofdevelopment.Our RNA-based platforms, utilizing proprietary PMO-based technology, have not been incorporated into a therapeutic commercial product and are stillat a relatively early stage of development. This technology is used in all of our product candidates, including eteplirsen. We are conducting toxicology,pharmacology, pharmacokinetics and other preclinical studies and, although we have conducted Phase I clinical trials for AVI-6003 (we are now pursuingdevelopment of AVI-7288, one of the two component oligomers in AVI-6003) and AVI-7100 and conducted a Phase IIb clinical trial in eteplirsen, additionalpreclinical studies may be required for these product candidates and before other product candidates enter human clinical trials. In addition, preclinical modelsto study participant toxicity and activity of compounds are not necessarily predictive of toxicity or efficacy of these compounds in the treatment of humandisease and there may be substantially different results in clinical trials from the results obtained in preclinical studies. Any failures or setbacks in utilizingour PMO-based technology, including adverse effects resulting from the use of this technology in humans, could have a detrimental impact on our productcandidate pipeline and our ability to maintain and/or enter into new corporate collaborations regarding these technologies, which would negatively affect ourbusiness and financial position. -43-Table of ContentsIf we fail to retain our key personnel or are unable to attract and retain additional qualified personnel, our future growth, ability to perform ourU.S. government contracts and our ability to compete would suffer.We are highly dependent on the efforts and abilities of the principal members of our senior management. Additionally, we have scientific personnel withsignificant and unique expertise in RNA-based therapeutics and related technologies and personnel with experience overseeing compliance with and execution ofthe terms of our U.S. government contracts. The loss of the services of any one of the principal members of our managerial, scientific or government contractcompliance staff may prevent us from achieving our business objectives.The competition for qualified personnel in the biotechnology field and for qualified personnel with government contracting experience is intense, and ourfuture success depends upon our ability to attract, retain and motivate such personnel. In order to develop and commercialize our products successfully, wewill be required to retain key managerial, scientific and government contract compliance staff. In certain instances, we may also need to expand or replace ourworkforce and our management ranks. We face intense competition for qualified individuals from numerous pharmaceutical and biotechnology companies, aswell as academic and other research institutions. If we are unable to attract, assimilate or retain such key personnel, our ability to advance our proprietaryprograms and perform our U.S. government contracts would be adversely affected. Any failure to perform under our U.S. government contracts could resultin a termination of the agreement, which would harm our business.If we are unable to manage our growth effectively, execute our business strategy and effectively implement compliance controls and systems, thetrading price of our common stock could decline. Although we did not have a material error in our financial statements, we have identified amaterial weakness in our internal control over financial reporting as of December 31, 2013. Any ongoing failure to establish and maintaineffective internal control over financial reporting could adversely affect investor confidence in our reported financial information.We are a development stage company and anticipate continued growth in our business operations due, in part, to advancing our product candidates.This future growth could create a strain on our organizational, administrative and operational infrastructure. Our ability to manage our growth properly andmaintain compliance with all applicable rules and regulations will require us to continue to improve our operational, legal, financial and management controls,as well as our reporting systems and procedures. We may not be able to build the management and human resources and infrastructure necessary to supportthe growth of our business. The time and resources required to implement systems and infrastructure that may be needed to support our growth is uncertain,and failure to complete this in a timely and efficient manner could adversely affect our operations.For example, although there was no material error in our financial statements, in connection with our assessment of the effectiveness of internal controlover financial reporting as of December 31, 2013, our management identified a material weakness in our internal control over financial reporting. A detaileddescription of this material weakness is provided in “Item 9A, Controls and Procedures.” We have adopted new procedures for the review of material contractsby our accounting staff to address this material weakness, however, we cannot assure you that material weaknesses in our internal control over financialreporting will not be identified in the future. Any failure to maintain or implement new or improved internal controls, or any difficulties that we may encounterin their maintenance or implementation, could result in additional material weaknesses or material misstatements in our financial statements and cause us tofail to meet our reporting obligations or prevent fraud, which could cause the trading price of our common stock to decline.We may not be able to build the human resources and infrastructure necessary to support the growth of our business or to appropriately implement ourcompliance controls and procedures. The time and resources required to build up our human resources and implement systems and infrastructure that may beneeded to support our growth and compliance with applicable rules and regulations is uncertain, and failure to complete these in a timely and efficient mannercould adversely affect our operations. -44-Table of ContentsWe may engage in future acquisitions or collaborations with other entities that increase our capital requirements, dilute our stockholders, causeus to incur debt or assume contingent liabilities and subject us to other risks.We actively evaluate various strategic transactions on an ongoing basis, including licensing or acquiring complementary products, technologies orbusinesses. Potential acquisitions or collaborations with other entities may entail numerous risks, including increased operating expenses and cashrequirements, assimilation of operations and products, retention of key employees, diversion of our management’s attention and uncertainties in our ability tomaintain key business relationships of the acquired entities. In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debtobligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense.Our success, competitive position, and future revenues, if any, depend in part on our ability and the abilities of our licensors to obtain andmaintain patent protection for our product candidates, to preserve our trade secrets, to prevent third parties from infringing on our proprietaryrights, and to operate without infringing on the proprietary rights of third parties.We currently hold various issued patents and exclusive rights to issued patents and own and have licenses to various patent applications, in each case inthe United States as well as rights under European patents and patent applications. We anticipate filing additional patent applications both in the United Statesand in other countries. The patent process, however, is subject to numerous risks and uncertainties, and we can provide no assurance that we will besuccessful in obtaining and defending patents or in avoiding infringement of the rights of others. The risks we face on the intellectual property front includethe following: • our patent rights might be challenged, invalidated, or circumvented, or otherwise might not provide any competitive advantage; • as a matter of public policy, there might be significant pressure on governmental bodies to limit the scope of patent protection or imposecompulsory licenses for disease treatments that prove successful; and • jurisdictions other than the U.S. might have less restrictive patent laws than the U.S., giving foreign competitors the ability to exploit these laws tocreate, develop, and market competing products.In addition, the United States Patent and Trademark Office (the “USPTO”) and patent offices in other jurisdictions have often required that patentapplications concerning pharmaceutical and/or biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovationsexemplified in the patent application, thereby limiting the scope of protection against competitive challenges. Accordingly, even if we or our licensors are able toobtain patents, the patents might be substantially narrower than anticipated.On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a numberof significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation.The USPTO has issued regulations and procedures to govern administration of the Leahy-Smith Act, but many of the substantive changes to patent lawassociated with the Leahy-Smith Act have only recently become effective. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on theoperation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of ourpatent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financialcondition.Additionally, the U.S. Supreme Court has issued decisions, the full impact of which are not yet known. For example, on March 20, 2012 in MayoCollaborative Services, DBA Mayo Medical Laboratories, et al. v. Prometheus Laboratories, Inc., the Court held that several claims drawn to measuringdrug metabolite levels from patient samples and correlating them to drug doses were not patentable subject matter. The decision appears -45-Table of Contentsto impact diagnostics patents that merely apply a law of nature via a series of routine steps and it has created uncertainty around the ability to patent certainbiomarker-related method claims. Additionally, on June 13, 2013 in Association for Molecular Pathology v. Myriad Genetics, Inc., the Court held thatclaims to isolated genomic DNA are not patentable, but claims to complementary DNA molecules were held to be valid. The effect of the decision on patentsfor other isolated natural products is uncertain and as with the Leahy-Smith Act, these decisions could increase the uncertainties and costs surrounding theprosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our businessand financial condition.Our business prospects will be impaired if third parties successfully assert that our product candidates or technologies infringe proprietary rightsof such third parties.Our competitors may make significant investments in competing technologies, might have or obtain patents that limit, interfere with, or eliminate ourability to make, use, and sell our product candidates in important commercial markets.If our product candidates or technologies infringe enforceable, proprietary rights of others, we could incur substantial costs and may have to: • obtain rights or licenses from others, which might not be available on commercially reasonable terms or at all; • abandon development of an infringing product candidate; • redesign product candidates or processes to avoid infringement; • pay damages; and/or • defend litigation or administrative proceedings which might be costly whether we win or lose, and which could result in a substantial diversion offinancial and management resources.Any of these events could substantially harm our potential earnings, financial condition, and operations. Prosensa Holding B.V. (Prosensa), which isdeveloping competitive pipeline products, has rights to patent claims that, absent a license, may preclude us from commercializing eteplirsen in severaljurisdictions. Prosensa has rights to European Patent No. EP 1619249, for example. We opposed this patent in the Opposition Division of the European PatentOffice, and the Opposition Division maintained certain claims of this patent relating to the treatment of DMD by skipping dystrophin exons 51 and 46,which may provide a basis to maintain that commercialization of eteplirsen in the European Union would infringe on such patent. Both we and Prosensa haveappealed the Opposition Division decision, submitted briefs in support of our respective positions and have also submitted responses to each other’s briefs.The Opposition Division decision if maintained at the appeals level could have a substantial effect on our businesses and leaves open the possibility thatProsensa or other parties that have rights to such patent could assert that our drug eteplirsen infringes on such patent. The timing and outcome of appealcannot be predicted or determined as of the date of this report. We are also aware of existing patent claims Prosensa is pursuing in the United States, and othersthat it is pursuing, in other jurisdictions, including Japan, that may provide the basis for Prosensa or other parties to assert that commercialization ofeteplirsen would infringe on such claims.The DMD patent landscape is continually evolving and multiple parties, both commercial entities and academic institutions, may have rights to claimsor may be pursuing additional claims that could provide these parties a basis to assert that our product candidates infringe on the intellectual property rights ofthose parties. Similarly, we may be able to assert that certain activities engaged in by these parties infringe on our current or future patent rights. There hasbeen, and we believe that there will continue to be, significant litigation in the biopharmaceutical and pharmaceutical industries regarding patent and otherintellectual property rights. We also cannot be certain that other third parties will not assert patent infringement in the future with respect to any of ourdevelopment program. -46-Table of ContentsWe face intense competition and rapid technological change, which may result in others discovering, developing or commercializing competitiveproducts.The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. We are aware ofmany pharmaceutical and biotechnology companies that are actively engaged in research and development in areas related to antisense technology and otherRNA technologies or that are developing alternative approaches to or therapeutics for the disease indications on which we are focused. Some of thesecompetitors are developing or testing product candidates that now, or may in the future, compete directly with our product candidates. For example, we believethat companies including Alnylam Pharmaceuticals, Isis Pharmaceuticals and Santaris Pharma A/S (Santaris) share a focus on RNA-based drug discoveryand development. Competitors with respect to our exon-skipping DMD program, or eteplirsen, include Prosensa and other companies such as PTCTherapeutics and Summit plc have also been working on DMD programs.Although Prosensa/ GSK recently announced that the primary endpoint for their lead DMD drug candidate was not met, we may still face competitiverisks arising from the Prosensa exon skipping platform and product candidate pipeline, which may include limitations on our ability to gain market share inthe DMD space or other diseases targeted by our exon skipping platform and product candidate pipeline.Other potential competitors include large, fully integrated pharmaceutical companies and more established biotechnology companies that havesignificantly greater resources and expertise in research and development, manufacturing, testing, obtaining regulatory approvals and marketing. Also,academic institutions, government agencies and other public and private research organizations conduct research, seek patent protection and establishcollaborative arrangements for research, development, manufacturing and marketing. It is possible that these competitors will succeed in developingtechnologies that are more effective than our product candidates or that would render our technology obsolete or noncompetitive. Our competitors may, amongother things: • develop safer or more effective products; • implement more effective approaches to sales and marketing; • develop less costly products; • obtain regulatory approval more quickly; • have access to more manufacturing capacity; • develop products that are more convenient and easier to administer; • form more advantageous strategic alliances; or • establish superior intellectual property positions.We may be subject to clinical trial claims and our insurance may not be adequate to cover damages.We currently have no products that have been approved for commercial sale; however, the current and future use of our product candidates by us andour collaborators in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. These claims might be made directlyby consumers or healthcare providers or indirectly by pharmaceutical companies, our collaborators or others selling such products. Regardless of merit oreventual outcome, we may experience financial losses in the future due to such product liability claims. We have obtained limited general commercial liabilityinsurance coverage for our clinical trials. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketingapproval for any of our product candidates. However, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts toprotect us against all losses. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insuredliabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired. -47-Table of ContentsOur operations involve the use of hazardous materials, and we must comply with environmental laws, which can be expensive, and may affect ourbusiness and operating results.Our research and development activities involve the use of hazardous materials, including organic and inorganic solvents and reagents. Accordingly, weare subject to federal, state, and local laws and regulations governing the use, storage, handling, manufacturing, exposure to, and disposal of these hazardousmaterials. In addition, we are subject to environmental, health and workplace safety laws and regulations, including those governing laboratory procedures,exposure to blood-borne pathogens, and the handling of biohazardous materials. Although we believe that our activities conform in all material respects withsuch environmental laws, there can be no assurance that violations of these laws will not occur in the future as a result of human error, accident, equipmentfailure, or other causes. Liability under environmental, health and safety laws can be joint and several and without regard to fault or negligence. The failure tocomply with past, present or future laws could result in the imposition of substantial fines and penalties, remediation costs, property damage and personalinjury claims, loss of permits or a cessation of operations, and any of these events could harm our business and financial conditions. We expect that ouroperations will be affected by other new environmental and health and workplace safety laws on an ongoing basis, and although we cannot predict the ultimateimpact of any such new laws, they may impose greater compliance costs or result in increased risks or penalties, which could harm our business.We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively.Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable todamage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Systemfailures, accidents or security breaches could cause interruptions in our operations, and could result in a material disruption of our clinical activities andbusiness operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of clinical trial data could result in delays inour regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were toresult in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur a liability andour research and development programs and the development of our product candidates could be delayed.We may incur substantial costs in connection with litigation and other disputes.In the ordinary course of business we may, and in some cases have, become involved in law-suits and other disputes such as securities claims,intellectual property challenges and employee matters. We may not prevail in claims made against us in such disputes. The outcome of such law suits anddisputes is inherently uncertain. We do not believe that any of the current lawsuits or disputes faced by us is likely to have a material adverse effect on ourfinancial condition, but the resolution of such lawsuits or disputes could have a material adverse effect on our results for that period. Also, lawsuits or claimsbrought against us in the future could have a material adverse effect on our business, financial condition and results of operations.Risks Related to Our Common StockOur stock price is volatile and may fluctuate due to factors beyond our control.The market prices for, and trading volumes of, securities of biotechnology companies, including our securities, have been historically volatile. Forexample, during 2013, our stock traded from a low of $12.89 per share to a high of $53.81 per share. As an additional example, we note that onNovember 12, 2013 our stock price decreased 64% on the same day that we made an announcement regarding eteplirsen and recent -48-Table of Contentscommunications we had with the FDA. The market has from time to time experienced significant price and volume fluctuations unrelated to the operatingperformance of particular companies. The market price of our common stock may fluctuate significantly due to a variety of factors, including: • The timing of our filings with the regulatory authorities and regulatory decisions and developments including the probability of a decision by theFDA to review eteplirsen on an expedited or normal pathway, if at all; • positive or negative results or regulatory interpretations of testing and clinical trials by ourselves, strategic partners, our competitors or othercompanies with investigational drugs targeting the same, similar or related diseases to those targeted by our product candidates; • delays in beginning and completing preclinical and clinical studies for potential product candidates; • delays in entering or failing to enter into strategic relationships with respect to development and/or commercialization of our product candidates orentry into strategic relationships on terms that are not deemed to be favorable to our company; • technological innovations or commercial product introductions by ourselves or competitors; • changes in government regulations or requirements by regulatory in the approval process; • developments concerning proprietary rights, including patents and litigation matters; • public concern relating to the commercial value or safety of any of our products; • financing, through the issuance of equity or equity linked securities or incurrence of debt, or other corporate transactions; • comments by securities analysts; • litigation; or • general market conditions in our industry or in the economy as a whole.Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operatingperformance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securitiesclass action litigation has often been instituted against these companies. Such litigation could result in substantial costs and a diversion of our management’sattention and resources.Provisions of our certificate of incorporation, bylaws and Delaware law might deter acquisition bids for us that might be considered favorable andprevent or frustrate any attempt to replace or remove the then current management and board of directors.Certain provisions of our certificate of incorporation and bylaws may make it more difficult for a third party to acquire control of us or effect a changein our board of directors and management. These provisions include: • when the board is comprised of six or more directors, classification of our board of directors into two classes, with one class elected each year; • directors may only be removed for cause by the affirmative vote of majority of the voting power of all the then-outstanding shares of voting stock; • prohibition of cumulative voting of shares in the election of directors; • right of the board of directors to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death,disqualification or removal of a director; • express authorization of the board of directors to make, alter or repeal our bylaws; -49-Table of Contents • prohibition on stockholder action by written consent; • advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders atstockholder meetings; • the ability of our board of directors to authorize the issuance of undesignated preferred stock, the terms and rights of which may be establishedand shares of which may be issued without stockholder approval, including rights superior to the rights of the holders of common stock; and • a super-majority (66 2/3%) of the voting power of all of the then-outstanding shares of capital stock are required to amend, rescind, alter or repealour bylaws and certain provisions of our certificate of incorporation.In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain businesscombinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation and ourbylaws and in the Delaware General Corporation Law could make it more difficult for stockholders or potential acquirers to obtain control of our board ofdirectors or initiate actions that are opposed by the then-current board of directors.We expect our operating results to fluctuate in future periods, which may adversely affect our stock price.Our quarterly operating results have fluctuated in the past, and we believe they will continue to do so in the future. Some of these fluctuations may bevery pronounced such as in the case of the impact to our operating results as a result of our warrant offerings in January and August 2009 of which warrantsfor an aggregate of 0.8 million shares remain outstanding and exercisable as of December 31, 2013. Each of these warrants is classified as a derivative liabilityand accordingly, the fair value of the warrants is recorded on our consolidated balance sheet as a liability, and such fair value is adjusted at each financialreporting date with the adjustment to fair value reflected in our consolidated statement of operations and comprehensive loss. For example, for the year endedDecember 31, 2013, the impact of the change in fair value of these warrants resulted in a $22.0 million loss in our consolidated statement of operations andcomprehensive loss. The fair value of the warrants is determined using the Black-Scholes-Merton option valuation model. Fluctuations in the assumptions andfactors used in the Black-Scholes-Merton model can result in adjustments to the fair value of the warrants reflected on our balance sheet and, therefore, ourstatement of operations and comprehensive loss. Due to the classification of such warrants and other factors, results of operations are difficult to forecast, andperiod-to-period comparisons of our operating results may not be predictive of future performance. Additionally, our operating results may fluctuate due to thevariable nature of our revenue and research and development expenses. Specifically, a change in the timing of activities performed in support of our U.S.government research contracts could either accelerate or defer anticipated revenue from period to period. Likewise, our research and development expenses mayexperience fluctuations as a result of the timing of activities performed in support of our U.S. government research contracts and the timing and magnitude ofexpenditures incurred in support of our DMD and other proprietary drug development programs. In one or more future periods, our results of operations mayfall below the expectations of securities analysts and investors. In that event, the market price of our common stock could decline.A significant number of shares of our common stock are issuable pursuant to outstanding stock awards and warrants, and we expect to issueadditional stock awards and shares of common stock in the future. Exercise of these awards, and sales of shares will dilute the interests ofexisting security holders and may depress the price of our common stock.As of December 31, 2013, there were 37.8 million shares of common stock outstanding, outstanding awards to purchase 4.4 million shares of commonstock under various incentive stock plans, and outstanding warrants to purchase up to 0.8 million shares of common stock. Additionally, as of December 31,2013, there were 2.9 million shares of common stock available for future issuance under our Amended and Restated 2011 Equity -50-Table of ContentsIncentive Plan and 0.3 million shares of common stock remain available for issuance under the Company’s 2013 Employee Stock Purchase Plan. In addition,we may issue additional common stock and warrants from time to time to finance our operations. We may also issue additional shares to fund potentialacquisitions or in connection with additional stock options or other equity awards granted to our employees, officers, directors and consultants under ourAmended and Restated 2011 Equity Incentive Plan, our 2013 Employee Stock Purchase Plan or our 2014 Employment Commencement Incentive Plan. Theissuance of additional shares of common stock or warrants to purchase common stock, perception that such issuances may occur, or exercise of outstandingwarrants or options may have a dilutive impact on other stockholders and could have a material negative effect on the market price of our common stock.Item 1B. Unresolved Staff Comments.None.Item 2. Properties.A description of the facilities we own and/or occupy is included in the following table. We believe that our current facilities in Corvallis, Oregon andadditional administrative and laboratory space in our Cambridge facility is suitable and will provide sufficient capacity to meet the projected needs of ourbusiness for the next 12 months. Except as noted below, all of our properties are currently being used in the operation of our business. Location of Property SquareFootage LeaseExpirationDate Purpose OtherInformation215 First Street, Suite 415, Cambridge, MA 02142 61,453 December 2020 Laboratory and office space Corporateheadquarters215 First Street, Suite 7, Cambridge, MA 02142 7,087 February 2014 Office space Temporarycorporateheadquarters4575 SW Research Way, Suite 200, Corvallis, OR 97333 53,000 December 2020 Laboratory and office space Primarily labspace1749 SW Airport Avenue, Corvallis, OR 97333 36,150 N/A – facilityis owned; landlease expiresFebruary 2042 Acquired with intention ofproviding future expansionspace for the manufacture ofpotential products andcomponents Approximately25,000 squarefeet leased andthe remainingspaceunoccupied* *In November 2011, the tenant, Perpetua Power Source Technologies, Inc., or Perpetua, agreed to lease approximately 25,000 square feet of the building untilMarch 2017. Perpetua may terminate the lease at the end of the 36th month upon 180 days prior written notice, together with delivery of a termination fee.Perpetua has the option to extend the lease for an additional year if notice is provided no less than 12 months prior to the expiration date. Perpetua also has aright of first refusal relating to the lease of the remaining space at the building and was granted an option to purchase the building during the term of thelease, provided there is no uncured default by Perpetua at the time of exercise. If the purchase option is exercised, the price for the building is $2.0 millionuntil February 2015, $2.1 from March 2015 until February 2016 and $2.2 million from March 2016 through the remainder of the initial lease term. IfPerpetua exercises its extension option, the purchase price will be $2.3 million during the term of the extension. -51-Table of ContentsItem 3. Legal Proceedings.As of December 31, 2013, the Company was not a party to any material legal proceedings with respect to itself, its subsidiaries, or any of its materialproperties. In the normal course of business, the Company may from time to time be named as a party to various legal claims, actions and complaints,including matters involving securities, employment, intellectual property, effects from the use of therapeutics utilizing its technology, or others. For example, inJanuary 2014, a former consultant of the Company filed a complaint alleging breach of contract, among other claims, and seeking approximately $4 million indamages, plus certain additional fees and costs from the Company. In addition, purported class action complaints were filed against the Company and certainof its officers in the U.S. District Court for the District of Massachusetts on January 27, 2014 (Corban v. Sarepta et al) and January 29, 2014 (Baradanian v.Sarepta et al). The plaintiffs are alleged purchasers of Company common stock who seek to bring claims on behalf of themselves and persons or entities thatpurchased or acquired securities of the Company between July 24, 2013 and November 12, 2013. The complaints allege that the defendants violated thefederal securities laws in connection with disclosures related to eteplirsen, the Company’s lead therapeutic candidate for DMD, and seek damages in anunspecified amount. Given the relatively early stages of the proceedings in the above mentioned purported claims, at this time, no assessment can be made asto the likely outcome of these claims or whether the outcomes would have a material impact on the Company.Item 4. Mine Safety Disclosures.Not applicable. -52-Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Market InformationAs of January 2, 2014, our Common Stock is quoted on The NASDAQ Global Select Market under the symbol “SRPT.” Our Common Stock wasquoted on The Nasdaq Global Market prior to January 2, 2014. The following table sets forth the high and low intraday sales prices as reported by TheNASDAQ Global Market for each quarterly period in the two most recent years, including the effect of the reverse stock split: High Low Year Ended December 31, 2012 First Quarter $9.84 $4.20 Second Quarter 7.80 3.48 Third Quarter 16.44 3.30 Fourth Quarter 45.00 14.84 Year Ended December 31, 2013 First Quarter $37.70 $23.46 Second Quarter 42.20 28.90 Third Quarter 49.61 29.71 Fourth Quarter 55.61 12.12 HoldersAs of February 24, 2014, we had 202 stockholders of record of our common stock.DividendsWe have neither declared nor paid cash dividends on our common stock in 2013 or 2012. We currently expect to retain future earnings, if any, to financethe operation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination related toour dividend policy will be made at the discretion of our board of directors. -53-Table of ContentsPerformance GraphThe following graph compares the performance of our Common Stock for the periods indicated with the performance of the NASDAQ Composite Indexand the Amex Biotech Index. This graph assumes an investment of $100 on December 31, 2008 in each of our common stock, the NASDAQ Composite Indexand the Amex Biotech Index, and assumes reinvestment of dividends, if any. The stock price performance shown on the graph below is not necessarilyindicative of future stock price performance. This graph is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated byreference into any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before orafter the date hereof and irrespective of any general incorporation language in any such filing. SRPT NASDAQCompositeIndex NASDAQBiotech Index NYSE ArcaBiotechIndex End of Fiscal 2008 100.00 100.00 100.00 100.00 End of Fiscal 2009 221.77 145.34 115.96 145.58 End of Fiscal 2010 322.03 171.70 134.58 200.51 End of Fiscal 2011 113.16 170.34 150.85 168.74 End of Fiscal 2012 653.16 200.57 200.25 239.40 End of Fiscal 2013 515.70 281.14 332.45 361.02 Recent Sales of Unregistered Securities.None.Purchases of Equity Securities by the Issuer and Affiliated Purchasers.None. -54-Table of ContentsItem 6. Selected Financial Data.The following selected financial data is derived from our audited financial statements and should be read in conjunction with, and is qualified in itsentirety by, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” and Item 8, “Financial Statements andSupplementary Data.” Year Ended December 31, 2013 2012 2011 2010 2009 (in thousands) Operations data: Revenues $14,219 $37,329 $46,990 $29,420 $17,585 Research and development 72,909 52,402 66,862 35,972 24,396 General and administrative 31,594 14,630 16,055 14,382 8,696 Operating loss (90,284) (29,703) (35,927) (20,934) (15,507)Interest income (expense) and other, net 326 354 587 259 (454)Gain (loss) on change in warrant valuation (22,027) (91,938) 33,022 (11,502) (9,198)Net loss $(111,985) $(121,287) $(2,318) $(32,177) $(25,159)Net loss per share—basic and diluted $(3.31) $(5.14) $(0.11) $(1.74) $(1.69)Balance sheet data: Cash and cash equivalents $256,965 $187,661 $39,904 $33,589 $48,446 Working capital 234,840 115,022 24,583 (8,019) 17,803 Total assets 291,569 204,993 54,368 45,976 60,027 Stockholders’ equity (deficit) 247,192 123,679 31,017 (2,817) 23,630 -55-Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidatedfinancial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statementsthat involve risks and uncertainties. Please review our legend titled “Forward-Looking Information” at the beginning of this Annual Report on Form10-K which is incorporated herein by reference. Our actual results could differ materially from those discussed below. Factors that could cause orcontribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” includedelsewhere in this Annual Report on Form 10-K. Throughout this discussion, unless the context specifies or implies otherwise, the terms “Sarepta”,“we”, “us” and “our” refer to Sarepta Therapeutics, Inc. and its subsidiaries.OverviewWe are a biopharmaceutical company focused on the discovery and development of unique RNA-based therapeutics for the treatment of rare andinfectious diseases. Applying our proprietary, highly-differentiated and innovative platform technologies, we are able to target a broad range of diseases anddisorders through distinct RNA-based mechanisms of action. We are primarily focused on rapidly advancing the development of our potentially disease-modifying Duchenne muscular dystrophy (DMD) drug candidates, including our lead product candidate, eteplirsen. We are also focused on developingtherapeutics for the treatment of infectious diseases, including our lead infectious disease program aimed at the development of a drug candidate for theMarburg hemorrhagic fever virus. By building our infectious disease programs which are primarily funded and supported by the U.S. Department of Defense(DoD), and leveraging our highly-differentiated, proprietary technology platforms, we are seeking to further develop our research and developmentcompetencies and identify additional product candidates.Our highly-differentiated RNA-based technologies work at the most fundamental level of biology and potentially could have a meaningful impact acrossa broad range of human diseases and disorders. Our lead program focuses on the development of disease-modifying therapeutic candidates for DMD, a raregenetic muscle-wasting disease caused by the absence of dystrophin, a protein necessary for muscle function. Currently, there are no approved disease-modifying therapies for DMD. Eteplirsen is our lead therapeutic candidate for DMD. If we are successful in our development efforts, eteplirsen will address asevere unmet medical need. In 2012, we completed a U.S.-based Phase IIb clinical trial for eteplirsen that was initiated in August 2011. Following completionof this study in early 2012, we initiated an open label extension study with the same participants from the original Phase IIb placebo-controlled trial. We areworking with the FDA to initiate a pivotal clinical study in 2014 to determine the possibilities under expedited regulatory programs for eteplirsen.We are also leveraging the capabilities of our RNA-based technology platforms to develop therapeutics for the treatment of infectious diseases. The DoDhas provided significant financial support in the past for the development of therapeutics against Ebola, Marburg, Dengue and influenza viruses. We haveattracted DoD’s support based in part on our ability to rapidly respond to pathogenic threats by quickly identifying, manufacturing and evaluating noveltherapeutic candidates.The basis for our novel RNA-based therapeutics is our phosphorodiamidate-linked morpholino oligomer, or PMO, chemistries. Unlike other RNA-based therapeutics, which are often used to down-regulate gene expression, our technologies can be used to selectively up-regulate or down-regulate theproduction of a target protein, or direct the expression of novel proteins involved in human diseases and disorders. Further, we believe the charge-neutral natureof our PMO-based molecules may have the potential to reduce off-target effects, such as immune stimulatory effects often seen in alternative RNA-basedtechnologies. We believe that our highly-differentiated, novel proprietary and innovative RNA-based technology platforms, based on charge neutral morpholinooligomers, may represent a significant improvement over traditional RNA-based technologies.Since our inception in 1980, we have incurred losses of $543.2 million, substantially all of which resulted from expenditures related to research anddevelopment, general and administrative charges and losses on changes -56-Table of Contentsin warrant valuation partially offset by revenue generated from research contracts with and grants primarily from the DoD. As of December 31, 2013, we havecompleted all of our contracts with the DoD except for the July 2010 contract for the development of therapeutics against the Marburg virus. The period ofperformance for our August 2012 contract with the DoD concluded in the third quarter of 2013. In November 2012, we also entered into a consortiumagreement with various parties that received an E.U. Health Innovation-1 2012 Collaborative research grant to support development of an exon 53-skippingtherapeutic, based on our PMO chemistry, for which minimal revenues have been earned to date. We have not generated any material revenue from productsales to date, and there can be no assurance that revenues from product sales will be achieved. Moreover, even if we do achieve revenue from product sales, weare likely to continue to incur operating losses in the near term.As of December 31, 2013, we had $264.9 million of cash, cash equivalents and invested cash, comprised of $257.0 million of cash and cashequivalents and $7.9 million of restricted investments, which we believe, taking into consideration our outstanding warrants, is sufficient to fund our currentoperational plan for the next twelve months. Should our funding from the DoD cease or be delayed, we would likely curtail certain infectious disease researchand development efforts unless additional funding was obtained. We are also likely to pursue additional cash resources through public or private financings,seeking additional government contracts, and by establishing collaborations or licensing our technology to other companies.The likelihood of our long-term success must be considered in light of the expenses, difficulties and delays frequently encountered in the developmentand commercialization of new pharmaceutical products, competitive factors in the marketplace, the risks associated with U.S. government sponsoredprograms, and the complex regulatory environment in which we operate. There can be no assurance that we will ever achieve significant revenues or profitableoperations.Government ContractsIn the periods presented, nearly all of the revenue we generated was derived from research contracts with and grants from the U.S. government. As ofDecember 31, 2013, we had completed all of our contracts with the DoD except for the Marburg portion of the July 2010 agreement for the development oftherapeutics against Ebola and Marburg viruses.The following table sets forth the revenue from each of our contracts with the U.S. and E.U. governments and other revenue for the years endedDecember 31, 2013, 2012 and 2011: Year Ended December 31, 2013 2012 2011 (in thousands) July 2010 Agreement (Ebola and Marburg IV) $9,064 $36,557 $42,875 June 2010 Agreement (H1N1) 427 — 3,490 May 2009 Agreement (H1N1) — — 516 August 2012 Agreement (Intramuscular administration) 2,791 673 — November 2012 SKIP-NMD Agreement (DMD) 1,263 — — July 2013 Children’s National Medical Center 674 — — Other Agreements — 99 109 Total $14,219 $37,329 $46,990 The following is a description of each of our significant U.S. and E.U. government contracts and grants.July 2010 Agreement (Ebola and Marburg)On July 14, 2010, we were awarded a contract with the DoD Chemical and Biological Defense Program through the U.S. Army Space and MissileDefense Command for the advanced development of our hemorrhagic -57-Table of Contentsfever virus therapeutic candidates, AVI-6002 and AVI-6003, against the Ebola and Marburg viruses, respectively. The contract is a cost plus incentive fee(“CPIF”) type contract. Under a CPIF contract, the U.S. government pays the contractor’s actual allowable costs incurred plus an incentive fee based on thecontractor’s performance against specified cost targets. In February 2012, we announced that we received permission from the FDA to proceed with a singleoligomer from AVI-6003, AVI-7288, as the lead product candidate against the Marburg virus infection. On August 2, 2012, we received a stop-work-orderrelated to the Ebola virus portion of this contract and, on October 2, 2012, the U.S. government terminated the Ebola portion of this contract for convenienceof the U.S. government due to government funding constraints.Our activities under the contract regarding AVI-7288 began in July 2010 and have included Phase I studies in healthy volunteers as well as preclinicalstudies. The remaining portion of the contract consists of the balance of the “base” segment and three optional segments of work for AVI-7288. At the end ofeach segment, the U.S. government assesses the progress of the development program and the availability of funding, among other things, to determinewhether it will go forward and exercise the option for the next segment. Under the Federal Acquisition Regulation (“FAR”), the U.S. government has theunilateral right to exercise or not to exercise the options. If the U.S. government exercises an option, we have a duty to perform the optional segment (providedthe U.S. government obligates sufficient funds to the contract). We cannot refuse to perform an optional segment of the work. The period of performance forthe base segment of the contract ends on March 31, 2014. The U.S. government has no obligation to increase the funding of the contract and we have noobligation to incur costs in excess of the funded amount.If the DoD exercises its options for all of the additional optional segments according to the scope of work in our contract, our contract activities wouldinclude clinical and licensure activities necessary to obtain FDA regulatory approval for our therapeutic candidate against the Marburg virus and would bescheduled to conclude in September 2016. Since DoD has not yet decided whether it will exercise these options, there is no funding obligated to the contract fortheir performance.The rights of the U.S. government in inventions made in the performance of the contracts are set forth in FAR 52.227-11, Patent Rights-Ownership bythe contractor, which is included in the DoD contract. In summary, FAR 52.227-11 gives contractors title to and the U.S. government a nonexclusive,nontransferable, irrevocable, paid up license to practice or have practiced for or on behalf of the United States any invention of contractor’s made in theperformance of work under the contract (i.e., a “Subject Invention”). In order to retain title to a Subject Invention, the contractor must disclose the invention tothe U.S. government, formally elect to retain title, and file a patent application strictly in accordance with the detailed procedures and deadlines set forth in theclause. FAR 52.227-11 also includes a preference for domestic industry. In particular, contractors may not grant to any person the exclusive right to sell or usethe invention in the United States unless such person agrees that any product embodying the invention or produced through the use of the invention will bemanufactured substantially in the United States. In certain circumstances, this requirement may be waived by the U.S. government. Furthermore, under FAR52.227-11, the U.S. government retains certain “march in” rights that permit the U.S. government to grant a license to the invention to a third party if: (1) thecontractor has not taken effective steps to achieve practical application of the invention within a reasonable time; (2) such action is necessary to meet healthand safety needs and/or requirements for public use that contractor is not meeting; and (3) contractor has not obtained the required agreement formanufacturing the invention in the United States from any exclusive licensee or a waiver of this requirement.In addition to rights in inventions, the contract gives the U.S. government “unlimited rights” in technical data first produced in the performance of thecontract and all data delivered under the contract. “Unlimited rights” means that the U.S. government has the rights to use, modify, reproduce, perform,display, release or disclose the data in whole or in part in any manner and for any purpose whatsoever and to have or authorize others to do so. Thus, there areno protections for technical data in which the U.S. government receives unlimited rights. However, under the clause, the contractor may withhold fromdelivery, data that embody trade secrets or are commercial or financial and confidential or privileged, to the extent that such data pertain to items, -58-Table of Contentscomponents, or processes developed at private expense, including minor modifications (i.e., “limited rights data”). If delivery of limited rights data is requiredand the contractor requires the U.S. government to keep this data confidential, the contractor must take certain steps prescribed in the regulations to protectthis information.Under FAR 52.249-6, Termination (Cost-Reimbursement) and the terms of this agreement, the U.S. government has the right to terminate the contract,in whole or in part, without prior notice, for its convenience or if the contractor defaults on its obligations under this agreement. The contractor has no right toterminate the contract for its convenience. In the event of a termination for convenience by the U.S. government, the contractor generally is entitled to recover itsincurred cost plus a reasonable fee or profit on that incurred cost. It is not entitled to anticipatory fee or profit, i.e., the fee or profit it would have earned had thecontract gone to completion.For additional details regarding our remaining contract obligations with the U.S. government, see “Note 6—Government Contracts” of the consolidatedfinancial statements included elsewhere in this Annual Report on Form 10-K. For a description of the risks we face relating to our government contractualobligations see “Risk Factors—Risks Relating to Our Business”.June 2010 Agreement (H1N1/Influenza)On June 4, 2010, we entered into a contract with the Defense Threat Reduction Agency (“DTRA”) to advance the development of AVI-7100 as a medicalcountermeasure against the pandemic H1N1 influenza virus in cooperation with the Joint Project Manager Transformational Medical Technologies program (or“JPM-TMT”), (renamed Medical Countermeasure Systems in 2013) of the U.S. Department of Defense, or DoD. The period of performance for this contractended on June 3, 2011. We recognized $0.4 million associated with this agreement in 2013, which was the result of an indirect rate adjustment.May 2009 Agreement (H1N1/Influenza)In May 2009, we entered into a contract with DTRA to develop swine flu drugs using our proprietary PMO and PMOplus antisense chemistry. InMarch 2010, the contract was amended to include testing against additional influenza strains. The key activities under this contract were completed in 2011.August 2012 Agreement (Intramuscular administration)On August 29, 2012, we were awarded a contract from the DoD’s JPM-TMT program. The contract was for approximately $3.9 million to evaluate thefeasibility of an intramuscular (IM) route of administration using AVI-7288, our candidate for treatment of Marburg virus. The period of performance for thiscontract concluded in the third quarter of 2013.European Union SKIP-NMD Agreement (DMD)In November 2012, we entered into a consortium agreement with various parties that received an E.U. Health Innovation-1 2012 Collaborative researchgrant to support development of an exon 53-skipping therapeutic, based on our PMO chemistry. The agreement provides for approximately $2.5 million forresearch in certain development and study related activities for a DMD therapeutic and is expected to last approximately three years.During the year ended December 31, 2013, we received $1.3 million in advance payments, which was fully recognized during the year endedDecember 31, 2013. -59-®Table of ContentsJuly 2013 Children’s National Medical Center (CNMC) AgreementIn July 2013, we entered into an agreement totaling $1.3 million to provide drug product to CNMC to conduct research related to the Company’s DMDprogram. During the year ended December 31, 2013, the Company recognized $0.7 million as revenue under the agreement.Key Financial MetricsRevenueGovernment Research Contract and Grant Revenue. Substantially all of our revenue is generated from U.S. government research contracts andgrants. See “Note 6—Government Contracts” of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We recognizerevenue from U.S. government research contracts and grants during the period in which the related expenses are incurred and present such revenues andrelated expenses gross in the consolidated financial statements.License Arrangements. Our license arrangements may consist of non-refundable upfront license fees, data transfer fees, research reimbursementpayments, exclusive licensed rights to patented or patent pending compounds, technology access fees, various performance or sales milestones and futureproduct royalty payments. Some of these arrangements are multiple element arrangements.We defer recognition of non-refundable upfront fees if we have continuing performance obligations when the technology, right, product or serviceconveyed in conjunction with the non-refundable fee has no utility to the licensee that is separate and independent of our performance under the other elementsof the arrangement. In addition, if we have continuing involvement through research and development services that are required because of our know-how orbecause the services can only be performed by us, then such up-front fees are deferred and recognized over the period of continuing involvement. As ofDecember 31, 2013, we had deferred revenue of $3.3 million, which represents up-front fees which we will recognize as revenue as we satisfy the outstandingperformance obligations.ExpensesResearch and Development. Research and development expense consists of costs associated with research activities as well as costs associated with ourproduct development efforts, conducting preclinical studies, and clinical trial and manufacturing costs.Direct research and development expenses associated with our programs include clinical trial site costs, clinical manufacturing costs, costs incurred forconsultants and other outside services, such as data management and statistical analysis support, and materials and supplies used in support of the clinicalprograms. Indirect costs of our clinical program include salaries, stock based compensation, and an allocation of our facility costs.The amount and timing of future research and development expense will depend in part on our ability to obtain U.S. government awards to fund theadvanced development of our infectious disease therapeutic candidates. Without such funding, we would likely significantly reduce our spending in theseareas. Future research and development expenses may also increase as our internal projects, such as eteplirsen for DMD, enter later stage clinical development.Our research and development programs are currently in Phase IIb clinical trials or earlier and may not result in any approved products. Product candidatesthat appear promising at early stages of development may not reach the market for a variety of reasons. Similarly, any of our product candidates may befound to be ineffective during clinical trials, may take longer to complete clinical trials than we have anticipated, may fail to receive necessary regulatoryapprovals, or may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality.As a result of these uncertainties and the other risks inherent in the drug development process, we cannot determine the duration and completion costs ofcurrent or future clinical stages of any of our product candidates. -60-Table of ContentsSimilarly, we cannot determine when, if, or to what extent we may generate revenue from the commercialization and sale of any product candidate. Thetimeframe for development of any product candidate, associated development costs, and the probability of regulatory and commercial success vary widely.General and Administrative. General and administrative expense consists principally of salaries, benefits, stock-based compensation expense, andrelated costs for personnel in our executive, finance, legal, information technology, business development and human resource functions. Other general andadministrative expenses include an allocation of our facility costs and professional fees for legal, consulting, and accounting services.Interest Income (Expense) and Other, Net. Interest income (expense) and other, net, primarily consists of interest on our cash, cash equivalents,restricted investments, interest expense, and rental income. Our cash equivalents consist of money market investments. Interest expense includes interest paidon our mortgage loan related to the Corvallis property, the substantial portion of which we leased to a third party in November 2011. Rental income is fromsubleasing excess space in some of our facilities.Gain (Loss) on Change in Warrant Valuation. Warrants issued in connection with our December 2007 and January and August 2009 financings areclassified as liabilities as opposed to equity due to their settlement terms. These warrants are non-cash liabilities; we are not required to expend any cash tosettle these liabilities. The fair market value of these warrants was recorded on the balance sheet at the date of issuance and the warrants are marked to marketeach financial reporting period, with changes in the fair value recorded as a gain or loss in our statement of operations and comprehensive loss. The fair valueof the warrants is determined using the Black-Scholes-Merton option-pricing model, which requires the use of significant judgment and estimates related to theinputs used in the model and can result in significant swings in the fair market valuation primarily due to changes in our stock price. For more information,see “Note 8—Warrants” of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.Critical Accounting Policies and EstimatesThe discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements includedelsewhere in this Annual Report on Form 10-K. The preparation of our consolidated financial statements in accordance with accounting principles generallyaccepted in the United States, or GAAP, requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues andexpenses and related disclosure of contingent assets and liabilities for the periods presented. Some of these judgments can be subjective and complex, and,consequently, actual results may differ from these estimates. For any given individual estimate or assumption we make, there may also be other estimates orassumptions that are reasonable. We believe that the estimates and judgments upon which we rely are reasonable based upon historical experience andinformation available to us at the time that we make these estimates and judgments. To the extent there are material differences between these estimates andactual results, our consolidated financial statements will be affected. Although we believe that our judgments and estimates are appropriate, actual results maydiffer from these estimates.The policies that we believe are the most critical to aid the understanding of our financial results include: • revenue recognition; • research and development expense; • stock-based compensation; and • accounting for and valuation of warrants classified as liabilities.Revenue RecognitionWe have historically generated revenue from our U.S. government research contracts and grants and other license arrangements. -61-Table of ContentsGovernment Research Contract Revenue. Substantially all of our revenue is generated from U.S. government research contracts and grants, which aregenerally cost plus contracts providing for reimbursed costs which include overhead and general and administrative costs and a target fee. We recognizerevenue from U.S. government research contracts during the period in which the related expenses are incurred and present such revenues and related expensesgross in the consolidated financial statements.License Arrangements. License arrangements may consist of non-refundable upfront license fees, data transfer fees, research reimbursementpayments, exclusive licensed rights to patented or patent pending compounds, technology access fees, various performance or sales milestones and futureproduct royalty payments. Some of these arrangements are multiple element arrangements. We defer recognition of non-refundable upfront fees if it hascontinuing performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable fee has no utilityto the licensee that is separate and independent of our performance under the other elements of the arrangement. In addition, if we have continuing involvementthrough research and development services that are required because of our know-how and expertise related to the technology that is proprietary to us, or canonly be performed by us, then such up-front fees are deferred and recognized over the period of continuing involvement.Research and Development ExpensesAll research and development expenses, including amounts funded through research and development collaborations, are expensed as incurred. Researchand development expenses are comprised of costs incurred in performing research and development activities, including salary and benefits; stock-basedcompensation expense; laboratory supplies and other direct expenses; contractual services, including clinical trial and pharmaceutical development costs;expenses associated with the supply investment in our drug candidates; and infrastructure costs, including facilities costs and depreciation.When third-party service providers’ billing terms do not coincide with our period-end, we are required to make estimates of our obligations to those thirdparties, including clinical trial and pharmaceutical development costs, contractual services costs and costs for supply of our drug candidates, incurred in agiven accounting period and record accruals at the end of the period. We base our estimates on our knowledge of the research and development programs,services performed for the period, past history for related activities and the expected duration of the third-party service contract, where applicable. -62-Table of ContentsStock Compensation ExpenseTo determine stock-based compensation costs, we apply the provisions of Financial Accounting Standards Board (the “FASB”), Accounting StandardsCodification (the “ASC”), Topic 718, Share-Based Payments. We use the Black-Scholes-Merton option pricing model for determining the estimated fair valuefor stock-based awards on the date of grant, which requires the use of subjective and complex assumptions to determine the fair value of stock-based awards,including the award’s expected term and the price volatility of the underlying stock. We recognize the value of the portion of the awards that is ultimatelyexpected to vest as expense over the requisite vesting periods on a straight-line basis for the entire award. Stock awards granted to employees are service-basedand prior to December 31, 2010 typically vested over a three year period, with one-third of the underlying shares vesting on each anniversary of grant, andhave a ten year term. Beginning in January 2011, newly granted stock awards have a ten year term and typically vest over a four year period, with one fourthof the underlying shares vesting on the first anniversary of the grant and 1/48th of the underlying shares vesting monthly thereafter, such that the underlyingshares will be fully vested on the fourth anniversary of the grant. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periodsif actual forfeitures differ from those estimates. The following table summarizes the weighted average assumptions used in determining the fair value of stockoptions granted: Year Ended December 31, 2013 2012 2011 Risk-free interest rate 0.7% - 1.7% 0.6% - 1.1% 0.9% - 2.4% Expected dividend yield — % — % — % Expected lives 4.8 - 5.0 years 4.8 - 5.3 years 5.2 - 8.9 years Expected volatility 80.0% - 90.7% 79.7% - 108.6% 78.2% - 81.6% The risk free interest rate is estimated using an average of U.S. Treasury bill interest rates over a historical period commensurate with the expected life ofthe option that correlates to the prevailing interest rates at the time of grant. The expected dividend yield is zero as we have not paid any dividends to date anddo not expect to pay dividends in the future. The expected lives are estimated using expected and historical exercise behavior. For the year ended December 31,2013, expected volatility was estimated using a blend of calculated volatility of the Company’s common stock over a historical period and implied volatility inexchange-traded options with the Company’s common stock. Prior to January 1, 2013, expected volatility was estimated using calculated volatility of theCompany’s common stock over a historical period commensurate with the expected term of the option. The amounts estimated according to the Black-Scholes-Merton option pricing model may not be indicative of the actual values realized upon the exercise of these options by the holders.The assumptions used in calculating the fair value of stock-based compensation expense represent management’s best estimates, but these estimatesinvolve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-basedcompensation expense could be materially different in the future. See “Note 3—Stock Compensation” of the consolidated financial statements includedelsewhere in this Annual Report on Form 10-K for a further discussion of stock-based compensation.Warrant LiabilityIn December 2007 and January and August of 2009, we issued warrants to purchase an aggregate of 5.0 million shares of our common stock inconnection with offerings of our common stock. These warrants are classified as a liability on our consolidated balance sheet due to their settlement terms.These warrants are non-cash liabilities; we are not required to expend any cash to settle these liabilities.The fair value of the warrants is recorded on our consolidated balance sheet as a liability, and fair value is adjusted at each financial reporting periodwith the adjustment reflected in our consolidated statement of -63-Table of Contentsoperations and comprehensive loss. The fair value of the warrants is determined using the Black-Scholes-Merton option pricing model, which requires the useof significant judgment and estimates related to the inputs used in the model. The following reflects the weighted-average assumptions for each of the periodsindicated: Year Ended December 31, 2013 2012 2011 Risk-free interest rate 0.1% 0.2% - 0.3% 0.1% - 0.4% Expected dividend yield — % — % — % Expected lives 0.6 - 0.7 years 1.1 - 1.6 years 1.0 - 2.7 years Expected volatility 95.51% 139.2% - 164.1% 71.8% - 75.6% Fluctuations in the assumptions and factors used in the Black-Scholes-Merton model can result in adjustments to the fair value of the warrants reflectedon our balance sheet and, therefore, our statement of operations and comprehensive loss. If, for example, the market value of our common stock or itsvolatility at December 31, 2013 were 10% higher or lower than what we used in the valuation of the warrants, our valuation of the warrants would haveincreased or decreased by $1.5 million due to the change in market price, and our valuation would have increased or decreased by $0.2 million due to thechange in volatility, with the differences being reflected in our statement of operations and comprehensive los. See “Note 8—Warrants” of the consolidatedfinancial statements included elsewhere in this Annual Report on Form 10-K for a further discussion of warrants.Results of Operations for the years ended December 31, 2013, 2012 and 2011The following table sets forth selected consolidated statements of operations data for each of the periods indicated:Summary of Results for Fiscal Years 2013, 2012 and 2011 Year Ended December 31, 2013 2012 2011 (in thousands, except per share amounts) Operations data: Revenues $14,219 $37,329 $46,990 Research and development 72,909 52,402 66,862 General and administrative 31,594 14,630 16,055 Operating loss (90,284) (29,703) (35,927)Interest income (expense) and other, net 326 354 587 Gain (Loss) on change in warrant valuation (22,027) (91,938) 33,022 Net loss $(111,985) $(121,287) $(2,318)Net loss per share—basic and diluted $(3.31) $(5.14) $(0.11)RevenueRevenue for 2013 decreased by $23.1 million, or 62%, compared to 2012. The decrease was due to a decrease of $27.5 million in revenue associatedwith July 2010 Ebola and Marburg agreement. The Ebola portion of the contract was terminated for convenience by the U.S. government due to lack offunding in the third quarter of 2012. Accordingly, there was no such revenue in 2013. These decreases in 2013 revenues were partially offset by revenue fromthe IM contract of $2.8 million in 2013 as compared to $0.7 million in 2012. Additionally, there were revenues from the November 2012 E.U. Skip and July2013 CNMC agreements of $1.3 million and $0.7 million, respectively, which did not have any revenue associated with them in 2012.Revenue for 2012 decreased by $9.7 million, or 21%, compared to 2011. The decrease was due to $4.0 million less revenue from the May 2009 andJune 2010 H1N1 agreements which ended in 2011 and $6.3 million -64-Table of Contentsless revenue from the 2010 Ebola and Marburg contract. Of the $6.3 million from the 2010 Ebola and Marburg contract, $5.6 million was due to the Ebolaportion of the contract being terminated for convenience by the U.S. government due to lack of funding in the third quarter of 2012. These decreases in 2012revenue were partially offset by initial revenue from the IM contract of $0.7 million.Research and Development ExpensesResearch and development expenses for 2013 increased by $20.5 million, or 39%, compared to 2012. The increase was primarily due to a $31.3 millionincrease in our DMD program costs, as well as a $6.1 million increase in personnel related costs which includes a $2.7 million increase in stock-basedcompensation expense. The increase in DMD and personnel related costs were partially offset by a $17.3 million decrease in costs under the Ebola andMarburg contract with the DoD. This decrease was partially due to the August 2012 stop-work order and the subsequent termination for convenience inOctober 2012 on the Ebola portion of the contract as well as decreased activity on the Marburg portion of the contract.Research and development expenses for 2012 decreased by $14.5 million, or 22%, compared to 2011. The decrease was due primarily to a $6.4 million decrease in non DMD proprietary research and a $4.1 million reduction in costs related to the Ebola portion of the July 2010 Ebola and Marburgcontract which the U.S. government terminated due to a lack of funding in the third quarter of 2012, a $2.0 million reduction in costs resulting from thecompletion of the May 2009 and June 2010 H1N1 government contracts in 2011, a $1.0 million reduction due to the timing of various activities in both theMarburg portion of the July 2011 contract and the DMD program.General and Administrative ExpensesGeneral and administrative expenses for 2013 increased by $17.0 million, or 116%, compared to 2012. The increase in general and administrativeexpenses is primarily due to a $10.9 million increase in personnel costs including $5.3 million in stock-based compensation from additional headcount, $0.4million of additional cost associated with facilities, $3.9 million of additional professional services and $1.8 million of other costs.General and administrative expenses for 2012 decreased by $1.4 million, or 9%, compared to 2011. The decrease was primarily due to a decrease of$1.2 million in professional consulting services and $0.7 million in severance costs. These decreases were partially offset by $0.3 million of higher personnelcosts due to filling vacant senior level positions.Interest Income (Expense) and Other, NetInterest income (expense) and other, net, for 2013 remained consistent compared to 2012 and 2011.Gain (Loss) on Change in Warrant ValuationThe change in fair value of our warrant liability for 2013 compared to 2012 and 2011 was primarily attributable to the change in our stock price andwarrant exercises. See Note 8 to the Notes of the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.Net LossThe decrease in our net loss of $9.3 million for 2013 compared to 2012 was primarily attributable to $69.9 million decrease in other income (loss),which was primarily due to the loss on change in our warrant valuation, which was partially offset by higher operating expenses and lower revenue in 2013 ascompared to 2012. -65-Table of ContentsThe increase in our net loss of $119.0 million for 2012 compared to 2011 was primarily attributable to a $125.0 million increase in other income (loss)resulting from an increase in the fair value of warrants accounted for as liabilities partially offset by a $6.2 million decrease in our operating loss.Liquidity and Capital ResourcesAt December 31, 2013, our cash and cash equivalents were $257.0 million, compared to $187.7 million at December 31, 2012. Our cash and cashequivalents of $257.0 million does not include the $7.9 million in restricted investments, as those amounts secure letters of credit relating to certain lease andmanufacturing agreements and are not currently available for general corporate use. The significant increase is due primarily to public offerings of ourcommon stock and the exercise of outstanding warrants for the purchase of our common stock. Based on the factors described below, we believe that ourcurrently available cash and cash equivalents is sufficient to finance our operations for the next 12 months.Our principal sources of liquidity are revenue from our U.S. government research contracts and grants and equity transactions. Our principal uses ofcash are research and development expenses, general and administrative expenses and other working capital requirements.Our primary source of revenue is from development of product candidates pursuant to our contracts with the U.S. government. Government funding issubject to the U.S. government’s appropriations process and the U.S. government has the right under our contracts with them to terminate such contracts forconvenience as was done regarding the Ebola portion of the July 2010 Ebola and Marburg contract in 2012. If U.S. government funding is not received or isdelayed, we would likely curtail certain of our infectious disease research and development efforts unless additional funding was obtained. Currently, we donot generate any revenue from the commercial sale of our pharmaceutical product candidates.Our future expenditures and capital requirements depend on numerous factors, most of which are difficult to project beyond the short term. Theserequirements include the progress of our research and development programs and our pre-clinical and clinical trials, our ability to meet the requirements of ourU.S. government research projects, the time and costs involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing anypatent claims and other intellectual property rights, competing technological and market developments, our ability to establish collaborative arrangements andthe terms of any such arrangements, and the costs associated with manufacturing and commercialization of our products.Our cash requirements are expected to continue to increase as we advance our research, development and commercialization programs and we expect toseek additional financing primarily from, but not limited to, the sale and issuance of equity, debt securities or the licensing or sale of our technology. Wecannot assure you that financing will be available when and as needed or that, if available, the financings will be on favorable or acceptable terms. If we areunable to obtain additional financing when and if we require, it would have a material adverse effect on our business and results of operations. To the extent weissue additional equity securities, our existing stockholders could experience substantial dilution.Historical TrendsThe following table sets forth sources and uses of funds activity for the period shown: Year Ended December 31, 2013 2012 2011 (in thousands) Cash provided by (used in): Operating activities $(64,695) $(29,694) $(23,679)Investing activities (11,672) (1,145) (2,305)Financing activities 145,671 178,596 32,299 Increase in cash and equivalents $69,304 $147,757 $6,315 -66-Table of ContentsOperating Activities.The increase in the amount of cash used in operating activities of $35.0 million for 2013 compared to 2012 was primarily due to an increase in operatingloss of $60.6 million driven by lower government contract revenue and higher research and development costs and higher general and administrative costs,partially offset by non-cash adjustments to net income in 2013 as compared to 2012 as well as changes in operating assets and liabilities.The increase in the amount of cash used in operating activities of $6.0 million for 2012 as compared to 2011 was primarily due to a $12.2 millionincrease in cash used in changes in operating assets and liabilities in 2012 as compared to 2011, partially offset by a $6.2 million decrease in operating lossin 2012 as compared to 2011.Investing Activities.The increase in the amount of cash used in investing activities of $11.7 million for 2013 compared to 2012 was primarily due to the purchase of $7.3million of investments in February 2013 to secure two letters of credit issued in connection with certain manufacturing contracts and due to the purchase of a$0.6 million investment to secure a letter of credit for a security deposit relating to our Cambridge lease. Additionally, capital expenditures increased by $2.4million, primarily the result of the relocation of our corporate headquarters.The decrease in the amount of cash used in investing activities of $1.2 million for 2012 compared to 2011 was primarily due to a decrease of $1.1million in cash used for fixed asset purchases in 2012 as compared 2011.Financing Activities.Cash inflows from financing activities in 2013 were primarily the result of proceeds of $125.1 million from the sale of approximately 3.4 million sharesof common stock under the 2012 and 2013 ATM sales agreements. We also received $18.2 million in net proceeds from warrant exercises and $2.7 millionfrom stock option exercises during 2013 for which we issued approximately 2.6 million shares of additional common stock. These cash inflows were partiallyoffset by debt repayments of $0.1 million and shares withheld for taxes on issuance of restricted stock units of $0.2 million.Cash inflows from financing activities in 2012 were primarily the result of proceeds of $154.3 million from the sale of approximately 6.9 millionshares of common stock through public offerings, as well as proceeds of $20.6 million from the issuance of approximately 1.7 million shares from warrantexercises and $3.8 million from the exercise of stock options. These cash inflows were partially offset by debt repayments of $0.1 million.Cash inflows from financing activities in 2011 were primarily the result of proceeds of $32.1 million from the sale of approximately 3.8 million sharesthrough common stock offerings, as well as proceeds of $0.3 million from stock option and warrant exercises. These cash inflows were partially offset bydebt repayments of $0.1 million.As of December 31, 2013, we had warrants outstanding to purchase approximately 792,000 shares of our common stock at an average price of $10.05.These warrants expire during 2014 and if they are all exercised, we would receive proceeds of $8.0 million.Off-Balance Sheet ArrangementsDuring the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred toas structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or foranother contractually narrow or limited purpose. -67-Table of ContentsContractual Payment ObligationsIn our continuing operations, we have entered into long-term contractual arrangements from time to time for our facilities, the provision of goods andservices, and acquisition of technology access rights, among others. The following table presents contractual obligations arising from these arrangements as ofDecember 31, 2013: Payments Due by Period Total Less than 1Year 1-3Years 3-5Years More than 5Years (in thousands) Long-term debt(1) $2,250 $171 $342 $343 $1,394 Operating leases 27,924 3,535 7,702 8,065 8,622 Purchases Obligations(2) 169,718 55,641 85,557 28,520 — Totals(3) $199,892 $59,347 $93,601 $36,928 $10,016 Long-term debt consists of scheduled principal and interest payments on such debt. Interest on our long-term debt bears interest at a rate of 4.75% andmatures in February 2027. Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding to us and that specify all significantterms. Purchase obligations relate primarily to our DMD development program. Under our agreement with the University of Western Australia (“UWA”), described further in Note 11 in the Notes to the Consolidated FinancialStatements included elsewhere in this Annual Report on Form 10-K, we may be required to make certain upfront and milestone-based payments of up to$7.1 million. These potential milestone payments are not included in the above amounts because there is no guarantee the milestones will ever be met. Asof December 31, 2013, we have made upfront payments of $1.1 million. Upon the first commercial sale of eteplirsen, we have agreed to pay UWA $1.0million in milestone fees. For each additional product developed (up to five products), we have agreed to pay UWA milestone fees of $150,000,$350,000 and $500,000 upon initiation of Phase II trials, Phase III trials and regulatory approval, respectively.Recent Accounting PronouncementsSee “Note 2—Summary of Significant Accounting Policies—Recent Accounting Pronouncements” of the financial statements included elsewhere in thisAnnual Report on Form 10-K.Item 7A. Quantitative and Qualitative Disclosures About Market Risk.As of December 31, 2013, we had $264.9 million of cash, cash equivalents and invested cash, comprised of $257.0 million of cash and cashequivalents and $7.9 million of restricted investments. As of December 31, 2012, we had cash and cash equivalents of $187.7 million. We do not enter intoinvestments for trading or speculative purposes and our cash equivalents are invested in money market accounts. We believe that we do not have any materialexposure to changes in the fair value of these assets in the near term due to extremely low rates of investment interest and to the short term nature of our cashand cash equivalents. A 0.1% decline in interest rates, occurring January 1, 2014 and sustained throughout the period ended December 31, 2014, would beinconsequential. Future declines in interest rates, however, would reduce investment income, but are not likely to be a material source of revenue to ourcompany in the foreseeable future.Item 8. Financial Statements and Supplementary Data.The information required by this Item 8 begins on page F-1 in Item 15 of Part IV of this Annual Report on Form 10-K and is incorporated into this itemby reference. -68-123Table of ContentsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A. Controls and Procedures.(a) Evaluation of Disclosure Controls and ProceduresWe carried out an evaluation as of the end of the period covered by this Annual Report on Form 10-K, under the supervision and with the participationof our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedurespursuant to paragraph (b) of Rule 13a-15 and 15d-15 under the Exchange Act. Based on that review, the principal executive officer and principal financialofficer have concluded that our disclosure controls and procedures were not effective as of December 31, 2013, because of the material weakness in internalcontrol over financial reporting discussed in “Management’s Annual Report on Internal Control over Financial Reporting.” Disclosure controls and proceduresensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized, andreported within the time periods specified in the SEC rules and forms, and (2) is accumulated and communicated to our management, including our principalexecutive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.We do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control procedure, no matter how well conceived andoperated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in allcontrol procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company havebeen detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because ofsimple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or bymanagement override of the control. We considered these limitations during the development of our disclosure controls and procedures, and will continuallyreevaluate them to ensure they provide reasonable assurance that such controls and procedures are effective.Notwithstanding the ineffectiveness of our disclosure controls and procedures, we believe the consolidated financial statements present fairly in allmaterial respects, our financial position, results of operations, and cash flows as of December 31, 2013 and 2012, and for each of the years in the three yearperiod ended December 31, 2013, and the information included in the cumulative from inception presentations for the period of July 22, 1980 (inception) toDecember 31, 2013.(b) Management’s Annual Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting for our company, as such term is definedin Rules 13a-15(f) and 15d-15(f) under the Exchange Act.Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies andprocedures that: • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our managementand directors; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could havea material effect on our financial statements. -69-Table of ContentsBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.A material weakness is a deficiency or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibilitythat a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, managementused the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal Control — IntegratedFramework (1992). Based on this assessment, management identified a material weakness in the Company’s internal control over financial reporting asfollows: The Company did not design and implement controls to adequately review and consider the recognition and measurement of new significant researchand development contracts.This material weakness resulted in a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financialstatements related to research and development expenses and other current assets would not be prevented or detected. As a result of the aforementioned materialweakness, management has concluded that, as of December 31, 2013, our internal control over financial reporting was not effective based on the criteria in theCOSO Internal Control — Integrated Framework (1992).KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report onForm 10-K and, as part of its audit, has issued an adverse audit report on the effectiveness of our internal control over financial reporting as of December 31,2013 which is included in this Form 10-K.(c) Changes in Internal Control over Financial ReportingOther than the identification of the material weakness described above, there have not been any changes in our internal control over financial reporting asdefined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act during the three months ended December 31, 2013 that our certifying officers concludedmaterially affected, or are reasonably likely to materially affect, our internal control over financial reporting.In order to address the material weakness in internal control over financial reporting that was identified, management has designed and implementedprocedures and controls to review and consider the recognition and measurement of all new significant research and development contracts. Such contracts willbe reviewed by our accounting personnel with the requisite accounting knowledge, skills, and experience deemed necessary to perform such a review. -70-Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersSarepta Therapeutics, Inc.:We have audited Sarepta Therapeutics, Inc.’s and subsidiaries (a development stage company) internal control over financial reporting as of December31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). Sarepta Therapeutics, Inc.’s management is responsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on InternalControl over Financial Reporting (Item 9A(b)). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based onour audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely 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 evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonablepossibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A materialweakness related to the Company’s design and implementation of controls to adequately review and consider the recognition and measurement of newsignificant research and development contracts has been identified and included in management’s assessment.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balancesheets of Sarepta Therapeutics, Inc. and subsidiaries (a development stage company) as of December 31, 2013 and 2012, and the related consolidatedstatements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period endedDecember 31, 2013 and the information included in the cumulative from inception presentations for the period January 1, 2002 to December 31, 2013 (notseparately presented). This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2013consolidated financial statements, and this report does not affect our report dated March 3, 2014, which expressed an unqualified opinion on thoseconsolidated financial statements. -71-Table of ContentsIn our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives of the control criteria, SareptaTherapeutics, Inc. has not maintained effective internal control over financial reporting as of December 31, 2013, based on criteria established in InternalControl—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)./s/ KPMG LLPCambridge, MassachusettsMarch 3, 2014Item 9B. Other Information.None. -72-Table of ContentsPART IIIItem 10. Directors, Executive Officers and Corporate Governance.The information regarding our directors and executive officers required by this item will be included in either an amendment to this Annual Report onForm 10-K or in our definitive proxy statement for our 2014 annual meeting of stockholders to be filed with the Commission not later than 120 days after theend of the fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.Item 11. Executive Compensation.The information required by this item will be included in either an amendment to this Annual Report on Form 10-K or in our definitive proxy statementfor our 2014 annual meeting of stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this AnnualReport on Form 10-K and is incorporated herein by reference. Item 12. SecurityOwnership of Certain Beneficial Owners and Management and Related Stockholder Matters.The information required by this item will be included in either an amendment to this Annual Report on Form 10-K or in our definitive proxy statementfor our 2014 annual meeting of stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this AnnualReport on Form 10-K and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions, and Director Independence.The information required by this item will be included in either an amendment to this Annual Report on Form 10-K or in our definitive proxy statementfor our 2014 annual meeting of stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this AnnualReport on Form 10-K and is incorporated herein by reference.Item 14. Principal Accounting Fees and Services.The information required by this item will be included in either an amendment to this Annual Report on Form 10-K or in our definitive proxy statementfor our 2014 annual meeting of stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this AnnualReport on Form 10-K and is incorporated herein by reference. -73-Table of ContentsPART IVItem 15. Exhibits, Financial Statement Schedules.(a) The following documents are filed as part of this Annual Report on Form 10-K:(1) Financial StatementsThe following consolidated financial statements of the Company and the Report of KPMG LLP, Independent Registered Public Accounting Firm, areincluded in Part IV of this Annual Report on Form 10-K on the pages indicated: Report of KPMG LLP, Independent Registered Public Accounting Firm F-1 Report of Arthur Andersen, Independent Public Accountants F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations and Comprehensive Loss F-4 Consolidated Statements of Stockholders’ Equity (Deficit) F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 (2) Financial Statement SchedulesAll schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notesthereto.(3) ExhibitsThe exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below.(b) Exhibits.The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the SEC: ExhibitNumber Description Incorporated by Reference to Filings Indicated Form File No. Exhibit FilingDate ProvidedHerewith2.1 Agreement and Plan of Merger dated June 6, 2013 between Sarepta Therapeutics, Inc., aDelaware corporation, and Sarepta Therapeutics, Inc., an Oregon corporation. 8-K12B 001-14895 2.1 6/6/13 3.1 Amended and Restated Certificate of Incorporation. 8-K12B 001-14895 3.1 6/6/13 3.2 Bylaws. 8-K12B 001-14895 3.2 6/6/13 4.1 Form of Specimen Certificate for Common Stock. 10-Q 001-14895 4.1 8/8/13 4.2 Form of Common Stock Purchase Warrant, issued on January 30, 2009. 8-K 001-14895 4.4 1/30/09 4.3 Form of Common Stock Purchase Warrant, issued on August 25, 2009. 8-K 001-14895 4.1 8/24/09 -74-Table of ContentsExhibitNumber Description Incorporated by Reference to Filings Indicated Form File No. Exhibit FilingDate ProvidedHerewith10.1† Employment Agreement with Patrick Iversen, Ph.D., dated July 14,1997. 10KSB 000-22613 10.12 3/30/98 10.2† Amendment to Employment Agreement with Patrick Iversen, Ph.D.,dated December 28, 2008. 10-K 001-14895 10.5 3/15/11 10.3† Amendment No. 2 to Employment Agreement with Patrick Iversen,Ph.D., dated January 18, 2010. 10-K 001-14895 10.6 3/15/11 10.4† Amended and Restated Executive Employment Agreement dated April19, 2013 by and between Sarepta Therapeutics, Inc. andChristopher Garabedian. 10-Q 001-14895 10.2 5/9/13 10.5† Executive Employment Agreement dated January 10, 2011 by andbetween AVI BioPharma, Inc. and Effie Toshav. 10-Q 001-14895 10.1 5/10/11 10.6† Executive Employment Agreement dated March 29, 2011 by andbetween AVI BioPharma, Inc. and Peter S. Linsley, Ph.D. 10-Q 001-14895 10.4 5/10/11 10.7† Executive Employment Agreement dated June 13, 2011 by andbetween AVI BioPharma, Inc. and Edward Kaye, M.D. 10-Q 001-14895 10.4 8/8/11 10.8† Stand Alone Stock Option Grant between AVI BioPharma, Inc. andEffie Toshav dated January 10, 2011. 10-Q 001-14895 10.2 5/10/11 10.9† Stand Alone Stock Option Grant between the Registrant and PeterLinsley dated May 16, 2011. S-8 333-175031 4.8 6/20/11 10.10† Stand Alone Stock Option Grant between the Registrant and EdwardKaye dated June 20, 2011. S-8 333-175031 4.9 6/20/11 10.11† AVI BioPharma, Inc. 2002 Equity Incentive Plan. Schedule 14A 001-14895 Appendix A 4/11/02 10.12† Amended and Restated Sarepta Therapeutics, Inc. 2011 EquityIncentive Plan. 8-K12B 001-14895 10.1 6/6/13 10.13† Form of Stock Option Award Agreement under the Amended andRestated 2011 Equity Incentive Plan. 10-Q 001-14895 10.5 8/8/13 10.14† Form of Notice of Grant of Restricted Stock under the Amended andRestated 2011 Equity Incentive Plan. 10-Q 001-14895 10.4 8/8/13 10.15† AVI BioPharma, Inc. Non-Employee Director Compensation Policy. 8-K 001-14895 10.85 10/1/10 -75-Table of ContentsExhibitNumber Description Incorporated by Reference to Filings Indicated Form File No. Exhibit FilingDate ProvidedHerewith10.16† Form of Indemnification Agreement. 8-K 001-14895 10.86 10/8/10 10.17† Form of Restricted Stock Unit Award Agreement under 2011 Equity Incentive Plan. 8-K 001-14895 10.1 4/25/12 10.18† Form of Stock Appreciate Right Award Agreement under the 2011 Equity IncentivePlan. 10-Q 001-14895 10.2 11/7/12 10.19† Form of Senior Vice President Change in Control and Severance Agreement. 10-K 001-14895 10.19 3/15/13 10.20† Form of Vice President Change in Control and Severance Agreement. 10-K 001-14895 10.20 3/15/13 10.21† 2013 Employee Stock Purchase Plan. 8-K12B 001-14895 10.2 6/6/13 10.22† Executive Employment Agreement with Jayant Aphale, Ph.D. 10-Q 001-14895 10.1 8/8/13 10.23† Retention and Severance Benefits Letter Agreement dated May 9, 2013 by and betweenthe Company and Michael A. Jacobsen. 10-Q 001-14895 10.3 5/9/13 10.24† Offer Letter dated October 23, 2012 by and between Sarepta Therapeutics, Inc. andSandesh Mahatme. X10.25† Offer Letter dated October 23, 2012 by and between Sarepta Therapeutics, Inc. andDavid Tyronne Howton. X10.26† Executive Inducement Stock Option Award Agreement between Arthur Krieg andSarepta Therapeutics, Inc. X10.27† Sarepta Therapeutics, Inc. 2014 Employment Commencement Incentive Plan. X10.28† Form of Stock Option Award Agreement under 2014 Employment CommencementIncentive Plan. X10.29* Collaboration and License Agreement between Isis Pharmaceuticals and Ercole Biotech,Inc. dated May 16, 2003. 10-K 001-14895 10.78 3/16/10 10.30* Amended and Restated Exclusive License Agreement by and among The University ofWestern Australia, Sarepta Therapeutics, Inc. and Sarepta International CV, datedApril 10, 2013. 10-Q 001-14895 10.1 5/9/13 10.31 Agreement between AVI BioPharma, Inc. and the U.S. Defense Threat ReductionAgency dated May 5, 2009. 10-Q 001-14895 10.72 8/10/09 10.32 Amendment of Contract between AVI BioPharma, Inc. and the U.S. Defense ThreatReduction Agency (contract no. HDTRA1-07-C-0010), effective May 29, 2009. 10-Q 001-14895 10.74 8/10/09 -76-Table of ContentsExhibitNumber Description Incorporated by Reference to Filings Indicated Form File No. Exhibit FilingDate ProvidedHerewith10.33 Amendment of Contract between AVI BioPharma, Inc. and the U.S. Defense ThreatReduction Agency (contract no. HDTRA 1-07-C0010), effective September 30,2009. 10-Q 001-14895 10.77 11/9/09 10.34* Amendment of Contract between AVI BioPharma, Inc. and the U.S. Defense ThreatReduction Agency (contract no HDTRA 1-09-C-0046), effective March 25,2010. 10-Q 001-14895 10.81 5/10/10 10.35* Contract Number HDTRA1-10-C-0079 between Defense Threat Reduction Agencyand AVI BioPharma, Inc. dated June 4, 2010. 10-Q 001-14895 10.84 8/9/10 10.36* Modification No. PZ0001 to Contract Number HDTRA1-10-C-0079 betweenDefense Threat Reduction Agency and AVI BioPharma, Inc. effective March 3,2011. 10-Q 001-14895 10.3 5/10/11 10.37* Modification No. P00005 to Contract Number HDTRA1-10-C-0079 betweenDefense Threat Reduction Agency and AVI BioPharma, Inc. effective April 13,2011. 10-Q 001-14895 10.1 8/8/11 10.38* Contract Number W9113M-10-C-0056 between U.S. Army Space and MissileDefense Command and AVI BioPharma, Inc. dated July 14, 2010. 10-Q 001-14895 10.86 11/9/10 10.39* Contract Number W911QY-12-C-0117 between U.S. Department of Defense’sJoint Project Manager Transformational Medical Technologies and SareptaTherapeutics, Inc. dated August 23, 2012. 10-Q 001-14895 10.1 11/7/12 10.40* Modification No. P00005 to Contract Number W9113M-10-C-0056 between U.S.Army Space and Missile Defense Command and AVI BioPharma, Inc. effectiveAugust 15, 2011. 10-Q/A 001-14895 10.3 2/15/12 10.41* Sponsored Research Agreement between AVI BioPharma, Inc. and Charley’s Fund,Inc., effective October 12, 2007. 10-K 001-14895 10.58 3/17/08 10.42* First Amendment to Sponsored Research Agreement between AVI BioPharma, Inc.and Charley’s Fund, Inc. dated June 2, 2009. 10-Q 001-14895 10.75 8/10/09 10.43 Commercial Lease between Research Way Investments, Landlord, and Antivirals,Inc., Tenant, effective June 15, 1992. SB-2 333-20513 10.9 1/28/97 10.44 Lease Extension and Modification Agreement dated September 1, 1996, by andbetween Research Way Investments and Antivirals, Inc. 10-K 001-14895 10.53 3/15/11 10.45 Second Lease Extension and Modification Agreement dated January 24, 2006 byand between Research Way Investments and AVI BioPharma, Inc. 10-Q 001-14895 10.55 8/9/06 -77-Table of ContentsExhibitNumber Description Incorporated by Reference to Filings Indicated Form File No. Exhibit FilingDate ProvidedHerewith10.46 Real Property Purchase Agreement by and between WKL Investments Airport, LLCand AVI BioPharma, Inc., dated March 1, 2007, as amended. 10-Q 001-14895 10.61 8/9/07 10.47 Lease Agreement between AVI BioPharma, Inc. and Perpetua Power SourceTechnologies, Inc., dated November 23, 2011. 10-K 001-14895 10.42 3/13/12 10.48 First Amendment to Lease Agreement dated December 22, 2011 between AVIBioPharma, Inc. and Perpetua Power Source Technologies, Inc. 10-K 001-14895 10.43 3/13/12 10.49 Second Amendment to Lease Agreement dated January 20, 2012 between AVIBioPharma, Inc. and Perpetua Power Source Technologies, Inc. 10-K 001-14895 10.44 3/13/12 10.50 Lease dated July 27, 2009 by and between BMR-3450 Monte Villa Parkway, LLCand AVI BioPharma, Inc. 10-Q 001-14895 10.76 11/9/09 10.51 First Amendment to Lease dated August 30, 2011 by and between BMR-3450 MonteVilla Parkway LLC and AVI BioPharma, Inc. 10-Q 001-14895 10.4 11/8/11 10.52 Second Amendment to Lease dated January 31, 2012 by and between BMR-3450Monte Villa Parkway LLC and AVI BioPharma, Inc. 10-K 001-14895 10.47 3/13/12 10.53 Third Amendment to Lease dated May 31, 2012 by and between BMR-3450 MonteVilla Parkway LLC and AVI BioPharma, Inc. 10-Q 001-14895 10.2 8/7/12 10.54 Lease dated October 20, 2010, by and between S/I North Creek VII LLC and AVIBioPharma, Inc. 10-K 001-14895 10.57 3/15/11 10.55 Lease Agreement dated June 25, 2013 by and between Sarepta Therapeutics, Inc. andARE-MA Region No. 38, LLC. 8-K 001-14895 10.1 7/1/13 21.1 Subsidiaries of the Registrant. X23.1 Consent of Independent Registered Public Accounting Firm. X24.1 Power of Attorney (contained on signature page). X31.1 Certification of the Company’s President and Chief Executive Officer, ChristopherGarabedian, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X31.2 Certification of the Company’s Senior Vice President, Chief Financial Officer,Sandesh Mahatme, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X -78-Table of ContentsExhibitNumber Description Incorporated by Reference to Filings Indicated Form File No. Exhibit FilingDate ProvidedHerewith32.1** Certification of the Company’s President and Chief Executive Officer,Christopher Garabedian, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X32.2** Certification of the Company’s Senior Vice President, Chief FinancialOfficer, Sandesh Mahatme, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X101.INS XBRL Instance Document. X101.SCH XBRL Taxonomy Extension Schema Document. X101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. X101.DEF XBRL Taxonomy Extension Definition Linkbase Document. X101.LAB XBRL Taxonomy Extension Label Linkbase Document. X101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. X †Indicates management contract or compensatory plan, contract or arrangement.*Confidential treatment has been granted for portions of this exhibit.**Furnished herewith. -79-Table of ContentsSIGNATURESPursuant 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 itsbehalf by the undersigned, thereunto duly authorized. Dated: March 3, 2014 SAREPTA THERAPEUTICS, INC. By: /s/ Christopher Garabedian Christopher GarabedianPresident and Chief Executive OfficerPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Christopher Garabedianand Sandesh Mahatme, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true andlawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in eachcapacity stated below, and to file, any and all 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, ratifying and confirming all that saidattorneys-in-fact and agents or any of them or their and his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities indicated on March 3, 2014: Signature Title/s/ Christopher GarabedianChristopher Garabedian President, Chief Executive Officer and Director (Principal Executive Officer)/s/ Sandesh MahatmeSandesh Mahatme Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)/s/ William GoolsbeeWilliam Goolsbee Chairman of the Board/s/ M. Kathleen BehrensM. Kathleen Behrens, Ph.D. Director/s/ Anthony ChaseAnthony Chase Director/s/ John C. HodgmanJohn C. Hodgman Director/s/ Gil PriceGil Price, M.D. Director/s/ Hans WigzellHans Wigzell, M.D., Ph.D. Director -80-Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersSarepta Therapeutics, Inc.:We have audited the accompanying consolidated balance sheets of Sarepta Therapeutics, Inc. and subsidiaries (a development stage company) as ofDecember 31, 2013 and 2012, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows foreach of the years in the three-year period ended December 31, 2013 and the information included in the cumulative from inception presentations for the periodJanuary 1, 2002 to December 31, 2013 (not separately presented). These consolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The financial statements of SareptaTherapeutics, Inc. for the period July 22, 1980 (inception) to December 31, 2001 were audited by other auditors who have ceased operations. Those auditorsexpressed an unqualified opinion on those financial statements in their report dated February 21, 2002.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SareptaTherapeutics, Inc. and subsidiaries (a development stage company) as of December 31, 2013 and 2012, and the results of its operations and its cash flows foreach of the years in the three-year period ended December 31, 2013 and the information included in the cumulative from inception presentations for the periodJanuary 1, 2002 to December 31, 2013 (not separately presented), 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), Sarepta Therapeutics,Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 3, 2014 expressed an adverseopinion on the effectiveness of the Company’s internal control over financial reporting./s/ KPMG LLPCambridge, MassachusettsMarch 3, 2014 F-1Table of ContentsTHIS REPORT IS A CONFORMED COPY OF THE REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEENREISSUED BY THAT FIRM.Report of Arthur Andersen, Independent Public AccountantsReport of Independent Public AccountantsTo the Board of Directors and Shareholders of AVI BioPharma, Inc.We have audited the accompanying balance sheet of AVI BioPharma, Inc. (an Oregon corporation in the development stage) as of December 31, 2001,and the related statements of operations, shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2001 and for theperiod from inception (July 22, 1980) to December 31, 2001. These financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AVI BioPharma, Inc. as ofDecember 31, 2001, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2001 and for the periodfrom inception (July 22, 1980) to December 31, 2001, in conformity with accounting principles generally accepted in the United States./s/ Arthur Andersen LLPPortland, OregonFebruary 21, 2002 F-2Table of ContentsSarepta Therapeutics, Inc.(A Development Stage Company)Consolidated Balance Sheets(in thousands, except share data) December 31, 2013 2012 Assets Current Assets: Cash and cash equivalents $256,965 $187,661 Accounts receivable 3,530 4,713 Restricted investments 7,250 — Other current assets 3,061 1,534 Total Current Assets 270,806 193,908 Restricted investments 647 — Property and equipment, net of accumulated depreciation and amortization of $17,328 and $16,708 15,049 3,397 Patent costs, net of accumulated amortization of $1,622 and $2,626 5,042 4,913 Other assets 25 2,775 Total Assets $291,569 $204,993 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable $17,634 $7,532 Accrued employee compensation 5,047 2,741 Current portion of long-term debt 92 89 Warrant liability 9,006 65,193 Deferred revenue 3,299 3,304 Other current liabilities 888 27 Total Current Liabilities 35,966 78,886 Long-term debt 1,576 1,668 Deferred rent and other long-term liabilities 6,835 760 Total Liabilities 44,377 81,314 Commitments and contingencies Stockholders’ Equity: Preferred stock, $.0001 par value, 3,333,333 shares authorized; none issued and outstanding — — Common stock, $.0001 par value, 50,000,000 shares authorized; 37,751,920 and 31,703,817 issued andoutstanding at December 31, 2013 and 2012, respectively 4 3 Additional paid-in capital 790,424 554,927 Deficit accumulated during the development stage (543,236) (431,251)Total Stockholders’ Equity 247,192 123,679 Total Liabilities and Stockholders’ Equity $291,569 $204,993 See accompanying notes to consolidated financial statements. F-3Table of ContentsSarepta Therapeutics, Inc.(A Development Stage Company)Consolidated Statements of Operations and Comprehensive Loss(in thousands, except per share data) Year ended December 31, July 22, 1980(Inception) throughDecember 31,2013 2013 2012 2011 Revenues from license fees, grants and research contracts $14,219 $37,329 $46,990 $187,767 Operating expenses: Research and development 72,909 52,402 66,862 458,577 General and administrative 31,594 14,630 16,055 150,681 Acquired in-process research and development — — — 29,461 Operating loss (90,284) (29,703) (35,927) (450,952) Other income (loss): Interest income (expense) and other, net 326 354 587 9,849 Gain (loss) on change in warrant valuation (22,027) (91,938) 33,022 (88,995) Realized gain on sale of short-term securities—available-for-sale — — — 3,863 Write-down of short-term securities—available-for-sale — — — (17,001) Total other income (loss): (21,701) (91,584) 33,609 (92,284) Net loss $(111,985) $(121,287) $(2,318) $(543,236) Other comprehensive income (loss): Write-down of short-term securities—available-for-sale — — — 17,001 Realized gain on sale of short-term securities—available-for-sale — — — (3,863) Unrealized loss on short-term securities available-for-sale — — — (13,138) Total other comprehensive income (loss) — — — — Comprehensive loss $(111,985) $(121,287) $(2,318) $(543,236) Loss per share: Net loss per share—basic and diluted $(3.31) $(5.14) $(0.11) Weighted average number of common shares outstanding for computing basic anddiluted net loss per share (in thousands) 33,850 23,602 21,599 See accompanying notes to consolidated financial statements. F-4Table of ContentsSarepta Therapeutics, Inc.(A Development Stage Company)Consolidated Statements of Stockholders’ Equity (Deficit)(in thousands) PartnershipUnits Common Stock AdditionalPaid-In Capital DeficitAccumulatedDuring theDevelopmentStage TotalStockholders’Equity(Deficit) Shares Amount BALANCE AT JULY 22, 1980 (Inception) — — $— $— $— $— Issuance of partnership units, warrants and common stock 602 1,379 — 33,734 — 33,734 Compensation expense related to issuance of warrants for common stock and partnership units — — — 537 — 537 Exercise of warrants for partnership units and common stock 7 375 — 4,152 — 4,152 Exercise of options for common stock — 467 — 6,221 — 6,221 Exercise of warrants for common stock — 51 — 549 — 549 Issuance of common stock for ESPP — 163 — 2,417 — 2,417 Issuance of common stock and warrants for cash and securities, net of offering costs — 14,400 2 207,320 — 207,322 Issuance of common stock and warrants for the acquisition of business interests — 1,324 — 25,559 — 25,559 Issuance of common stock and warrants to vendors — 143 — 3,297 — 3,297 Stock-based compensation, net of cancellations of restricted stock — 160 — 21,419 — 21,419 Conversion of debt into common stock and partnership units 2 2 — 88 — 88 Issuance of common stock in exchange for partnership units (302) 272 — — — — Withdrawal of partnership net assets upon conveyance of technology (309) — — (177) — (177)Common stock subject to rescission, net — (11) — (289) — (289)Net loss — — — — (307,646) (307,646)BALANCE AT DECEMBER 31, 2010 — 18,725 2 304,827 (307,646) (2,817)Exercise of options for common stock — 30 — 166 — 166 Exercise of warrants for common stock — 35 — 759 — 759 Issuance of common stock for cash, net of offering costs — 3,834 — 32,098 — 32,098 Stock-based compensation, net of cancellations of restricted stock — — — 3,129 — 3,129 Net loss — — — — (2,318) (2,318)BALANCE AT DECEMBER 31, 2011 — 22,624 2 340,979 (309,964) 31,017 Exercise of options for common stock — 372 — 3,780 — 3,780 Exercise of warrants for common stock — 1,770 — 52,742 — 52,742 Issuance of common stock for cash, net of offering costs — 6,934 1 154,348 — 154,349 Stock-based compensation, net of cancellations of restricted stock — 4 — 3,078 — 3,078 Net loss — — — — (121,287) (121,287)BALANCE AT DECEMBER 31, 2012 — 31,704 $3 $554,927 $(431,251) $123,679 Exercise of options for common stock — 241 — 2,725 — 2,725 Exercise of warrants for common stock — 2,336 — 96,768 — 96,768 Restricted stock unit issuance — 31 — — — — Shares withheld for taxes — (7) — (226) — (226) Restricted stock awards granted — 6 — — — — Issuance of common stock for cash, net of offering costs — 3,441 1 125,103 — 125,104 Stock-based compensation, net of cancellations of restricted stock — — — 11,127 — 11,127 Net loss — — — — (111,985) (111,985) BALANCE AT DECEMBER 31, 2013 — 37,752 $4 $790,424 $(543,236) $247,192 See accompanying notes to consolidated financial statements. F-5Table of ContentsSarepta Therapeutics, Inc.(A Development Stage Company)Consolidated Statements of Cash Flows(in thousands) Year ended December 31, For the PeriodJuly 22, 1980(Inception) throughDecember 31,2013 2013 2012 2011 Cash flows from operating activities: Net loss $(111,985) $(121,287) $(2,318) $(543,236) Adjustments to reconcile net loss to net cash flows used in operatingactivities: Depreciation and amortization 1,277 1,525 1,300 23,247 Loss on abandonment of patents and disposal of property andequipment 590 357 190 3,226 Realized gain on sale of short-term securities—available-for-sale — — — (3,863) Write-down of short-term securities—available-for-sale — — — 17,001 Impairment charge on real estate owned — — 109 1,445 Stock-based compensation 11,127 3,078 3,129 43,200 Acquired in-process research and development — — — 29,461 Increase (decrease) on warrant valuation 22,027 91,938 (33,022) 88,995 Net increase (decrease) in accounts receivable, other current assetsand other assets 2,801 (3,587) (1,063) (5,960) Net increase (decrease) in accounts payable, accrued employeecompensation, and other liabilities 9,468 (1,718) 7,996 21,881 Net cash used in operating activities (64,695) (29,694) (23,679) (324,603) Cash flows from investing activities: Purchase of restricted investments (7,897) — — (7,897) Purchase of property and equipment (2,370) (108) (1,178) (22,357) Patent costs (1,405) (1,037) (1,127) (11,934) Purchase of marketable securities — — — (112,993) Sale of marketable securities — — — 117,724 Acquisition costs — — — (2,389) Net cash used in investing activities (11,672) (1,145) (2,305) (39,846) Cash flows from financing activities: Proceeds from exercise of options and warrants, and the sale of commonstock, warrants, and partnership units, net of offering costs 145,986 178,681 32,380 622,545 Repayments of long-term debt (89) (85) (81) (519) Other financing activities, net (226) — — (612) Net cash provided by financing activities 145,671 178,596 32,299 621,414 Increase in cash and cash equivalents 69,304 147,757 6,315 256,965 Cash and cash equivalents: Beginning of period 187,661 39,904 33,589 — End of period $256,965 $187,661 $39,904 $256,965 Supplemental disclosure of cash flow information: Cash paid during the year for interest $144 $86 $90 $719 Supplemental schedule of noncash investing activities and financing activities: Short-term securities—available-for-sale received in connectionwith the private offering $— $— $— $17,897 Issuance of common stock in satisfaction of warrants and otherliabilities $78,214 $32,191 $643 $111,048 Tenant improvements paid by landlord $6,214 $— $— $6,214 Property and equipment included in accounts payable and otherliabilities $3,964 $— $— $3,964 Issuance of common stock for building purchase $— $— $— $750 Assumption of long-term debt for building purchase $— $— $— $2,200 Issuance of common stock to acquire assets $— $— $— $8,075 Assumption of liabilities to acquire assets $— $— $— $2,124 See accompanying notes to consolidated financial statements. F-6Table of ContentsSarepta Therapeutics, Inc.(A Development Stage Company)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. ORGANIZATION AND NATURE OF BUSINESSBusinessSarepta Therapeutics, Inc. and its wholly-owned subsidiaries (“Sarepta” or the “Company”) is a biopharmaceutical company focused on the discoveryand development of unique RNA-based therapeutics for the treatment of rare and infectious diseases. Applying the Company’s proprietary platformtechnologies, the Company is able to target a broad range of diseases and disorders through distinct RNA-based mechanisms of action. The Company isfocused on advancing the development of its Duchenne muscular dystrophy (DMD) drug candidates, including its lead product candidate, eteplirsen, forwhich the Company is currently conducting an ongoing open label extension study following completion of its initial Phase IIb clinical trials. The Company isalso focused on developing therapeutics for the treatment of infectious diseases, including its lead infectious disease program aimed at the development of adrug candidate for the Marburg hemorrhagic fever virus for which the Company has historically received significant financial support from U.S. governmentresearch contracts.Since its inception in 1980, the Company has incurred losses of approximately $543.2 million, substantially all of which resulted from expendituresrelated to research and development and general and administrative charges partially offset by revenue generated from research contracts with and grants fromthe U.S. government. As of December 31, 2013, the Company has completed all of its contracts with the U.S. government except for the July 2010 agreementand the August 2012 agreement for the development of therapeutics against the Marburg virus. The Company has not generated any material revenue fromproduct sales to date, and there can be no assurance that revenues from product sales will be achieved. Moreover, even if the Company does achieve revenuefrom product sales, the Company is likely to continue to incur operating losses in the near term.As of December 31, 2013, the Company had $264.9 million of cash, cash equivalents and invested cash, comprised of $257.0 million of cash andcash equivalents and $7.9 million of restricted investments, which the Company believes, taking into consideration outstanding warrants, is sufficient tofund its current operational plan for the next twelve months. Should the Company’s funding from the U.S. government cease or be delayed, the Companywould likely curtail certain of its infectious disease research and development efforts unless additional funding was obtained. The Company is also likely topursue additional cash resources through public or private financings, seeking additional government contracts, and from establishing collaborations orlicensing its technology to other companies.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of PresentationThe accompanying consolidated financial statements reflect the accounts of Sarepta Therapeutics, Inc. and its wholly-owned subsidiaries. All inter-company transactions between and among its consolidated subsidiaries have been eliminated. The consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United States of America (“GAAP”). Management has determined that the Company operatesin one segment: the development of pharmaceutical products on its own behalf or in collaboration with others.Estimates and UncertaintiesThe preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and the disclosure of F-7Table of Contentscontingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reportingperiod. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the valuation of stock-basedawards and liability classified warrants, research and development expenses, and revenue recognition.Cash and Cash EquivalentsThe Company considers all highly liquid investments with an original maturity of 90 days or less from the date of purchase to be cash equivalents.Accounts ReceivableAccounts receivable are generally stated at invoiced amount and do not bear interest. Because the accounts receivable are primarily from the U.S.government and historically no amounts have been written off, an allowance for doubtful accounts receivable is not considered necessary. The accountsreceivable balance included $2.4 million and $3.2 million of receivables from the U.S. government that were unbilled at December 31, 2013 and 2012,respectively.Property and EquipmentProperty and equipment are carried at cost, subject to review for impairment whenever events or changes in circumstances indicate that the carryingamount of the asset may not be recoverable. The cost of normal, recurring, or periodic repairs and maintenance activities related to property and equipment areexpensed as incurred. The cost for planned major maintenance activities, including the related acquisition or construction of assets, is capitalized if the repairwill result in future economic benefits.The Company generally depreciates the cost of its property and equipment using the straight-line method over the estimated useful lives of the respectiveassets, which are summarized as follows: Asset Category Useful livesLab equipment 5 yearsOffice equipment 5 yearsLeasehold improvements Lesser of the useful life or the term of the respective leaseBuilding 30 yearsConstruction in Progress Not depreciated until put into serviceAmounts included in property and equipment are as follows: As of December 31, 2013 2012 (in thousands) Lab equipment $7,728 $6,890 Office equipment 1,432 1,301 Leasehold improvements 10,058 10,058 Building 1,856 1,856 Construction in progress 11,303 — Property and equipment, gross 32,377 20,105 Less accumulated depreciation (17,328) (16,708)Property and equipment, net $15,049 $3,397 At December 31, 2013, the Company recorded construction in progress related to the Cambridge headquarters lease totaling $11.3 million, of which$6.2 million was paid by the landlord as part of a tenant improvement allowance which is recorded in other long-term liabilities. These assets will be placedinto service during the first quarter of fiscal 2014.In 2009, the Company listed for sale the industrial property it owns in Corvallis, Oregon. In connection with this decision, the Company classified theproperty as “Property held for sale” and ceased depreciating the F-8Table of Contentsproperty. While the property was held for sale, the Company, with the assistance of independent appraisals, periodically estimated the fair market value lessthe costs to sell the property and in 2011 and 2010, recorded impairment charges of $0.1 million and $0.4 million, respectively. In November 2011, theCompany leased approximately 70% of the building to a third party through March 31, 2017 at rates ranging from $14,500 per month to $15,500 per month.Under the terms of the agreement, the third party can terminate the lease in November 2014 upon proper notice and delivery of a termination fee. In addition,the third party has the option to purchase the building for prices ranging from $2.0 million to $2.2 million during the initial lease term. Upon entering into thelease agreement, the Company reclassified the $1.9 million carrying value of the building from “Property held for sale” to “Property and equipment” andbegan depreciating the building over 30 years which is the remaining term of the ground lease. Rent earned on the building is recorded as “Interest income andother, net” and was $0.2 million and $0.1 million in 2013 and 2012, respectively.Depreciation expense was $0.8 million in 2013, $1.0 million in 2012, and $0.8 million in 2011.Patent CostsPatent costs consist primarily of external legal costs, filing fees incurred to file patent applications and renewal fees on proprietary technology developedor licensed by the Company. Patent costs associated with applying for a patent, being issued a patent and annual renewal fees are capitalized. Costs to defend apatent and costs to invalidate a competitor’s patent or patent application are expensed as incurred. Patent costs are amortized on a straight-line basis over theshorter of the estimated economic lives or the initial term of the patents, generally 20 years. Patent amortization expense was $0.4 million, $0.6 million and$0.5 million for the years ended December 31, 2013, 2012 and 2011, respectively. The Company also expensed the remaining net book value of previouslycapitalized patents that were later abandoned of $0.5 million, $0.4 million and $0.2 million in 2013, 2012 and 2011, respectively. The Company expects toincur amortization expense of approximately $0.5 million per year over the next five years based on the unamortized patent costs as of December 31, 2013.Revenue RecognitionGovernment Research Contract Revenue. Substantially all of the Company’s revenue is generated from U.S. government research contracts andgrants. See “Note 6—Government Contracts.” The Company’s contracts with the U.S. government are cost plus contracts providing for reimbursed costswhich include overhead and general and administrative costs and a target fee. The Company recognizes revenue from U.S. government research contractsduring the period in which the related expenses are incurred and presents such revenues and related expenses gross in the consolidated financial statements.License Arrangements. License arrangements may consist of non-refundable upfront license fees, data transfer fees, research reimbursementpayments, exclusive licensed rights to patented or patent pending compounds, technology access fees, various performance or sales milestones and futureproduct royalty payments. Some of these arrangements are multiple element arrangements. The Company defers recognition of non-refundable upfront fees if ithas continuing performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable fee has noutility to the licensee that is separate and independent of Company performance under the other elements of the arrangement. In addition, if the Company hascontinuing involvement through research and development services that are required because of its know-how and expertise related to the technology that isproprietary to the Company, or can only be performed by the Company, then such up-front fees are deferred and recognized over the period of continuinginvolvement.Research and DevelopmentResearch and development costs are expensed as incurred.Research and development expense consists of costs associated with research activities as well as costs associated with the Company’s productdevelopment efforts, conducting preclinical studies, and clinical trial and manufacturing costs. F-9Table of ContentsDirect research and development expenses associated with the Company’s programs include clinical trial site costs, clinical manufacturing costs, costsincurred for consultants and other outside services, such as data management and statistical analysis support, and materials and supplies used in support ofthe clinical programs. Indirect costs of the Company’s clinical program include salaries, stock based compensation, and an allocation of the Company’sfacility costs. When third-party service providers’ billing terms do not coincide with the Company’s period-end, the Company is required to make estimates ofits obligations to those third parties, including clinical trial and pharmaceutical development costs, contractual services costs and costs for supply of its drugcandidates, incurred in a given accounting period and record accruals at the end of the period. The Company bases its estimates on its knowledge of theresearch and development programs, services performed for the period, past history for related activities and the expected duration of the third-party servicecontract, where applicable.Stock CompensationThe Company issues stock options, stock appreciation rights, restricted stock and restricted stock units to certain employees, officers and directors.The Company accounts for stock compensation using the fair value method, which results in the recognition of compensation expense over the vesting periodof the awards. See “Note 3—Stock Compensation” for additional information.Income TaxesThe Company follows the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective taxbases and operating loss and tax credit carryforwards. It is the intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in thoseoperations and not to repatriate the earnings to the United States. Accordingly, the Company does not provide for deferred taxes on the excess of the financialreporting over the tax basis in its investments in foreign subsidiaries as they are considered permanent in duration. To date, the Company has not had anyearnings in its non-U.S. subsidiaries.Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered and settled. A valuation allowance is recorded to reduce the net deferred tax asset to zero because it is more likely thannot that the net deferred tax asset will not be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than notof being sustained upon an examination.Fair Value of Financial InstrumentsThe Company measures at fair value certain financial assets and liabilities in accordance with a hierarchy of valuation techniques based on whether theinputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, whileunobservable inputs reflect the Company’s market assumptions. There are three levels of inputs that may be used to measure fair-value: • Level 1—quoted prices for identical instruments in active markets; • Level 2—quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active,and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and • Level 3—valuations derived from valuation techniques in which one or more significant value drivers are unobservable. F-10Table of ContentsThe Company’s assets and liabilities measured at fair value on a recurring basis consisted of the following as of the date indicated: Fair Value Measurement as of December 31, 2013 Total Level 1 Level 2 Level 3 (in thousands) Restricted investments, current $7,250 $7,250 $— $— Restricted investments, noncurrent 647 647 Total assets $7,897 $7,897 $— $— Fair Value Measurement as of December 31, 2013 Total Level 1 Level 2 Level 3 (in thousands) Warrants* $9,006 $— $— $9,006 Total liabilities $9,006 $— $— $9,006 Fair Value Measurement as of December 31, 2012 Total Level 1 Level 2 Level 3 (in thousands) Warrants* $65,193 $— $— $65,193 Total liabilities $65,193 $— $— $65,193 *See “Note 8—Warrants” for additional information related to the determination of fair value of the warrants.As of December 31, 2012, there were no restricted investments held by the Company. The carrying amounts reported in the consolidated balance sheetsfor cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of the immediate or short-term maturity of thesefinancial instruments and carrying amounts reported for long-term debt approximate fair value based on market activity for other debt instruments withsimilar characteristics and comparable risk.Rent ExpenseThe Company’s operating leases for its Cambridge, Massachusetts and Corvallis, Oregon facilities provide for scheduled annual rent increasesthroughout each lease’s term. The Company recognizes the effects of the scheduled rent increases on a straight-line basis over the full term of the leases, whichexpire in 2020 for the Cambridge, Massachusetts and Corvallis, Oregon facilities.Commitments and ContingenciesThe Company records liabilities for legal and other contingencies when information available to the Company indicates that it is probable that a liabilityhas been incurred and the amount of loss can be reasonably estimated. Legal costs in connection with legal and other contingencies are expensed as costs areincurred.Long-Lived Asset ImpairmentLong-lived assets held and used by the Company and intangible assets with determinable lives are reviewed for impairment whenever events orcircumstances indicate that the carrying amount of assets may not be F-11Table of Contentsrecoverable. The Company evaluates recoverability of assets to be held and used by comparing the carrying amount of an asset to future net undiscountedcash flows to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which thecarrying amount of the assets exceeds the fair value of the assets. Such reviews assess the fair value of the assets based upon estimates of future cash flowsthat the assets are expected to generate.The Company conducts periodic evaluations of the value of its patents. Pursuant to these evaluations, the Company recorded charges of $0.5 million,$0.4 million and $0.2 million in 2013, 2012 and 2011, respectively, for previously capitalized costs related to patents that were abandoned.Recent Accounting PronouncementsIn February 2013, the Financial Accounting Standards Board (the “FASB”) issued new guidance which requires disclosure of significant amountsreclassified out of accumulated other comprehensive income by component and their corresponding effect on the respective line items of net income. Thisguidance was adopted by the Company in fiscal year 2013. The adoption of this guidance did not have an impact on the Company’s consolidated financialstatements.In July 2013, the FASB issued new guidance which amends the guidance related to the presentation of unrecognized tax benefits and allows for thereduction of a deferred tax asset for a NOL carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxableincome or tax due if the tax position is disallowed. The new guidance is effective for annual and interim periods for fiscal years beginning after December 15,2013, and early adoption is permitted. Since the guidance relates only to the presentation of unrecognized tax benefits, the Company does not expect itsadoption in January 2014 will have a material effect on its financial position, results of operations or cash flows.3. STOCK COMPENSATIONThe Company previously sponsored a 2002 Equity Incentive Plan (the “2002 Plan”) pursuant to which it issued options to purchase its common stockto the Company’s employees, directors and service providers. In June 2011, the 2002 Plan was replaced by the 2011 Equity Incentive Plan (the “2011 Plan”and, together with the 2002 Plan, the “Plans”) following approval by the Company’s stockholders. There will be no further grants under the 2002 Plan. The2011 Plan allows for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares andperformance units. As of December 31, 2013, 2,879,000 shares of common stock remain available for future grant. In June 2013, the Company’sstockholders approved the 2013 Employee Stock Purchase Plan (“ESPP”) with 250,000 shares of common stock available to be issued as of December 31,2013.Stock OptionsHistorically, stock options granted under the 2002 Plan prior to December 31, 2010 vested over a three year period, with one-third of the underlyingshares vesting on each anniversary of grant, and have a ten year term, subject to the terms of the applicable plan under which they were granted. Beginning inJanuary 2011, stock options granted under the 2002 Plan vest over a four year period, with one-fourth of the underlying shares vesting on the first anniversaryof the grant and 1/48th of the underlying shares vesting monthly thereafter, such that the underlying shares will be fully vested on the fourth anniversary ofthe grant.Stock options granted under the 2011 Plan have a ten year term and vest over a four year period, with one-fourth of the underlying shares vesting on thefirst anniversary of the grant and 1/48th of the underlying shares vesting monthly thereafter, such that the underlying shares will be fully vested on the fourthanniversary of the grant, subject to the terms of the applicable plan under which they were granted. F-12Table of ContentsThe Company’s stock option activity consisted of the following as of the dates indicated: For the Year Ended December 31, 2013 2012 2011 Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Options outstanding at beginning of year 2,522,522 $11.76 2,417,659 $11.18 1,415,009 $12.84 Granted 2,283,719 34.18 1,269,470 12.92 1,595,375 9.18 Exercised (241,056) 11.31 (371,353) 10.18 (25,291) 6.54 Canceled or expired (374,818) 16.83 (793,254) 12.59 (567,434) 9.90 Options outstanding at end of year 4,190,367 $23.46 2,522,522 $11.76 2,417,659 $11.18 Exercisable at year end 1,051,329 $11.91 615,394 $12.71 742,211 $15.60 Vested at December 31, 2013 and expected to vest 3,467,069 $21.50 AggregateIntrinsicValue WeightedAverageRemainingContractualLife (Years) Options outstanding at end of year $18,544,313 8.58 Exercisable at end of year 9,856,124 7.04 Vested at December 31, 2013 and expected to vest 18,069,138 8.41 The weighted-average fair value per share of stock options granted during the 2013, 2012 and 2011 was $22.86, $9.54 and $6.12, respectively.During the same periods, the total intrinsic value of stock options exercised was $5.4 million, $5.0 million, and $0.1 million, respectively. The total grantdate fair value of stock options vested for 2013, 2012 and 2011 was $4.9 million, $3.7 million and $2.8 million, respectively.During 2013, 2012 and 2011, $2.7 million, $3.8 million and $0.2 million, respectively, was received upon the exercise of stock options.Valuation AssumptionsStock-based compensation costs for stock options are based on the fair value calculated from the Black-Scholes-Merton option-pricing model on the dateof grant. The fair value of stock option grants is amortized as compensation expense on a straight-line basis over the vesting period of the grants.The fair values of stock options granted during the periods presented were measured on the date of grant using the Black-Scholes-Merton option-pricingmodel, with the following assumptions: Year Ended December 31, 2013 2012 2011 Risk-free interest rate 0.7% - 1.7% 0.6% - 1.1% 0.9% - 2.4% Expected dividend yield 0% 0% 0% Expected lives 4.8 - 5.0 years 4.8 - 5.3 years 5.2 - 8.9 years Expected volatility 80.0% - 90.7% 79.7% - 108.6% 78.2% - 81.6% The risk-free interest rate is estimated using an average of treasury bill interest rates over a historical period commensurate with the expected term of theoption that correlates to the prevailing interest rates at the time of grant. The expected dividend yield is zero as the Company has not paid any dividends to dateand does not expect F-13Table of Contentsto pay dividends in the future. The expected lives are estimated using expected and historical exercise behavior. For the year ended December 31, 2013, expectedvolatility was estimated using a blend of calculated volatility of the Company’s common stock over a historical period and implied volatility in exchange-traded options of the Company’s common stock. Prior to January 1, 2013, expected volatility was estimated using calculated volatility of the Company’scommon stock over a historical period commensurate with the expected term of the option. The amounts estimated according to the Black-Scholes-Mertonoption pricing model may not be indicative of the actual values realized upon the exercise of these options by the holders.The Company is required to estimate potential forfeiture of stock grants and adjust compensation cost recorded accordingly. The estimate of forfeituresis adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimatedforfeitures are recognized through a cumulative catch-up in the period of change and impact the amount of stock compensation expense to be recognized infuture periods.Restricted Stock AwardsIn 2013, 2012 and 2011, the Company granted a total of 6,000, 4,998 and 5,000 shares of restricted stock, respectively to members of its board ofdirectors. These shares vest on the first anniversary of the grant. During 2013, 2012 and 2011, the Company recognized compensation expense related to theseshares of $149 thousand, $38 thousand and $22 thousand, respectively.The following table sets forth restricted stock activity for the years shown: For the Year Ended December 31, 2013 2012 2011 Shares WeightedAverageGrant DateFair Value Shares WeightedAverageGrant DateFair Value Shares WeightedAverageGrant DateFair Value Restricted Stock Awards outstanding at beginning of year 4,998 $10.08 5,000 $8.46 3,333 $7.80 Granted 6,000 34.92 4,998 10.08 5,000 8.46 Vested (4,998) 10.08 (5,000) 8.46 (3,333) 7.80 Forfeited or canceled — — — — — — Restricted Stock Awards outstanding at end of year 6,000 $34.92 4,998 $10.08 5,000 $8.46 The weighted-average grant-date fair value of restricted stock awards is the market price of the Company’s common stock on the date of grant which isamortized to stock-based compensation expense on a straight-line basis over the vesting period of the grants. The total grant-date fair values of restricted stockawards that vested during 2013, 2012 and 2011 were approximately $50 thousand, $42 thousand and $26 thousand, respectively. F-14Table of ContentsRestricted Stock UnitsIn April 2012, the Company granted 32,377 shares of restricted stock units (RSUs) to employees in lieu of cash for a portion of the 2011 bonus. Theseshares vest over a two-year period and have a weighted average grant date fair value of $5.40 per share. In addition, in August 2012, 7,500 RSUs with a grantdate fair value of $10.08 per share were granted to an officer of the Company. The Company did not grant any RSUs in 2013 or 2011. The weighted-averagegrant-date fair value of RSU awards is based on the market price of the Company’s common stock on the date of grant which is amortized to stock-basedcompensation expense on a straight-line basis over the vesting period of the grants. The following table sets forth restricted stock unit activity for the periodshown: For the Year Ended December 31, 2013 2012 Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Restricted Stock Units outstanding at beginningof year 38,260 $6.32 — $— Granted — — 39,877 6.28 Vested (31,379) 6.52 — — Forfeited or canceled (374) 5.40 (1,617) 5.40 Restricted Stock Units outstanding at end ofyear 6,507 $5.40 38,260 $6.32 The weighted-average grant-date fair value of restricted stock units is the market price of the Company’s common stock on the date of grant which isamortized to stock-based compensation expense on a straight-line basis over the vesting period of the grants. The total grant-date fair value of restricted stockunits that vested during 2013 was approximately $0.2 million.Stock Appreciation RightsThe Company issues Stock Appreciation Rights (SARs) to employees on the same terms as options granted to employees. The grant date fair value ofthe SARs is determined using the same valuation assumptions as for stock options described above. Stock-based compensation expense is recognized on astraight-line basis over the vesting period of the SARs.In August 2012, 70,000 SARs were granted to the Company’s President and CEO and have an exercise price of $10.08 per share. In November 2012,100,000 SARs were granted to the Company’s Senior Vice-President and CFO and have an exercise price of $23.85 per share. The SARs are classified asequity as the agreements require settlement in shares of stock. The following table sets forth stock appreciation rights activity for the period shown: For the Year Ended December 31, 2013 2012 Shares Weighted AverageExercise Price Shares Weighted AverageExercise Price Stock Appreciation Rights outstanding at beginning of year 170,000 $18.18 — $— Granted — — 170,000 18.18 Stock Appreciation Rights outstanding at end of year 170,000 $18.18 170,000 $18.18 Exercisable at end of year 50,416 $17.48 Vested at December 31, 2013 and expected to vest 170,000 $18.18 F-15Table of Contents AggregateIntrinsicValue WeightedAverageRemainingContractualLife (Years) Stock Appreciation Rights outstanding at end of year $720,300 8.76 Exercisable at end of year 240,097 8.75 Vested at December 31, 2013 and expected to vest 720,300 8.76 The total grant-date fair value of stock appreciation rights that vested during 2013 was approximately $0.7 million.Employee Stock Purchase Plan (ESPP)Under the Company’s ESPP, participating employees purchase common stock through payroll deductions. The purchase price is equal to 85% of thelower of the closing price of the Company’s common stock on the first business day and the last business day of the relevant plan period. The initial 26-month award period will end on August 31, 2015. Each subsequent offering period will begin on March 1 or September 1.For the year ended December 31, 2013, the fair value of stock purchase rights ranges from $16.12 to $24.65 per share on 54,995 shares estimated tobe purchased during the initial award period. The fair value was estimated using the Black-Scholes-Merton option-pricing model. The Company used aweighted-average stock-price volatility ranging from 84% to 98%, expected option life assumption from 0.7 to 2.2 years and a risk-free interest rate from 0.1%to 0.4%. The Company recorded $0.5 million of stock-based compensation expense for the year ended December 31, 2013 related to the ESPP. For 2012 and2011 there was no ESPP and as such no expense was recorded for those periods.Stock-based Compensation ExpenseTotal stock-based compensation expense recognized in 2013, 2012 and 2011 was $11.1 million, $3.1 million and $3.1 million, respectively. Asummary of the stock-based compensation expense recognized in the statement of operations and comprehensive loss is as follows: Year Ended December 31, 2013 2012 2011 (in thousands) Research and development $3,888 $1,173 $1,279 General and administrative 7,239 1,905 1,850 Total $11,127 $3,078 $3,129 As of December 31, 2013, there was $47.2 million of total unrecognized compensation cost related to non-vested share-based compensationarrangements, including stock options, restricted stock, RSUs, and SARs, granted under the Plan. These costs are expected to be recognized over a weighted-average period of 3.1 years.In 2011, the Company entered into separation agreements and releases with several of its former executives. Pursuant to these agreements, the Companyimmediately vested certain outstanding stock options held by these departing executives and extended the period in which the options could be exercised for aperiod of up to one year. As a result of these separation agreements and releases, the Company recorded a stock-based compensation expense of $0.5 millionand severance and other compensation expenses of $1.3 million in 2011. There were no significant modifications to outstanding stock awards in 2013 or2012.4. LOSS PER SHAREBasic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted net income (if any)per share is computed by dividing net income (if any) by the weighted-average number of common shares and dilutive common stock equivalent sharesoutstanding. Given that the Company was in a loss position for each of the periods presented, there is no difference between basic and diluted net loss pershare since the effect of common stock equivalents would be anti-dilutive and are therefore excluded from the diluted net loss per share calculation. F-16Table of Contents Year Ended December 31, 2013 2012 2011 (in thousands, except per share amounts) Net loss $(111,985) $(121,287) $(2,318)Weighted average number of shares of common stock and common stock equivalents outstanding: Weighted average number of common shares outstanding for computing basic earnings per share 33,850 23,602 21,599 Dilutive effect of warrants and stock options after application of the treasury stock method* — — — Weighted average number of common shares outstanding for computing diluted earnings per share 33,850 23,602 21,599 Net loss per share—basic and diluted $(3.31) $(5.14) $(0.11) *Warrants, stock options, restricted stock units and stock appreciation rights to purchase approximately 5,158,382, 5,858,000 and 7,285,000 shares ofcommon stock as of December 31, 2013, 2012 and 2011, respectively, were excluded from the net loss per share calculation as their effect would have beenanti-dilutive.5. EQUITY FINANCINGIn April 2011, the Company sold 3.8 million shares of its common stock at $9.00 per share in an offering registered under the Securities Act. Theoffering generated net proceeds of $32.1 million.In September and October 2012, the Company sold 2.0 million shares of its common stock through an At-the-Market (the “2012 ATM”) offeringregistered under the Securities Act which generated net proceeds of $36.2 million. In December 2012, the Company sold 4.9 million shares of its commonstock for $25.25 per share in an offering registered under the Securities Act. The offering generated net proceeds of $118.1 million.In January 2013, the Company sold approximately 87,000 shares of common stock through its 2012 ATM and generated $2.1 million in net proceeds.This issuance fully exhausted the sales of common stock available under the 2012 ATM sales agreement.On July 3, 2013, the Company entered into a second ATM offering (the “2013 ATM”) allowing the Company to sell, at its option, up to an aggregate of$125 million of shares of common stock at market prices. Through December 31, 2013, the Company sold approximately 3.4 million shares under the 2013ATM, generating $123.0 million in net proceeds and has completed the sales of common stock available under this arrangement.6. GOVERNMENT CONTRACTSThe Company recognizes revenue from U.S. and European Union (E.U.) government research contracts during the period in which the relatedexpenditures are incurred and presents revenue and related expenses gross in the consolidated statement of operations and comprehensive loss. In the periodspresented, substantially all of the revenue generated by the Company was derived from government research contracts. In the periods presented, nearly all ofthe revenue the Company generated was derived from research contracts with and grants from the U.S. government. As of December 31, 2013, the Companyhad completed all of its contracts with the DoD except for the Marburg portion of the July 2010 and 2012 agreements for the development of therapeuticsagainst Ebola and Marburg viruses. F-17Table of ContentsThe following table sets forth the revenue from each of the Company’s contracts with the U.S. government and other revenue for the years endedDecember 31, 2013, 2012 and 2011. Year Ended December 31, 2013 2012 2011 (in thousands) July 2010 Agreement (Ebola and Marburg IV) $9,064 $36,557 $42,875 June 2010 Agreement (H1N1) 427 — 3,490 May 2009 Agreement (H1N1) — — 516 August 2012 Agreement (Intramuscular administration) 2,791 673 — November 2012 SKIP-NMD Agreement (DMD) 1,263 — — July 2013 Children’s National Medical Center 674 — — Other Agreements — 99 109 Total $14,219 $37,329 $46,990 The following is a description of contracts with the U.S. government:July 2010 Contract (Ebola and Marburg Intravenous administration)On July 14, 2010, the Company was awarded the DoD contract managed by the U.S. Department of Defense’s Joint Project Manager TransformationalMedical Technologies (“JPM-TMT”) program for the advanced development of its hemorrhagic fever virus therapeutic candidates, AVI-6002 and AVI-6003,against the Ebola and Marburg viruses, respectively. In February 2012, the Company announced that it received permission from the FDA to proceed with asingle oligomer from AVI-6003, AVI-7288, as the lead product candidate against Marburg virus infection.On August 2, 2012, the Company received a stop-work order related to the Ebola virus portion of the contract and, on October 2, 2012, the DoDterminated the Ebola portion of the contract for the convenience of the government due to government funding constraints.The remaining Marburg portion of the contract is structured into four segments and has an aggregate remaining period of performance spanningapproximately four years if DoD exercises its options for all segments. Activities under the first segment began in July 2010 and include Phase I studies inhealthy volunteers as well as preclinical studies.After completion of the first segment, and each successive segment, DoD has the option to proceed to the next segment. If DoD exercises its options forsegments II, III and IV, the Company’s contract activities would include all clinical and licensure activities necessary to obtain FDA regulatory approval for thetherapeutic candidate against the Marburg virus. The funding for segments II, III and IV of the Marburg virus portion of the contract is estimated to beapproximately $84.4 million.June 2010 Agreement (H1N1/Influenza)On June 4, 2010, the Company entered into a contract with the Defense Threat Reduction Agency (“DTRA”) to advance the development of AVI-7100 asa medical countermeasure against the pandemic H1N1 influenza virus in cooperation with the Transformational Medical Technologies program, or TMT, ofthe DoD. The period of performance for this contract ended on June 3, 2011. The Company recognized $0.4 million associated with this agreement in 2013,which was the result of an indirect rate adjustment.May 2009 Agreement (H1N1/Influenza)In May 2009, the Company entered into a contract with DTRA to develop swine flu drugs using its proprietary PMO and PMOplus antisensechemistry. In March 2010, the contract was amended to include F-18®Table of Contentstesting against additional influenza strains. The Company has agreed with DTRA that the key activities under this contract were completed in 2011.August 2012 Agreement (Intramuscular administration)On August 29, 2012, the Company was awarded a contract from the JPM-TMT program. The contract was for approximately $3.9 million to evaluatethe feasibility of an intramuscular (IM) route of administration using AVI-7288, the Company’s candidate for treatment of Marburg virus. The period ofperformance for this contract concluded in the third quarter of 2013.European Union SKIP-NMD Agreement (DMD)In November 2012, the Company entered into an agreement for a collaborative research project partially funded by the EC Health Innovation. Theagreement provides for approximately $2.5 million for research in certain development and study related activities for a DMD therapeutic and is expected tolast approximately three years.During the year ended December 31, 2013, the Company received $1.3 million in payments under the E.U. SKIP-NMD agreement, which were fullyrecognized as revenue during the year ended December 31, 2013 as all of the related work was performed.July 2013 Children’s National Medical Center (CNMC) AgreementIn July 2013, the Company entered into an agreement totaling $1.3 million to provide drug product to CNMC to conduct research related to theCompany’s DMD program. During the year ended December 31, 2013, the Company recognized $0.7 million as revenue under the agreement.7. LONG-TERM DEBTThe Company has two loans outstanding which bear interest at 4.75%, mature in February 2027 and are collateralized by the facility the Companyowns in Corvallis, Oregon. At December 31, 2013, these loans had unpaid principal balances of $1.1 million and $0.6 million, for a total indebtedness of$1.7 million. The Company incurred interest expense on these loans of $0.1 million for each the years ended December 31, 2013, 2012 and 2011.The following table sets forth the expected future principal payments on these loans for the years shown (in thousands): 2014 $92 2015 98 2016 103 2017 108 2018 114 Thereafter 1,153 Total scheduled loan principal payments $1,668 8. WARRANTSThe Company has periodically issued warrants in connection with certain common stock offerings. The warrants issued in December 2007,January 2009 and August 2009 are classified as liabilities as opposed to equity due to their settlement terms which require settlement in registered shares.These warrants are non-cash liabilities and the Company is not required to expend any cash to settle these liabilities. F-19Table of ContentsThe outstanding warrants classified as liabilities are recorded at fair value on the consolidated balance sheet and are adjusted to fair value at eachfinancial reporting period, with changes in the fair value being recorded as “Gain (loss) on change in warrant valuation” in the consolidated statement ofoperations and comprehensive loss. The fair value is determined using the Black-Scholes-Merton option-pricing model, which requires the use of significantjudgment and estimates for the inputs used in the model. The following reflects the weighted-average assumptions for each of the periods indicated: Year Ended December 31, 2013 2012 2011 Risk-free interest rate 0.1% 0.2% - 0.3% 0.1% - 0.4%Expected dividend yield 0% 0% 0%Expected lives 0.6 - 0.7 years 1.1 - 1.6 years 1.0 - 2.7 years Expected volatility 95.51% 139.2% - 164.1% 71.8% - 75.6%Warrants classified as liabilities 791,508 3,127,618 4,824,827 Market value of stock at beginning of year $25.80 $4.50 $12.72 Market value of stock at end of year $20.37 $25.80 $4.50 The risk-free interest rate is estimated using an average of U.S. Treasury bill interest rates that correlate to the prevailing interest rates at the time of thevaluation date. The expected dividend yield is zero as the Company has not paid any dividends to date and does not expect to pay dividends prior to theexpiration of the warrants. The expected lives are based on the remaining contractual lives of the related warrants at the valuation date. For the year endedDecember 31, 2013, expected volatility was estimated using a blend of calculated volatility of the Company’s common stock over a historical period andimplied volatility in exchange-traded options associated with the Company’s common stock. Prior to January 1, 2013, expected volatility was estimated usingcalculated volatility of the Company’s common stock over a historical period commensurate with the expected term of the option. The amounts estimatedaccording to the Black-Scholes-Merton option-pricing model may not be indicative of the actual values realized upon the exercise of these warrants by theholders.A reconciliation of the change in value of the Company’s warrants recorded as liabilities for the years ended December 31, 2013, 2012 and 2011 is asfollows: For the Year Ended December 31, 2013 2012 2011 (in thousands) Balance at beginning of year $65,193 $5,446 $39,111 Change in value of warrants 22,027 91,938 (33,022)Reclassification to stockholders’ equity upon exercise of warrants (78,214) (32,191) (643)Balance at end of year $9,006 $65,193 $5,446 A summary of the Company’s warrant activity with respect to 2013, 2012 and 2011 is as follows: For the Year Ended December 31, 2013 2012 2011 Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Warrants outstanding at beginning of year 3,127,618 $8.48 4,867,477 $9.54 4,944,241 $9.48 Granted — — — — — — Exercised (2,336,110) 7.96 (1,739,859) 11.81 (76,764) 8.34 Expired — — — — — — Warrants outstanding at end of year 791,508 $10.05 3,127,618 $8.48 4,867,477 $9.54 Exercisable at end of year 791,508 $10.05 3,127,618 $8.48 4,867,477 $9.54 F-20Table of ContentsThe following table summarizes information about warrants outstanding at December 31, 2013, all of which are exercisable. Issue Date ExercisePrice Outstanding Warrants atDecember 31, 2013 ExpirationDate 1/30/2009 $6.96 133,637 7/30/2014 8/25/2009 $10.68 657,871 8/31/2014 9. SIGNIFICANT AGREEMENTSCharley’s Fund AgreementIn October 2007, Charley’s Fund, Inc. (“Charley’s Fund”), a nonprofit organization that funds drug development and discovery initiatives specific toDMD, awarded the Company a $2.45 million research grant and, in May 2009, the grant authorization was increased to a total of $5.0 million. Pursuant tothe related sponsored research agreement, the grant was provided to support the development of product candidates which utilize the Company’s proprietarytechnologies. The grant requires the Company to make mid single-digit percentage royalty payments on net sales of any such products that are successfullycommercialized up to the total amount received under the grant.As of December 31, 2013, Charley’s Fund has made payments of approximately $3.4 million to the Company. Revenue associated with this researchand development arrangement is recognized based on the proportional performance method, using the payment received method. To date, the Company hasrecognized $0.1 million as revenue, but did not recognize any revenue for the years ended December 31, 2013, 2012 and 2011. The Company does not expectto receive any incremental funding under the grant and has deferred $3.3 million of previous receipts which is anticipated to be recognized as revenue once theCompany completes the remaining milestones and they are agreed to by Charley’s Fund.Isis—Ercole AgreementIn May 2003, Ercole Biotechnology, Inc., or Ercole, and Isis Pharmaceuticals, Inc. or Isis, entered into a collaboration and license agreement related toRNA splicing. Research collaboration activity defined in the agreement expired in 2006. In March 2008, the Company acquired all of the stock of Ercole inexchange for 5,811,721 shares of the Company’s common stock, which was valued at approximately $8.4 million, and the assumption of approximately$1.8 million in liabilities of Ercole. The Company also issued warrants to purchase its common stock (also classified as equity), which were valued at $0.4million, in exchange for certain outstanding warrants issued by Ercole. In connection with the March 2008 acquisition, the Company assumed Ercole’sobligations under the Isis agreement. This agreement contains several cross-licenses between the parties granting each party certain exclusive and nonexclusiverights under a selected set of the other parties’ patents and patent applications for the research, development, and commercialization of antisense therapeuticsusing RNA splicing with respect to certain gene targets.Subject to the satisfaction of certain milestones triggering the obligation to make any such payments, the Company may be obligated to make milestonepayments to Isis of up to $23.4 million in the aggregate for each product developed under a licensed patent under this agreement.As of December 31, 2013, the Company has not made, and is not under any current obligation to make, any such milestone payments, as theconditions triggering any such milestone payment obligations have not been satisfied. The range of percentage royalty payments required to be made by theCompany under the terms of this agreement is from a fraction of a percent to mid single-digit percentages. The Company believes that its DMD, Ebola,Marburg and influenza programs will not fall under the scope of this agreement and therefore will not be subject to milestone or royalty obligations under itsprovisions.Subject to the satisfaction of certain milestones triggering the obligation to make any such payments, Isis may be obligated to make milestone paymentsto the Company of up to $21.1 million in the aggregate for each F-21Table of Contentsproduct developed under a licensed patent under this agreement. As of December 31, 2013, Isis has not made, and is not under any current obligation to make,any such milestone payments, as the conditions triggering any such milestone payment obligations have not been satisfied. The percentage royalty paymentsrequired to be made by Isis under the terms of this agreement is a fraction of a percent. As to any product commercialized under the agreement, the agreementwill terminate on the expiration date of the last to expire licensed patent covering such product. The last to expire Sarepta owned patent covered under thisagreement expires on September 9, 2014. The last Isis owned patent covered under this agreement expires on March 27, 2028. In addition, either party mayterminate this agreement in the event: • a material breach by the other party is not cured within a specified period of time; or • the other party commences bankruptcy, reorganization, liquidation or receivership proceedings or upon the assignment of a substantial portion ofthe assets for the benefit of creditors by the other party with certain exceptions.10. INCOME TAXESAs of December 31, 2013, the Company had federal and state net operating loss carryforwards of $260.9 million and $237.7 million, respectively,available to reduce future taxable income, which expire 2014 through 2033. Utilization of these net operating losses could be limited under Section 382 of theInternal Revenue Code and similar state laws based on ownership changes and the value of the Company’s stock. Approximately $11.6 million of theCompany’s carryforwards were generated as a result of deductions related to exercises of stock options. When utilized, this portion of the Company’scarryforwards, as tax affected, will be accounted for as a direct increase to contributed capital rather than as a reduction of the year’s provision for incometaxes. The principal differences between net operating loss carryforwards for tax purposes and the deficit accumulated during the development stage resultfrom timing differences related to depreciation, amortization, treatment of research and development costs, limitations on the length of time that net operatinglosses may be carried forward, losses on changes in warrant valuation and differences in the recognition of stock-based compensation.The Company had gross deferred tax assets of $133.6 million and $114.1 million at December 31, 2013 and 2012, respectively, primarily from U.S.federal and state net operating loss carryforwards, U.S. federal and state research and development credit carryforwards, share based compensation expenseand intangibles. A valuation allowance was recorded to reduce the net deferred tax asset to zero because it is more likely than not that the deferred tax asset willnot be realized.An analysis of the deferred tax assets (liabilities) is as follows: December 31, 2013 2012 (in thousands) Net operating loss carryforwards $94,170 $85,600 Difference in depreciation and amortization 2,492 2,524 Research and development tax credits 23,599 20,012 Stock compensation 9,036 4,424 Deferred rent 2,849 265 Deferred revenue 1,219 1,133 Other 208 169 Gross deferred tax assets 133,573 114,127 Valuation allowance (133,573) (114,127)Net deferred tax asset $— $— The increase in the valuation allowance for deferred tax assets of $19.4 million for the year ended December 31, 2013, was mainly due to the increase inthe net operating loss carryforwards and research and development tax credits, as well as the impact of stock option activity. The decrease in the valuationallowance for deferred tax assets of $ 2.7 million for the year ended December 31, 2012 was mainly due to the decrease in net operating loss carryforwards. F-22Table of ContentsThe reconciliation between the Company’s effective tax rate and the income tax rate is as follows: Year Ended December 31, 2013 2012 2011 (in thousands) Federal income tax rate 34.0% 34.0% 34.0%Research and development tax credits 1.4 (0.6) 54.6 Valuation allowance (12.4) (7.5) (507.4)Permanent Differences (8.8) (25.9) 450.0 Other — — (31.2)Foreign rate differential (14.2) — — Effective tax rate — % — % — %Permanent differences affecting the Company’s effective tax rate include gain (loss) on changes in warrant valuation and losses in a foreign jurisdiction.On December 31, 2012, the Company licensed certain intellectual property of Sarepta Therapeutics, Inc. to its wholly owned subsidiary, Sarepta InternationalC.V. The parties also entered into a contract research agreement under which Sarepta Therapeutics, Inc. performs research services for Sarepta InternationalC.V. During the year ended December 31, 2013, Sarepta International C.V. incurred $46.7 million of costs in connection with the research and developmentactivities.The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual forinterest or penalties on its balance sheet at December 31, 2013 or December 31, 2012, and has not recognized interest and/or penalties in the statement ofoperations for 2013, 2012 or 2011. The Company has not recognized any liability for unrecognized tax benefits.11. COMMITMENTS AND CONTINGENCIESLease ObligationsIn June 2013, the Company entered into a lease agreement for its headquarters located in Cambridge, Massachusetts. The agreement calls for a securitydeposit in the form of a letter of credit totaling $0.6 million. The Company purchased a certificate of deposit to meet the requirement. The initial term of thelease agreement is for seven years with an average base rent of approximately $2.4 million per year.In November 2013, the Company entered into an amendment of its lease agreement for its headquarters located in Cambridge. The amendment modifiedthe original lease to add an additional 15,077 square feet to its original space, increasing its total rental space for its headquarters to 61,453 square feet. Theamendment calls for additional base rate of approximately $0.5 million, subject to a 2.5% annual increase.The Company also leases laboratory and office space in Corvallis, Oregon. Monthly base rent at the Corvallis, Oregon facility is approximately $79thousand per month, excluding other occupancy costs, and is subject to an annual increase of 3%. F-23Table of ContentsRent expense and occupancy costs under all leases totaled $3.4 million, $2.6 million and $2.5 million for 2013, 2012 and 2011, respectively. AtDecember 31, 2013, the aggregate non-cancelable future minimum payments under leases were as follows: Year endingDecember 31,(in thousands) 2014 3,535 2015 3,807 2016 3,895 2017 3,986 2018 4,079 Thereafter 8,622 Total minimum lease payments $27,924 Royalty ObligationsThe Company has license agreements for which it is obligated to pay minimum royalties if the Company does not terminate the relevant agreement. Thenotice period to terminate these agreements is six months or less. Royalty payments under these agreements were $0.1 million for each of the years endedDecember 31, 2013, 2012 and 2011.The Company is also obligated to pay royalties upon the net sales of DMD products. The royalty rates are in the low single-digit percentages for bothinside and outside the United States. In addition, the Company is obligated to pay Charley’s Fund a mid single-digit percentage royalty on the net sales of anyproduct developed pursuant to the agreement with Charley’s Fund up to a maximum of $3.4 million. As of December 31, 2013, the Company has not madeany payments under its Isis—Ercole agreement, and is not under any current obligation to make any such milestone payments, as the conditions triggeringany such milestone payment obligations have not been satisfied. The range of percentage royalty payments required to be made by the Company under theterms of the Isis—Ercole agreement, should such payments ever be made, is from a fraction of a percent to mid single-digit percentages (see “Note 9—Significant Agreements”).The commercialization of other products in early stage development may require the payment of milestones or royalties upon commercialization.Milestone ObligationsThe Company has license agreements for which it is obligated to pay development milestones as a product candidate proceeds from the filing of anInvestigational New Drug application through approval for commercial sale. In April 2013, the Company and the University of Western Australia (UWA)entered into an agreement under which an existing exclusive license agreement between the Company and UWA was amended and restated. Under the terms ofthis agreement, UWA granted the Company an exclusive license to certain UWA intellectual property rights in exchange for up to $7.1 million in upfront anddevelopment milestone payments. In 2013, the Company recognized expense of $1.1 million relating to certain upfront payments required under the agreementwithin research and development in the consolidated statement of operations and comprehensive loss.During 2012 and 2011, the Company’s milestone payments were inconsequential.LitigationAs of December 31, 2013, the Company was not a party to any material legal proceedings with respect to itself, its subsidiaries, or any of its materialproperties. In the normal course of business, the Company may from time to time be named as a party to various legal claims, actions and complaints,including matters involving F-24Table of Contentssecurities, employment, intellectual property, effects from the use of therapeutics utilizing its technology, or others. For example, in January 2014, a formerconsultant of the Company filed a complaint alleging breach of contract, among other claims, and seeking approximately $4 million in damages, plus certainadditional fees and costs, from the Company. In addition, purported class action complaints were filed against the Company and certain of its officers in theU.S. District Court for the District of Massachusetts on January 27, 2014 (Corban v. Sarepta et al) and January 29, 2014 (Baradanian v. Sarepta et al). Theplaintiffs are alleged purchasers of Company common stock who seek to bring claims on behalf of themselves and persons or entities that purchased oracquired securities of the Company between July 24, 2013 and November 12, 2013. The complaints allege that the defendants violated the federal securitieslaws in connection with disclosures related to eteplirsen, the Company’s lead therapeutic candidate for DMD, and seek damages in an unspecified amount.Given the relatively early stages of the proceedings in the above mentioned purported claims, at this time, no assessment can be made as to the likely outcomeof these claims or whether the outcomes would have a material impact on the Company.Purchase CommitmentsIn the Company’s continuing operations, it has entered into long-term contractual arrangements from time to time for the provision of goods and services.The following table presents noncancelable contractual obligations arising from these arrangements as of December 31, 2013: Year EndingDecember 31,(in thousands) 2014 55,641 2015 42,778 2016 42,779 2017 14,260 2018 14,260 Thereafter — Total purchase commitments $169,718 In February 2013, the Company issued two letters of credit totaling $7.3 million to a contract manufacturing vendor in connection with certainmanufacturing agreements. The obligations secured by the letters of credit are fulfilled upon payment for certain minimum volume commitments that theCompany expects to occur within the next twelve months. To meet the requirement of the letters of credit, the Company purchased $7.3 million in certificatesof deposit with April 2014 maturity dates. If the minimum volume commitments have not occurred at that time, the letters of credit will be extended. TheCompany has recorded this $7.3 million as restricted investments in the consolidated balance sheet as of December 31, 2013.12. RESTRUCTURINGIn December 2011, the Company restructured its operations by reducing its workforce by 35 employees, or 28%. Restructuring charges totaling $1.1million were recorded in 2011 and included severance and related costs. The charge included $0.5 million to research and development expense and $0.6million to general and administrative expense.In November 2012, the Company notified 21 Bothell, Washington based employees that they would be terminated as part of the corporate headquartersrelocation to Cambridge, Massachusetts. Terminated employees were given various incentives to remain through a transition period which was completed in2013. During 2013, the transition period was extended for a certain employee through the first quarter of 2014.For the year ended December 31, 2012, the Company recorded a restructuring charge of $0.1 million to research and development expense and $0.1million to general and administrative expense associated with the 2012 portion of the transition period.For the year ended December 31, 2013, the Company recorded a restructuring charge of $0.4 million to research and development expense and $0.4million to general and administrative expense associated with the 2013 portion of the transition period. All remaining transition costs are expected to be paid in2014. F-25Table of ContentsChanges in the liability and the balance at year end related to these restructuring plans are as follows: Years EndingDecember 31, 2013 2012 2011 (in thousands) Balance at January 1, $185 $828 $— Restructuring charge 764 185 1,145 Payments (905) (828) (317) Balance at December 31, $44 $185 $828 13. FINANCIAL INFORMATION BY QUARTER (UNAUDITED) 2013 for Quarter Ended December 31, September 30, June 30, March 31, (in thousands) Revenues from license fees, grants and research contracts $2,626 $4,168 $2,951 $4,474 Operating expenses: Research and development 25,076 21,087 12,984 13,762 General and administrative 10,399 8,014 7,054 6,127 Operating loss (32,849) (24,933) (17,087) (15,415) Other income (loss): Interest income (expense) and other, net 45 63 (19) 237 Gain (loss) on change in warrant valuation 23,984 (17,160) (1,945) (26,906) Net loss $(8,820) $(42,030) $(19,051) $(42,084) Net loss per share—basic and diluted $(0.23) $(1.24) $(0.60) $(1.32) Shares used in per share calculations—basic and diluted 37,596 33,943 31,984 31,813 2012 for Quarter Ended December 31, September 30, June 30, March 31, (in thousands) Revenues from license fees, grants and research contracts $7,336 $7,574 $11,207 $11,212 Operating expenses: Research and development 12,834 10,914 13,849 14,805 General and administrative 4,868 3,565 2,915 3,281 Operating loss (10,366) (6,905) (5,557) (6,874)Other income (loss): Interest income and other, net 83 67 107 96 Gain (loss) on change in warrant valuation (51,784) (42,716) 13,488 (10,926)Net income (loss) $(62,067) $(49,554) $8,038 $(17,704)Net income (loss) per share—basic $(2.36) $(2.17) $0.36 $(0.78)Net income (loss) per share—diluted $(2.36) $(2.17) $0.35 $(0.78)Shares used in per share calculations—basic 26,313 22,824 22,624 22,624 Shares used in per share calculations—diluted 26,313 22,824 22,658 22,624 F-26Table of ContentsEXHIBIT INDEX ExhibitNumber Description Incorporated by Reference to Filings Indicated Form File No. Exhibit FilingDate ProvidedHerewith2.1 Agreement and Plan of Merger dated June 6, 2013 between SareptaTherapeutics, Inc., a Delaware corporation, and Sarepta Therapeutics,Inc., an Oregon corporation. 8-K12B 001-14895 2.1 6/6/13 3.1 Amended and Restated Certificate of Incorporation. 8-K12B 001-14895 3.1 6/6/13 3.2 Bylaws. 8-K12B 001-14895 3.2 6/6/13 4.1 Form of Specimen Certificate for Common Stock. 10-Q 001-14895 4.1 8/8/13 4.2 Form of Common Stock Purchase Warrant, issued on January 30, 2009. 8-K 001-14895 4.4 1/30/09 4.3 Form of Common Stock Purchase Warrant, issued on August 25, 2009. 8-K 001-14895 4.1 8/24/09 10.1† Employment Agreement with Patrick Iversen, Ph.D., dated July 14, 1997. 10KSB 000-22613 10.12 3/30/98 10.2† Amendment to Employment Agreement with Patrick Iversen, Ph.D., datedDecember 28, 2008. 10-K 001-14895 10.5 3/15/11 10.3† Amendment No. 2 to Employment Agreement with Patrick Iversen, Ph.D.,dated January 18, 2010. 10-K 001-14895 10.6 3/15/11 10.4† Amended and Restated Executive Employment Agreement dated April 19,2013 by and between Sarepta Therapeutics, Inc. and ChristopherGarabedian. 10-Q 001-14895 10.2 5/9/13 10.5† Executive Employment Agreement dated January 10, 2011 by and betweenAVI BioPharma, Inc. and Effie Toshav. 10-Q 001-14895 10.1 5/10/11 10.6† Executive Employment Agreement dated March 29, 2011 by and between AVIBioPharma, Inc. and Peter S. Linsley, Ph.D. 10-Q 001-14895 10.4 5/10/11 10.7† Executive Employment Agreement dated June 13, 2011 by and between AVIBioPharma, Inc. and Edward Kaye, M.D. 10-Q 001-14895 10.4 8/8/11 10.8† Stand Alone Stock Option Grant between AVI BioPharma, Inc. and EffieToshav dated January 10, 2011. 10-Q 001-14895 10.2 5/10/11 10.9† Stand Alone Stock Option Grant between the Registrant and Peter Linsleydated May 16, 2011. S-8 333-175031 4.8 6/20/11 10.10† Stand Alone Stock Option Grant between the Registrant and Edward Kayedated June 20, 2011. S-8 333-175031 4.9 6/20/11 Table of ContentsExhibitNumber Description Incorporated by Reference to Filings Indicated Form File No. Exhibit FilingDate ProvidedHerewith10.11† AVI BioPharma, Inc. 2002 Equity Incentive Plan. Schedule 14A 001-14895 AppendixA 4/11/02 10.12† Amended and Restated Sarepta Therapeutics, Inc. 2011 Equity IncentivePlan. 8-K12B 001-14895 10.1 6/6/13 10.13† Form of Stock Option Award Agreement under the Amended andRestated 2011 Equity Incentive Plan. 10-Q 001-14895 10.5 8/8/13 10.14† Form of Notice of Grant of Restricted Stock under the Amended andRestated 2011 Equity Incentive Plan. 10-Q 001-14895 10.4 8/8/13 10.15† AVI BioPharma, Inc. Non-Employee Director Compensation Policy. 8-K 001-14895 10.85 10/1/10 10.16† Form of Indemnification Agreement. 8-K 001-14895 10.86 10/8/10 10.17† Form of Restricted Stock Unit Award Agreement under 2011 EquityIncentive Plan. 8-K 001-14895 10.1 4/25/12 10.18† Form of Stock Appreciate Right Award Agreement under the 2011 EquityIncentive Plan. 10-Q 001-14895 10.2 11/7/12 10.19† Form of Senior Vice President Change in Control and SeveranceAgreement. 10-K 001-14895 10.19 3/15/13 10.20† Form of Vice President Change in Control and Severance Agreement. 10-K 001-14895 10.20 3/15/13 10.21† 2013 Employee Stock Purchase Plan. 8-K12B 001-14895 10.2 6/6/13 10.22† Executive Employment Agreement with Jayant Aphale, Ph.D. 10-Q 001-14895 10.1 8/8/13 10.23† Retention and Severance Benefits Letter Agreement dated May 9, 2013by and between the Company and Michael A. Jacobsen. 10-Q 001-14895 10.3 5/9/13 10.24† Offer Letter dated October 23, 2012 by and between SareptaTherapeutics, Inc. and Sandesh Mahatme. X10.25† Offer Letter dated October 23, 2012 by and between SareptaTherapeutics, Inc. and David Tyronne Howton. X10.26† Executive Inducement Stock Option Award Agreement between ArthurKrieg and Sarepta Therapeutics, Inc. X10.27† Sarepta Therapeutics, Inc. 2014 Employment Commencement IncentivePlan. XTable of ContentsExhibitNumber Description Incorporated by Reference to Filings Indicated Form File No. Exhibit FilingDate ProvidedHerewith10.28† Form of Stock Option Award Agreement under 2014 Employment CommencementIncentive Plan. X10.29* Collaboration and License Agreement between Isis Pharmaceuticals and Ercole Biotech,Inc. dated May 16, 2003. 10-K 001-14895 10.78 3/16/10 10.30* Amended and Restated Exclusive License Agreement by and among The University ofWestern Australia, Sarepta Therapeutics, Inc. and Sarepta International CV dated April10, 2013. 10-Q 001-14895 10.1 5/9/13 10.31 Agreement between AVI BioPharma, Inc. and the U.S. Defense Threat Reduction Agencydated May 5, 2009. 10-Q 001-14895 10.72 8/10/09 10.32 Amendment of Contract between AVI BioPharma, Inc. and the U.S. Defense ThreatReduction Agency (contract no. HDTRA1-07-C-0010), effective May 29, 2009. 10-Q 001-14895 10.74 8/10/09 10.33 Amendment of Contract between AVI BioPharma, Inc. and the U.S. Defense ThreatReduction Agency (contract no. HDTRA 1-07-C0010), effective September 30, 2009. 10-Q 001-14895 10.77 11/9/09 10.34* Amendment of Contract between AVI BioPharma, Inc. and the U.S. Defense ThreatReduction Agency (contract no HDTRA 1-09-C-0046), effective March 25, 2010. 10-Q 001-14895 10.81 5/10/10 10.35* Contract Number HDTRA1-10-C-0079 between Defense Threat Reduction Agency and AVIBioPharma, Inc. dated June 4, 2010. 10-Q 001-14895 10.84 8/9/10 10.36* Modification No. PZ0001 to Contract Number HDTRA1-10-C-0079 between DefenseThreat Reduction Agency and AVI BioPharma, Inc. effective March 3, 2011. 10-Q 001-14895 10.3 5/10/11 10.37* Modification No. P00005 to Contract Number HDTRA1-10-C-0079 between DefenseThreat Reduction Agency and AVI BioPharma, Inc. effective April 13, 2011. 10-Q 001-14895 10.1 8/8/11 10.38* Contract Number W9113M-10-C-0056 between U.S. Army Space and Missile DefenseCommand and AVI BioPharma, Inc. dated July 14, 2010. 10-Q 001-14895 10.86 11/9/10 10.39* Contract Number W911QY-12-C-0117 between U.S. Department of Defense’s JointProject Manager Transformational Medical Technologies and Sarepta Therapeutics, Inc.dated August 23, 2012. 10-Q 001-14895 10.1 11/7/12 10.40* Modification No. P00005 to Contract Number W9113M-10-C-0056 between U.S. ArmySpace and Missile Defense Command and AVI BioPharma, Inc. effective August 15,2011. 10-Q/A 001-14895 10.3 2/15/12 Table of ContentsExhibitNumber Description Incorporated by Reference to Filings Indicated Form File No. Exhibit FilingDate ProvidedHerewith10.41* Sponsored Research Agreement between AVI BioPharma, Inc. and Charley’s Fund,Inc., effective October 12, 2007. 10-K 001-14895 10.58 3/17/08 10.42* First Amendment to Sponsored Research Agreement between AVI BioPharma, Inc.and Charley’s Fund, Inc. dated June 2, 2009. 10-Q 001-14895 10.75 8/10/09 10.43 Commercial Lease between Research Way Investments, Landlord, and Antivirals,Inc., Tenant, effective June 15, 1992. SB-2 333-20513 10.9 1/28/97 10.44 Lease Extension and Modification Agreement dated September 1, 1996, by andbetween Research Way Investments and Antivirals, Inc. 10-K 001-14895 10.53 3/15/11 10.45 Second Lease Extension and Modification Agreement dated January 24, 2006 byand between Research Way Investments and AVI BioPharma, Inc. 10-Q 001-14895 10.55 8/9/06 10.46 Real Property Purchase Agreement by and between WKL Investments Airport, LLCand AVI BioPharma, Inc., dated March 1, 2007, as amended. 10-Q 001-14895 10.61 8/9/07 10.47 Lease Agreement between AVI BioPharma, Inc. and Perpetua Power SourceTechnologies, Inc., dated November 23, 2011. 10-K 001-14895 10.42 3/13/12 10.48 First Amendment to Lease Agreement dated December 22, 2011 between AVIBioPharma, Inc. and Perpetua Power Source Technologies, Inc. 10-K 001-14895 10.43 3/13/12 10.49 Second Amendment to Lease Agreement dated January 20, 2012 between AVIBioPharma, Inc. and Perpetua Power Source Technologies, Inc. 10-K 001-14895 10.44 3/13/12 10.50 Lease dated July 27, 2009 by and between BMR-3450 Monte Villa Parkway, LLCand AVI BioPharma, Inc. 10-Q 001-14895 10.76 11/9/09 10.51 First Amendment to Lease dated August 30, 2011 by and between BMR-3450 MonteVilla Parkway LLC and AVI BioPharma, Inc. 10-Q 001-14895 10.4 11/8/11 10.52 Second Amendment to Lease dated January 31, 2012 by and between BMR-3450Monte Villa Parkway LLC and AVI BioPharma, Inc. 10-K 001-14895 10.47 3/13/12 10.53 Third Amendment to Lease dated May 31, 2012 by and between BMR-3450 MonteVilla Parkway LLC and AVI BioPharma, Inc. 10-Q 001-14895 10.2 8/7/12 10.54 Lease dated October 20, 2010, by and between S/I North Creek VII LLC and AVIBioPharma, Inc. 10-K 001-14895 10.57 3/15/11 Table of ContentsExhibitNumber Description Incorporated by Reference to Filings Indicated Form File No. Exhibit FilingDate ProvidedHerewith10.55 Lease Agreement dated June 25, 2013 by and between Sarepta Therapeutics, Inc.and ARE-MA Region No. 38, LLC. 8-K 001-14895 10.1 7/1/13 21.1 Subsidiaries of the Registrant. X23.1 Consent of Independent Registered Public Accounting Firm. X24.1 Power of Attorney (contained on signature page). X31.1 Certification of the Company’s President and Chief Executive Officer, ChristopherGarabedian, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X31.2 Certification of the Company’s Senior Vice President, Chief Financial Officer,Sandesh Mahatme, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X32.1** Certification of the Company’s President and Chief Executive Officer, ChristopherGarabedian, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X32.2** Certification of the Company’s Senior Vice President, Chief Financial Officer,Sandesh Mahatme, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X101.INS XBRL Instance Document. X101.SCH XBRL Taxonomy Extension Schema Document. X101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. X101.DEF XBRL Taxonomy Extension Definition Linkbase Document. X101.LAB XBRL Taxonomy Extension Label Linkbase Document. X101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. X †Indicates management contract or compensatory plan, contract or arrangement.*Confidential treatment has been granted for portions of this exhibit.**Furnished herewith.Exhibit 10.24 October 23, 2012Sandesh Mahatme14 Hayes StreetLake Placid, New York 12946Dear Sandy:We are pleased to offer you a position as Senior Vice President, Chief Financial Officer at Sarepta Therapeutics, Inc. (the “Company”), reporting to ChrisGarabedian, President and Chief Executive Officer (“CEO”), pursuant to the terms set forth in this letter agreement, effective November 5, 2012 (“StartDate”). Your employee orientation will begin at 11:00 a.m. on your Start Date at our Cambridge office, 245 First Street, Suite 1800, Cambridge,Massachusetts.1. Employment At-Will.If you accept our offer of employment, you will be an employee at-will, meaning that your employment is of indefinite duration and either you or the Companymay terminate our employment relationship at any time for any reason, with or without cause and with or without advance notice. However, you may beentitled to severance benefits depending on the circumstances of your termination of employment with the Company pursuant to a separate Change in Controland Severance Agreement that you will be eligible to enter into with the Company. In the event of your resignation, we request that you give the Company atleast two weeks’ notice.2. Compensation.(a) Base Salary. The Company will pay you an annual salary of $425,000 as compensation for your services (the “Base Salary”). The BaseSalary will be paid periodically in accordance with the Company’s normal payroll practices and be subject to the usual, required withholdings. Your salarywill be subject to review and adjustments will be made based upon the Company’s normal performance review practices.(b) Sign-on Bonus. You will receive a two-part sign-on bonus of $160,000 (the “Sign-on Bonus”) as follows: (i) $130,000, less applicablewithholdings, payable in cash within thirty (30) days following the Start Date, and (ii) $30,000, less applicable withholdings, payable in cash on the firstregularly scheduled payroll on or after March 15, 2013. Notwithstanding the foregoing, if, on or prior to the one (1) year anniversary of the Start Date, youterminate your employment with the Company for any reason, you must repay 100% of the Sign-on Bonus to the Company within sixty (60) days of yourtermination of employment.(c) Target Bonus. You will be eligible to receive a target annual bonus of forty percent (40%) of your Base Salary, less applicable withholdings,upon achievement of performance objectives to be determined by the CEO and the Compensation Committee (the “Compensation Sandy MahatmeOctober 23, 2012Page 2 of 4 Committee”) of the Board of Directors (the “Board”) in their sole discretion (the “Target Bonus”). The maximum bonus you will be eligible to receive is onehundred fifty percent (150%) of your Target Bonus. Due to the fact that you are joining the company after September 30, 2012, you will not be eligible toreceive a 2012 Target Bonus. In forthcoming years, however, the Target Bonus, or any portion thereof, will be paid as soon as practicable after the Boarddetermines that the Target Bonus has been earned, but in no event shall the Target Bonus be paid after the later of (i) the fifteenth (15th) day of the third(3rd) month following the close of the Company’s fiscal year in which the Target Bonus is earned or (ii) March 15 following the calendar year in which theTarget Bonus is earned.(d) Equity Awards. We will recommend to the Compensation Committee after commencement of your employment that you be granted an option topurchase 150,000 shares of the Company’s common stock (the “Option”) and stock appreciation rights with respect to 100,000 shares of the Company’scommon stock (the “SARs”). The Option and the SARs will have an exercise price equal to the closing trading price of the Company’s common stock on thedate of grant. The SARs will be settled in shares of stock, not cash. Your grants will be subject to the terms, definitions and provisions of the Company’s2002 Equity Incentive Plan (the “Equity Plan”), the stock option agreement by and between you and the Company (the “Option Agreement”), and the stockappreciation rights agreement by and between you and the Company (the “SAR Agreement”) (collectively, the “Equity Agreements”), all of which EquityAgreements are incorporated herein by reference. Twenty-five percent (25%) of the shares underlying the Option and SAR will vest and become exercisable onthe first anniversary of the Start Date, and 1/48th of the shares underlying the Option and SAR will vest and become exercisable on each monthly anniversaryof the Start Date thereafter, such that the shares underlying the Option and SAR will be fully exercisable on the fourth anniversary of the Start Date, subject toyour continued employment through any such vesting dates.(e) Relocation/Corporate Housing. Provided that you move and relocate within twelve (12) months of the Start Date, the Company agrees toreimburse you for your (i) actual, documented reasonable expenses incurred in moving and relocating to the Cambridge, Massachusetts metropolitan area up toa total of $50,000 (the “Relocation Reimbursement”), which may include any costs or expenses associated with your (x) sale of your current residence,(y) shipment of personal effects to the Cambridge metropolitan area, or (z) the customary closing costs associated with the purchase of a residence in theCambridge metropolitan area incurred by you during the relocation period and (ii) actual corporate housing expenses in the Cambridge metropolitan area for upto 12 months following the Start Date. You will be responsible for withholding and paying applicable income taxes on taxable relocation funds received fromthe Company during the course of your relocation. In addition, you agree that you will submit all such reimbursable expenses to the Company withappropriate documentation no later than sixty (60) days after such expenses are incurred and the Company shall reimburse you promptly thereafter inaccordance with the Company’s expense reimbursement policy. Notwithstanding the prior sentence, to the extent such reimbursements are taxable to you underthe Internal Revenue Code, the Company hereby agrees that it will reimburse you for all such expenses by no later than March 15, 2014. If, on or prior to thetwo (2) year anniversary of the Start Date, you terminate your employment with the Company for any reason, you must repay one hundred percent (100%) ofthe Relocation Reimbursement paid to you by the Company within sixty (60) days of your termination of employment. Sandy MahatmeOctober 23, 2012Page 3 of 4 (f) Parking. Onsite parking at the Cambridge location is available through Laz Parking (ww.lazparking.com). If you elect to park in this lot, youmust first fill out the appropriate paperwork and register with Laz Parking. The Company will reimburse your Laz Parking expenses up to a maximum of$130 per month, which is fifty percent (50%) of the current monthly Laz Parking fee, in accordance with the Company’s expense reimbursement policy.(g) Other Employee Benefits. During your employment with the Company, you will be entitled to participate in the employee benefit planscurrently and hereafter maintained by the Company of general applicability to other executive officers of the Company, including without limitation anyannual equity grants. None of the benefits offered to you by the Company create a right to continue in employment for any particular period of time. Anystatements to the contrary that may have been made to you are unauthorized and are superseded and cancelled by this offer letter. Please also remember thatemployment terms like your position, hours of work, work location, compensation, the stock option plan, and other employee benefits may change over thecourse of employment at the Company’s discretion.3. Severance Benefits.Following commencement of your employment with the company you will be eligible to enter into the company’s standard Change in Control and SeveranceAgreement. This agreement will outline any severance benefits you may be eligible for in the event of certain terminations of your employment.4. Proprietary Rights Agreement.As a condition of your employment, you are required to sign a Confidential Proprietary Rights and Non-Disclosure Agreement (“Confidentiality Agreement”),and you have already done so. The fully executed Confidentiality Agreement is enclosed for your records. We would like to emphasize the importance we placeon the proper treatment of all proprietary information, including that which you may have come into contact with in your prior employment. The Company isextending this offer to you based upon your general skills and abilities, and not your possession of any trade secret, confidential or proprietary information ofa former employer. The Company requires that you do not obtain, keep, use for our benefit, or disclose this type of information from any prior employers tous. By accepting this offer, you will also be affirming to the Company that you are not a party to any agreement with a prior employer that would prohibityour employment with us.Moreover, you agree that during the term of your employment, you will not engage in any other employment, occupation, consulting, or other business activitydirectly related to the business in which the Company is now involved or becomes involved during the term of your employment, nor will you engage in anyother activities that conflict with your obligations to the Company.5. Background Investigation/Reference Checks.As a part of the employment process, we reserve the right to conduct background investigations and/or reference checks on all potential employees to the fullestextent permitted under applicable law. Your job offer, therefore, is contingent upon a clearance of such background investigation and/or reference check. Sandy MahatmeOctober 23, 2012Page 4 of 4 6. Eligibility for Employment.The United States government requires all U.S. employers to verify that employees are eligible to work in the United States. This law applies to citizens andnon-citizens. Enclosed is a list of documents that are acceptable for completing the employment verification (Form I-9) process. Please bring yourdocumentation with you on your first day. The law requires that such documentation be provided within 3 business days of the effective date of youremployment, or your employment relationship with the Company may be terminated. In addition, since the Company is a Federal contractor, please note thatwe participate in e-Verify (an online work authorization verification system).7. Miscellaneous.This letter will be governed by the laws of the State of Massachusetts. This letter, the Equity Agreements and the Confidentiality Agreement, set forth the termsof your employment with the Company and supersede any prior representations or agreements including, but not limited to, any representations made duringyour interviews or relocation negotiations, whether written or oral. This letter, including, but not limited to, its at-will employment provision, may not bemodified or amended except by a written agreement signed by the Company CEO or President and you.If you wish to accept employment with Sarepta Therapeutics, please sign this letter and return one copy to me. This offer will remain open through October 30,2012.We are pleased to welcome you to Sarepta Therapeutics. If you have any questions, please give me a call at 617-444-8424 x 3107.Sincerely,/s/ Joan C. WoodJoan C. WoodVice President, Human ResourcesAGREED TO AND ACCEPTED:I accept the above written offer of employment under the terms in this letter. Signature /s/ Sandesh Mahatme Date: November 1, 2012 Exhibit 10.25 October 23, 2012David Tyronne Howton29 Derby LaneWeston, MA 02493Dear Ty:We are pleased to offer you a position as Senior Vice President, General Counsel at Sarepta Therapeutics, Inc. (the “Company”), reporting to ChristopherGarabedian, President and Chief Executive Officer (“CEO”), pursuant to the terms set forth in this letter agreement, effective on a date agreed to followingyour acceptance of this offer (“Start Date”). Your employee orientation will begin at 11:00 a.m. on your Start Date at our Cambridge office, 245 First Street,Suite 1800, Cambridge, Massachusetts.1. Employment At-Will.If you accept our offer of employment, you will be an employee at-will, meaning that your employment is of indefinite duration and either you or the Companymay terminate our employment relationship at any time for any reason, with or without cause and with or without advance notice. However, you may beentitled to severance benefits depending on the circumstances of your termination of employment with the Company pursuant to a separate Change in Controland Severance Agreement that you will be eligible to enter into with the Company. In the event of your resignation, we request that you give the Company atleast two weeks’ notice.2. Compensation.(a) Base Salary. The Company will pay you an annual salary of $375,000 as compensation for your services (the “Base Salary”). The BaseSalary will be paid periodically in accordance with the Company’s normal payroll practices and be subject to the usual, required withholdings. Your salarywill be subject to review and adjustments will be made based upon the Company’s normal performance review practices.(b) Target Bonus. You will be eligible to receive a target annual bonus of thirty-five percent (35%) of your Base Salary, less applicablewithholdings, upon achievement of performance objectives to be determined by the CEO and the Compensation Committee (the “CompensationCommittee”) of the Board of Directors (the “Board”) in their sole discretion (the “Target Bonus”). The maximum bonus you will be eligible to receive is onehundred fifty percent (150%) of your target bonus. Due to the fact that you are joining the company after September 30, 2012, you will not be eligible for a2012 Target Bonus. In forthcoming years, however, your annual Target Bonus, or any portion thereof, will be paid as soon as practicable after the Boarddetermines that the Target Bonus has been earned, but in no event shall the Target Bonus be paid after the later of (i) the fifteenth (15th) day of the third(3rd) month following the close of the Company’s fiscal year in which the Target Bonus is earned or (ii) March 15 following the calendar year in which theTarget Bonus is earned. Ty HowtonOctober 23, 2012Page 2 of 4 (c) Equity Award. We will recommend to the Compensation Committee after commencement of your employment that you be granted an option topurchase 150,000 shares of the Company’s common stock (the “Option”). The exercise price of the option will be equal to the closing trading price of theCompany’s common stock on the date of grant. Your grant will be subject to the terms, definitions and provisions of the Company’s 2002 Equity IncentivePlan (the “Equity Plan”), and the stock option agreement by and between you and the Company (the “Option Agreement (together, the “EquityAgreements”), both of which documents are incorporated herein by reference. Twenty-five percent (25%) of the shares underlying the Option will vest andbecome exercisable on the first anniversary of the Start Date, and 1/48th of the shares underlying the Option will vest and become exercisable on each monthlyanniversary of the Start Date thereafter, such that the Option will be fully vested and exercisable on the fourth anniversary of the Start Date, subject to yourcontinued employment through any such vesting dates.(d) Parking. Onsite parking at the Cambridge location is available through Laz Parking (ww.lazparking.com). If you elect to park in this lot, youmust first fill out the appropriate paperwork and register with Laz Parking. The Company will reimburse your Laz Parking expenses up to a maximum of$130 per month, which is fifty percent (50%) of the current monthly Laz Parking fee, in accordance with the Company’s expense reimbursement policy.(e) Other Employee Benefits. During your employment with the Company, you will be entitled to participate in the employee benefit planscurrently and hereafter maintained by the Company of general applicability to other executive officers of the Company, including without limitation anyannual equity grants. None of the benefits offered to you by the Company create a right to continue in employment for any particular period of time. Anystatements to the contrary that may have been made to you are unauthorized and are superseded and cancelled by this offer letter. Please also remember thatemployment terms like your position, hours of work, work location, compensation, the stock option plan, and other employee benefits may change over thecourse of employment at the Company’s discretion.3. Severance Benefits.Following commencement of your employment with the company you will be eligible to enter into the company’s standard Change in Control and SeveranceAgreement. This agreement will outline any severance benefits you may be eligible for in the event of certain terminations of your employment.4. Proprietary Rights Agreement.As a condition of your employment, you are required to sign a Confidential Proprietary Rights and Non-Disclosure Agreement (“Confidentiality Agreement”)and you have already done so. For your records, a copy of your fully executed Confidentiality Agreement is enclosed. We wish to emphasize the importance weplace on the proper treatment of all proprietary information, including that which you may have come into contact with in your prior employment. TheCompany is extending this offer to you based upon your general skills and abilities, and not your possession of any trade secret, confidential or proprietaryinformation of a former employer. The Company requires that you do not obtain, keep, use for our benefit, or disclose this type of information from any prioremployers to us. By accepting this offer, you will also be affirming to the Company that you are not a party to any agreement with a prior employer that wouldprohibit your employment with us. Ty HowtonOctober 23, 2012Page 3 of 4 Moreover, you agree that during the term of your employment, you will not engage in any other employment, occupation, consulting, or other business activitydirectly related to the business in which the Company is now involved or becomes involved during the term of your employment, nor will you engage in anyother activities that conflict with your obligations to the Company.5. Background Investigation/Reference Checks.As a part of the employment process, we reserve the right to conduct background investigations and/or reference checks on all potential employees to the fullestextent permitted under applicable law. Your job offer, therefore, is contingent upon a clearance of such background investigation and/or reference check.6. Eligibility for Employment.The United States government requires all U.S. employers to verify that employees are eligible to work in the United States. This law applies to citizens andnon-citizens. Enclosed is a list of documents that are acceptable for completing the employment verification (Form I-9) process. Please bring yourdocumentation with you on your first day. The law requires that such documentation be provided within 3 business days of the effective date of youremployment, or your employment relationship with the Company may be terminated. In addition, since the Company is a Federal contractor, please note thatwe participate in e-Verify (an online work authorization verification system).7. Miscellaneous.This letter will be governed by the laws of the State of Massachusetts. This letter, the Equity Agreements and the Confidentiality Agreement, set forth the termsof your employment with the Company and supersede any prior representations or agreements including, but not limited to, any representations made duringyour interviews or relocation negotiations, whether written or oral. This letter, including, but not limited to, its at-will employment provision, may not bemodified or amended except by a written agreement signed by the Company CEO or President and you.If you wish to accept employment with Sarepta Therapeutics, please sign this letter and return one copy to me. This offer will remain open throughOctober 29, 2012.We are pleased to welcome you to Sarepta Therapeutics. If you have any questions, please give me a call at 617-444-8424 ext 3107.Sincerely,/s/ Joan C. WoodJoan C. WoodVice President, Human Resources Ty HowtonOctober 23, 2012Page 4 of 4 AGREED TO AND ACCEPTED:I accept the above written offer of employment under the terms in this letter. Signature /s/ David Tyronne Howton Date: 10/26/2012 Exhibit 10.26SAREPTA THERAPEUTICS, INC.EXECUTIVE INDUCEMENT STOCK OPTION AWARD AGREEMENTUnless otherwise defined herein, capitalized terms used in this executive inducement stock option agreement and the exhibits hereto (the “AwardAgreement”) shall have the definitions for such terms included in Exhibit B hereto. I.NOTICE OF STOCK OPTION GRANTExecutive Name: Arthur M. KriegYou (“Executive”) have been granted an option (the “Option”) to purchase Shares of common stock (“Common Stock”) of Sarepta Therapeutics, Inc.(the “Company”), subject to the terms and conditions of this Award Agreement, including its exhibits, as follows: Grant Number 275,000 Shares of Common Stock of the CompanyDate of Grant January 13, 2014Vesting Commencement Date January 13, 2014Exercise Price per Share $20.08Total Number of Options Granted 275,000Total Exercise Price $5,522,000Type of Option: Inducement Stock Options under Nasdaq’s Rule 5635(c)(4), Nonstatutory Stock Option(“NSO”)Term/Expiration Date: January 13, 2024Vesting Schedule:Subject to any acceleration provisions contained in this Award Agreement, this Option may be exercised, in whole or in part, in accordance with thefollowing schedule:Twenty-five percent of the Shares of Common Stock subject to the Option shall vest on the one (1) year anniversary of the Vesting Commencement Dateand 1/48th of such shares subject to the Option shall vest each month thereafter on the same day of the month as the Vesting Commencement Date (and if thereis no corresponding day, on the last day of the month), subject to Executive continuing to be an employee of the Company through each such date.Notwithstanding the foregoing, in the event of Executive’s termination as an employee of the Company (“Employee”) as a result of death, the vesting ofall of the Shares of Common Stock subject to the Option shall be accelerated as to 100% of such Shares of Common Stock as of the date of Executive’s death.Termination Period:This Option will be exercisable for three (3) months after Executive ceases to be an Employee, unless such termination is due to Executive’s death orDisability, in which case this Option will be exercisable for twelve (12) months after Executive ceases to be an Employee. Notwithstanding the foregoing, in noevent may this Option be exercised after the Term/Expiration Date as provided above and may be subject to earlier termination as provided in Section 13 of theTerms and Conditions of Stock Option Grant attached Exhibit A hereto.By Executive’s signature and the signature of the Company’s representative below, Executive and the Company agree to theOption terms described in this Award Agreement, including the Terms and Conditions of Stock Option Grant, attached hereto as Exhibit A, all of which aremade a part of this document. Executive has reviewed this Award Agreement and its exhibits in their entirety, has had an opportunity to obtain the advice ofcounsel prior to executing this Award Agreement and fully understands all provisions of this Award Agreement and its attached exhibits. Executive herebyagrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to this Award Agreement,including its exhibits. Executive further agrees to notify the Company upon any change in the residence address Executive provides to the Company. EXECUTIVE: SAREPTA THERAPEUTICS, INC./s/ Arthur M. Krieg /s/ Christopher GarabedianSignature By: Christopher GarabedianArthur M. Krieg President and Chief Executive OfficerPrint Name TitleEXHIBIT ATERMS AND CONDITIONS OF STOCK OPTION GRANT1. Grant of Option. The Company hereby grants to the Executive named in the Notice of Grant attached as Part I of this Award Agreement (the“Executive”) an option (the “Option”) to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per Share set forth in theNotice of Grant (the “Exercise Price”), subject to all of the terms and conditions in this Award Agreement.This Option does not qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).2. Vesting Schedule. Except as provided in Section 3, the Option awarded by this Award Agreement will vest in accordance with the vesting provisionsset forth in the Notice of Grant. Shares scheduled to vest on a certain date or upon the occurrence of a certain condition will not vest in Executive in accordancewith any of the provisions of this Award Agreement, unless Executive will have been continuously an Employee from the Date of Grant until the date suchvesting occurs.3. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of theunvested Option at any time, subject to the terms this Award Agreement. If so accelerated, such Option will be considered as having vested as of the datespecified by the Executive.4. Exercise of Option.(a) Right to Exercise. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such termonly in accordance with the terms of this Award Agreement.(b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit C (the “Exercise Notice”) or ina manner and pursuant to such procedures as the Administrator may determine, which will state the election to exercise the Option, the number of Shares inrespect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company.The Exercise Notice will be completed by Executive and delivered to the Company. The Exercise Notice will be accompanied by payment of the aggregateExercise Price as to all Exercised Shares together with any applicable tax withholding. This Option will be deemed to be exercised upon receipt by the Companyof such fully executed Exercise Notice accompanied by such aggregate Exercise Price.5. Method of Payment. Payment of the aggregate Exercise Price will be by any of the following, or a combination thereof, at the election of Executive.(a) cash;(b) check;(c) consideration received by the Company under a formal cashless exercise program adopted by the Company; or(d) surrender of other Shares which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the ExercisedShares, provided that accepting such Shares, in the sole discretion of the Administrator, will not result in any adverse accounting consequences to theCompany.6. Withholding Taxes. Notwithstanding any contrary provision of this Award Agreement, no certificate representing the Shares will be issued toExecutive, unless and until satisfactory arrangements (as determined by the Administrator) will have been made by Executive with respect to the payment ofincome, employment and other taxes which the Company determines must be withheld with respect to such Shares. To the extent determined appropriate by theCompany in its discretion, it will have the right (but not the obligation) to satisfy any tax withholding obligations by reducing the number of Shares otherwisedeliverable to Executive. If Executive fails to make satisfactory arrangements for the payment of any required tax withholding obligations hereunder at the timeof the Option exercise, Executive acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver Shares if such withholdingamounts are not delivered at the time of exercise.7. Rights as Shareholder. Neither Executive nor any person claiming under or through Executive will have any of the rights or privileges of a shareholderof the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares will have been issued, recorded on therecords of the Company or its transfer agents or registrars, and delivered to Executive. After such issuance, recordation and delivery, Executive will have allthe rights of a shareholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.8. No Guarantee of Continued Service. EXECUTIVE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TOTHE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS AN AT WILL EMPLOYEE OF THE COMPANY (OR THEPARENT OR SUBSIDIARY EMPLOYING OR RETAINING EXECUTIVE) ANDNOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES HEREUNDER. EXECUTIVEFURTHER ACKNOWLEDGES AND AGREES THAT THIS AWARD AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDERAND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUEDENGAGEMENT AS AN EMPLOYEE FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE IN ANY WAYWITH EXECUTIVE’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAININGEXECUTIVE) TO TERMINATE EXECUTIVE’S RELATIONSHIP AS AN EMPLOYEE AT ANY TIME, WITH OR WITHOUT CAUSE.9. Address for Notices. Any notice to be given to the Company under the terms of this Award Agreement will be addressed to the Company at SareptaTherapeutics, Inc., 215 First Street, Suite 7, Cambridge, MA 02142, or at such other address as the Company may hereafter designate in writing.10. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distributionand may be exercised during the lifetime of Executive only by Executive.11. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Award Agreement will be binding upon andinure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.12. Additional Conditions to Issuance of Stock. If at any time the Company will determine, in its discretion, that the listing, registration or qualificationof the Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory authority is necessaryor desirable as a condition to the issuance of Shares to Executive (or his or her estate), such issuance will not occur unless and until such listing, registration,qualification, consent or approval will have been effected or obtained free of any conditions not acceptable to the Company. The Company will make allreasonable efforts to meet the requirements of any such state or federal law or securities exchange and to obtain any such consent or approval of any suchgovernmental authority. Assuming such compliance, for income tax purposes the Exercised Shares will be considered transferred to Executive on the date theOption is exercised with respect to such Exercised Shares.13. Termination. Adjustments; Dissolution or Liquidation; Merger or Change in Control.(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property),recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares orother securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, will adjust thenumber and class of Shares that may be delivered under this Award Agreement and/or the number, class, and price of Shares covered by this Option.(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify Executive assoon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, the Option will terminateimmediately prior to the consummation of such proposed action.(c) Change in Control. In the event of a merger or Change in Control, the Option will be treated as the Administrator determines withoutExecutive’s consent, including, without limitation, that (i) the Option will be assumed, or substantially equivalent to the Option will be substituted, by theacquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon writtennotice to the Executive, that the Executive’s Option will terminate upon or immediately prior to the consummation of such merger or Change in Control;(iii) outstanding Shares under the Option will vest and become exercisable, realizable, or payable, or restrictions applicable to the Option will lapse, in wholeor in part prior to or upon consummation of such merger or Change in Control, and, to the extent the Administrator determines, terminate upon or immediatelyprior to the effectiveness of such merger of Change in Control; (iv) (A) the termination of the Option in exchange for an amount of cash and/or property, if any,equal to the amount that would have been attained upon the exercise of such Option or realization of the Executive’s rights as of the date of the occurrence of thetransaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the Administrator determines in good faith that no amountwould have been attained upon the exercise of such Option or realization of the Executive’s rights, then such Option may be terminated by the Companywithout payment), or (B) the replacement of such Option with other rights or property selected by the Administrator in its sole discretion; or (v) anycombination of the foregoing. In taking any of the actions permitted under this subsection (c), the Administrator will not be obligated to treat all awards, allawards held by the Executive, or all awards of the same type, similarly.In the event that the successor corporation does not assume or substitute for the Option (or portion thereof), the Participant will fully vest in andhave the right to exercise all of his or her outstanding Option (or portion thereof) that is not assumed or substituted for. In addition, if the Option is notassumed or substituted for in the event of a Change in Control, the Administrator will notify the Participant in writing or electronically that the Option will befully vested and exercisable for a period of time determined by the Administrator in its sole discretion, and the Option will terminate upon the expiration ofsuch period.For the purposes of this subsection (c), the Option will be considered assumed if, following the Change in Control, the Option is given the right topurchase or receive, for each Share subject to the Option immediately prior to the Change in Control, theconsideration (whether stock, cash, or other securities or property) or the fair market value of the consideration received in the merger or Change in Control byholders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type ofconsideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Controlis not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for theconsideration to be received upon the exercise of the Option for each Share subject to the Option (or in the case were the Option or a portion thereof is settled incash, the number of implied shares determined by dividing the value of the Option by the per share consideration received by holders of Common Stock in theChange in Control), to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received byholders of Common Stock in the Change in Control.14. Administrator Authority. The Administrator will have the power to interpret this Award Agreement (including, but not limited to, the determination ofwhether or not any Shares subject to the Option have vested). All actions taken and all interpretations and determinations made by the Administrator in goodfaith will be final and binding upon Executive, the Company and all other interested persons. No member of the Administrator will be personally liable for anyaction, determination or interpretation made in good faith with respect to this Award Agreement.15. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Option by electronic means or requestExecutive’s execution of such documents to be by electronic means. Executive hereby consents to receive such documents by electronic delivery and agrees touse any electronic system established and maintained by the Company or another third party designated by the Company for purposes of administering theOption and this Award Agreement.16. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this AwardAgreement.17. Agreement Severable. In the event that any provision in this Award Agreement will be held invalid or unenforceable, such provision will be severablefrom, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Award Agreement.18. Modifications to the Agreement. This Award Agreement constitutes the entire understanding of the parties on the subjects covered. Executiveexpressly warrants that he or she is not accepting this Award Agreement in reliance on any promises, representations, or inducements other than thosecontained herein. Modifications to this Award Agreement can be made only in an express written contract executed by a duly authorized officer of theCompany. Notwithstanding anything to the contrary in this Award Agreement, the Company reserves the right to revise this Award Agreement as it deemsnecessary or advisable, in its sole discretion and without the consent of Executive, to comply with Code Section 409A or to otherwise avoid imposition of anyadditional tax or income recognition under Code Section 409A in connection to this Option.19. Reserved.20. Governing Law. This Award Agreement will be governed by the laws of the State of Delaware, without giving effect to the conflict of law principlesthereof. For purposes of litigating any dispute that arises under this Option or this Award Agreement, the parties hereby submit to and consent to thejurisdiction of the State of Delaware, and agree that such litigation will be conducted in the state courts of Delaware, or the federal courts for the United Statesfor the District of Delaware, and no other courts, where this Option is made and/or to be performed.EXHIBIT BDEFINED TERMS (a)“Administrator” means the board of directors of the Company or the Compensation Committee. (b)“Change in Control” means the occurrence of any of the following events: (i)Change in Ownership of the Company. A change in the ownership of the Company which occurs on the date that any one person,or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stockheld by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided,however, that for purposes of this subsection (i), the acquisition of additional stock by any one Person, who is considered to ownmore than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control; or (ii)Change in Effective Control of the Company. If the Company has a class of securities registered pursuant to Section 12 of theExchange Act, a change in the effective control of the Company which occurs on the date that a majority of members of the board ofdirectors (the “Board”) of the Company is replaced during any twelve (12) month period by a member of the Board whoseappointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election.For purposes of this subsection (ii), if any Person is considered to be in effective control of the Company, the acquisition ofadditional control of the Company by the same Person will not be considered a Change in Control; or (iii)Change in Ownership of a Substantial Portion of the Company’s Assets. A change in the ownership of a substantial portion of theCompany’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period endingon the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair marketvalue equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediatelyprior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will notconstitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlledby the Company’s shareholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a shareholder ofthe Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, fiftypercent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person,that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of theCompany, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, bya Person described in this subsection (iii)(B)(3). For purposes of this subsection (iii), gross fair market value means the value of theassets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated withsuch assets.For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporation that enters intoa merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.Further and for the avoidance of doubt, a transaction shall not constitute a Change in Control if: (i) its sole purpose is to change thestate of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that shall be owned in substantially the sameproportions by the persons who held the Company’s securities immediately before such transaction. (c)“Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or Treasury Regulation (d)“Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards otherthan Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists inaccordance with uniform and non-discriminatory standards adopted by the Administrator from time to time. (e)“Exchange Act” means the Securities Exchange Act of 1934, as amended. (f)“Fair Market Value” means, as of any date, the value of Common Stock determined as follows: (i)If the Common Stock is listed on any established stock exchange or a national market system, including without limitation theNasdaq Global Market, the Nasdaq Global Select Market or the Nasdaq Capital Market, its Fair Market Value shall be the closingsales price for such stock (or, if no closing sales price was reported on that date, as applicable, on the last trading date such closingsales price is reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journalor such other source as the Administrator deems reliable; (ii)If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Valueshall be the mean between the high bid and low asked prices for the Common Stock on the day of determination (or, if no bids andasks were reported on that date, as applicable, on the last trading date such bids and asks are reported); or (iii)In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by theAdministrator. (g)“Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code. (h)“Share(s)” means a share or shares of the Common Stock, as adjusted in accordance with Section 13(a) of Exhibit A of the AwardAgreement (Terms and Conditions of Stock Option Grant”). (i)“Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.EXHIBIT CSAREPTA THERAPEUTICS, INC.EXERCISE NOTICESarepta Therapeutics, Inc.215 First StreetSuite 415Cambridge, MA 021421. Exercise of Option. Effective as of today, , , the undersigned (“Purchaser”) hereby elects to purchase shares (the “Shares”)of the Common Stock of Sarepta Therapeutics, Inc. (the “Company”) under and pursuant to the Stock Option Award Agreement dated between thePurchaser and the Company (the “Award Agreement”). The purchase price for the Shares will be $ , as required by the Award Agreement.2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price of the Shares and any required tax withholding to be paid inconnection with the exercise of the Option.3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Award Agreement and agrees to abide byand be bound by their terms and conditions.4. Rights as Shareholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agentof the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder will exist with respect to the Shares subject to theOption, notwithstanding the exercise of the Option. The Shares so acquired will be issued to Purchaser as soon as practicable after exercise of the Option. Noadjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 13 of the AwardAgreement.5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition ofthe Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase ordisposition of the Shares and that Purchaser is not relying on the Company for any tax advice.6. Entire Agreement; Governing Law. The Award Agreement is incorporated herein by reference. This Exercise Notice and the Award Agreementconstitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of theCompany and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser’s interest except by means of a writingsigned by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of the State of Delaware. Submitted by: Accepted by:PURCHASER: SAREPTA THERAPEUTICS, INC. Signature By Print Name TitleResidence Address: Date ReceivedExhibit 10.27SAREPTA THERAPEUTICS, INC.2014 EMPLOYMENT COMMENCEMENT INCENTIVE PLAN 1.Purposes of the Plan. (a)Eligible Award Recipients. Only Eligible Participants may receive awards under the Plan. (b)The purposes of this Plan are: (i)to attract and retain the best available Eligible Participants for positions of substantial responsibility upon whosejudgment, interest, and special effort the successful conduct of the Company’s operation will be largely dependent, (ii)to provide additional incentives to Eligible Participants, and (iii)to promote the success of the Company’s business. (c)The Plan permits the grant of Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units,Performance Units and Performance Shares. 2.Definitions. As used herein, the following definitions will apply: (a)“Administrator” means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan. (b)“Affiliate” means any corporation or any other entity (including, but not limited to, partnerships and joint ventures) controlling,controlled by, or under common control with the Company. (c)“Applicable Laws” means the requirements relating to the administration of equity-based awards under U.S. state corporate laws, U.S.federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted andthe applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan. (d)“Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, RestrictedStock Units, Performance Units or Performance Shares. (e)“Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to each Award grantedunder the Plan. The Award Agreement is subject to the terms and conditions of the Plan. (f)“Award Transfer Program” means any program instituted by the Administrator that would permit Participants the opportunity totransfer for value any outstanding Awards to a financial institution or other person or entity approved by the Administrator. (g)“Board” means the Board of Directors of the Company. (h)“Change in Control” means the occurrence of any of the following events: (i)Change in Ownership of the Company. A change in the ownership of the Company which occurs on the date that anyone person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Companythat, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power ofthe stock of the Company; provided, however, that for purposes of this subsection (i), the acquisition of 1 additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting powerof the stock of the Company will not be considered a Change in Control; or (ii)Change in Effective Control of the Company. If the Company has a class of securities registered pursuant toSection 12 of the Exchange Act, a change in the effective control of the Company which occurs on the date that amajority of members of the Board is replaced during any twelve (12) month period by Directors whose appointment orelection is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. Forpurposes of this subsection (ii), if any Person is considered to be in effective control of the Company, the acquisitionof additional control of the Company by the same Person will not be considered a Change in Control; or (iii)Change in Ownership of a Substantial Portion of the Company’s Assets. A change in the ownership of a substantialportion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve(12) month period ending on the date of the most recent acquisition by such person or persons) assets from theCompany that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fairmarket value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided,however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of asubstantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’sshareholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a shareholder of theCompany (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity,fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by theCompany, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting powerof all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or votingpower of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). For purposes ofthis subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assetsbeing disposed of, determined without regard to any liabilities associated with such assets.For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporationthat enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with theCompany.Notwithstanding the foregoing, a transaction shall not be deemed a Change in Control unless the transaction qualifiesas a change in control event within the meaning of Section 409A of the Code, as it has been and may be amended fromtime to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has beenpromulgated or may be promulgated thereunder from time to time.Further and for the avoidance of doubt, a transaction shall not constitute a Change in Control if: (i) its sole purpose isto change the state of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that shall beowned in substantially the same proportions by the persons who held the Company’s securities immediately beforesuch transaction. (i)“Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or Treasury Regulationthereunder will include such section or regulation, any valid regulation or other official applicable guidance promulgated under suchsection, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section orregulation. 2 (j)“Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board in accordancewith Section 4 hereof. (k)“Common Stock” means the common stock of the Company. (l)“Company” means Sarepta Therapeutics, Inc., a Delaware corporation, or any successor thereto. (m)“Director” means a member of the Board. (n)“Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards otherthan Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists inaccordance with uniform and non-discriminatory standards adopted by the Administrator from time to time. (o)“Eligible Participant” means any Employee who has not previously been an Employee or Director of the Company or a Subsidiary, or iscommencing employment with the Company or a Subsidiary following a bona fide period of non-employment by the Company or aSubsidiary, if he or she is granted an Award in connection with his or her commencement of employment with the Company or aSubsidiary and such grant is an inducement material to his or her entering into employment with the Company or a Subsidiary. TheBoard may in its discretion adopt procedures from time to time to ensure that an Employee is eligible to participate in the Plan prior to thegranting of any Awards to such Employee under the Plan (including, without limitation, a requirement, that each such Employee certifyto the Company prior to the receipt of an Award under the Plan that he or she has not been previously employed by the Company or aSubsidiary, or if previously employed, has had a bona fide period of non-employment, and that the grant of Awards under the Plan isan inducement material to his or her agreement to enter into employment with the Company or a Subsidiary). (p)“Employee” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of theCompany. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” bythe Company. (q)“Exchange Act” means the Securities Exchange Act of 1934, as amended. (r)“Exchange Program” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for Awards of thesame type (which may have higher or lower exercise prices and different terms), Awards of a different type, and/or cash, (ii) Participantswould have the opportunity to transfer for value any outstanding Awards to a financial institution or other person or entity selected bythe Administrator, and/or (iii) the exercise price of an outstanding Award is reduced or increased. The Administrator will determine theterms and conditions of any Exchange Program in its sole discretion. (s)“Fair Market Value” means, as of any date, the value of Common Stock determined as follows: (i)If the Common Stock is listed on any established stock exchange or a national market system, including withoutlimitation the Nasdaq Global Market, the Nasdaq Global Select Market or the Nasdaq Capital Market, its Fair MarketValue shall be the closing sales price for such stock (or, if no closing sales price was reported on that date, asapplicable, on the last trading date such closing sales price is reported) as quoted on such exchange or system on theday of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; 3 (ii)If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its FairMarket Value shall be the mean between the high bid and low asked prices for the Common Stock on the day ofdetermination (or, if no bids and asks were reported on that date, as applicable, on the last trading date such bids andasks are reported); or (iii)In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faithby the Administrator. (t)“Family Member” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece,nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (including adoptive relationships) ofthe Employee, any person sharing the Employee’s household (other than a tenant or employee), a trust in which these persons (or theEmployee) have more than 50% of the beneficial interest, a foundation in which these persons (or the Employee) control the managementof assets, and any other entity in which these persons (or the Employee) own more than 50% of the voting interests. (u)“Fiscal Year” means the fiscal year of the Company. (v)“Full Value Award” shall mean any Award, other than an Option or a Stock Appreciation Right, that is settled by the issuance of Shares. (w)“Incentive Stock Option” means an Option that by its terms qualifies and is otherwise intended to qualify as an incentive stock optionwithin the meaning of Section 422 of the Code and the regulations promulgated thereunder. Incentive Stock Options may not be grantedunder the Plan (x)“Inside Director” means a Director who is an Employee. (y)“Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive StockOption. (z)“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules andregulations promulgated thereunder. (aa)“Option” means a stock option granted pursuant to the Plan. Any Option granted under this Plan shall be a Nonstatutory Stock Option (bb)“Outside Director” means a Director who is not an Employee of the Company and who qualifies as “independent” within the meaning ofNasdaq Stock Market Rule 5605(a)(2), or any successor rule, if the Company’s securities are traded on the Nasdaq Stock Market, orthe requirements of any other established stock exchange on which the Company’s securities are traded, as such rules or requirementsmay be amended from time to time. (cc)“Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code. (dd)“Participant” means an Eligible Participant who has been granted an Award pursuant to the Plan. (ee)“Performance Share” means an Award denominated in Shares which may be earned in whole or in part upon attainment of performancegoals or other vesting criteria as the Administrator may determine pursuant to Section 10. 4 (ff)“Performance Unit” means an Award which may be earned in whole or in part upon attainment of performance goals or other vestingcriteria as the Administrator may determine and which may be settled for cash, Shares or other securities or a combination of theforegoing pursuant to Section 10. (gg)“Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore,the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of targetlevels of performance, or the occurrence of other events as determined by the Administrator. (hh)“Plan” means this 2014 Employment Commencement Incentive Plan, as may be amended from time to time. (ii)“Restricted Stock” means Shares issued pursuant to a Restricted Stock award under Section 8 of the Plan, or issued pursuant to theearly exercise of an Option. (jj)“Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, grantedpursuant to Section 9. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company. (kk)“Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised withrespect to the Plan. (ll)“Share” means a share of the Common Stock, as adjusted in accordance with Section 14(a) of the Plan. (mm)“Stock Appreciation Right” means an Award, granted alone or in connection with an Option, that pursuant to Section 7 is designated asa Stock Appreciation Right. (nn)“Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code. 3.Stock Subject to the Plan. (a)Stock Subject to the Plan. Subject to the provisions of Section 14(a) of the Plan, the maximum aggregate number of Shares that may besubject to Awards and sold under the Plan is 640,000 Shares; provided, however, that such aggregate number of Shares available forissuance under the Plan shall be reduced by 1.41 shares for each Share delivered in settlement of any Full Value Award. The Shares maybe authorized, but unissued, or reacquired Common Stock. (b)Lapsing Awards. If any Shares subject to an Award that is not a Full Value Award are forfeited, expire, are surrendered pursuant to anExchange Program or such Award is settled for cash (in whole or in part), the Shares subject to such Award shall, to the extent of suchforfeiture, expiration, surrender pursuant to an Exchange Program or cash settlement, again be available for future grants of Awardsunder the Plan. To the extent that a Full Value Award is forfeited, expires, is surrendered pursuant to an Exchange Program or such FullValue Award is settled for cash (in whole or in part), the Shares available under the Plan shall be increased by 1.41 Shares subject tosuch Full Value Award that is forfeited, expired, surrendered pursuant to an Exchange Program or settled in cash. Notwithstandinganything to the contrary herein, with respect to Stock Appreciation Rights, all Shares subject to a Stock Appreciation Right will cease tobe available under the Plan, other than Shares forfeited due to failure to vest which will become available for future grant or sale underthe Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan under any Award will not be returned tothe Plan and will not become available for future distribution under the Plan; provided, however, that if Shares issued pursuant toAwards of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units are repurchased by the Company at theoriginal issuance price or are forfeited to the Company due to failure to vest, such Shares will become available for future grant under thePlan. Shares used to pay 5 the exercise or purchase price of an Award and/or to satisfy the tax withholding obligations related to an Option or Stock AppreciationRight will not become available for future grant or sale under the Plan. Shares used to satisfy the tax withholding obligations related to anAward other than an Option or Stock Appreciation Right will become available for future grant or sale under the Plan. (c)Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will besufficient to satisfy the requirements of the Plan. 4.Administration of the Plan. (a)Procedure. (i)Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactionscontemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3. (ii)Other Administration. Unless and until the Board delegates administration to the Committee, the Plan shall beadministered by the Board, which shall, in such event, constitute the “Administrator” for the purposes of the Plan.Any action taken by the Board in connection with the administration of the Plan shall not be deemed approved by theBoard unless such actions are approved by a majority of the Outside Directors. The Board may delegateadministration of the Plan to the Committee, and the term “Administrator” shall apply to any person or persons towhom such authority has been delegated; provided, however, that such Committee be comprised of a majority of orsolely two or more Outside Directors. If administration is delegated to a Committee, the Committee shall have, inconnection with the administration of the Plan, the powers theretofore possessed by the Board, including the power todelegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references inthe Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, notinconsistent with the provisions of the Plan, as may be adopted from time to time by the Board.The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Any actiontaken by the Board in connection with the administration of the Plan shall continue to not be deemed approved by theBoard unless such actions are approved by a majority of the Outside Directors. Appointment of Committee membersshall be effective upon acceptance of appointment. Committee members may resign at any time by delivering writtennotice to the Board. Vacancies in the Committee may only be filled by the Board. (b)Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegatedby the Board to such Committee, the Administrator will have the authority, in its discretion: (i)Adopt procedures from time to time in the Administrator’s discretion to ensure that an Employee is eligible toparticipate in the Plan prior to the granting of any Awards to such Employee under the Plan (including, withoutlimitation, a requirement, if any, that each such Employee certify to the Company prior to the receipt of an Awardunder the Plan that he or she has not been previously employed by the Company or a Subsidiary, or if previouslyemployed, has had a bona fide period of non-employment, and that the grant of Awards under the Plan is aninducement material to his or her agreement to enter into employment with the Company or a Subsidiary); (ii)to determine the Fair Market Value; (iii)to select the Eligible Participants to whom Awards may be granted hereunder; 6 (iv)to determine the number of Shares to be covered by each Award granted hereunder; (v)to approve forms of Award Agreements for use under the Plan; (vi)to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder.Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may beexercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions,and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factorsas the Administrator will determine; (vii)to determine the terms and conditions of any, and to institute any Exchange Program, subject to Section 4(e); (viii)to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan; (ix)to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating tosub-plans established for the purpose of satisfying applicable foreign laws or for qualifying for favorable tax treatmentunder applicable foreign laws; (x)to modify or amend each Award (subject to Section(s) 4(e)(i) and 19(c) of the Plan), including but not limited to thediscretionary authority to extend the post-termination exercisability period of Awards and to extend the maximum termof an Option; (xi)to allow Participants to satisfy withholding tax obligations in such manner as prescribed in Section 15; (xii)to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Awardpreviously granted by the Administrator; (xiii)to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due tosuch Participant under an Award pursuant to such procedures as the Administrator may determine; and (xiv)to make all other determinations deemed necessary or advisable for administering the Plan. (c)Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be final and binding on allParticipants and any other holders of Awards. (d)No Liability. Under no circumstances shall the Company, its Affiliates, the Administrator, or the Board incur liability for any indirect,incidental, consequential or special damages (including lost profits) of any form incurred by any person, whether or not foreseeable andregardless of the form of the act in which such a claim may be brought, with respect to the Plan or the Company’s, its Affiliates’, theAdministrator’s or the Board’s roles in connection with the Plan. (e)Limitations. (i)Prohibition Against Repricing. Notwithstanding Section 4(b)(ix), the Administrator may not modify or amend anOption or Stock Appreciation Right to reduce the exercise price of such Option or Stock Appreciation Right after it hasbeen granted (except for adjustments made pursuant to Section 14), and neither may the Administrator cancel anyoutstanding Option or Stock Appreciation Right in exchange for cash or any other Award with a lower exercise price,unless such action is approved by shareholders prior to such action being taken. Subject to Section 14, theAdministrator shall have the authority, without the approval of the 7 shareholders of the Company, to amend any outstanding Award to increase the price per share or to cancel and replacean Award with the grant of an Award having a price per share that is greater than or equal to the price per share of theoriginal Award. (ii)Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash an Option previouslygranted based on such terms and conditions as the Administrator will establish and communicate to the Participant atthe time that such offer is made. Notwithstanding anything contained in this Section 4(e)(ii) to the contrary, theAdministrator shall not be allowed to authorize the buyout of underwater Options or Stock Appreciation Rights withoutthe prior consent of the Company’s shareholders. 5.Eligibility. Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units, and PerformanceShares may be granted to Eligible Participants. Incentive Stock Options may not be granted under the Plan. 6.Stock Options. (a)Limitations. (i)Each Option granted hereunder shall constitute a Nonstatutory Stock Option. The Fair Market Value of the Shares willbe determined as of the time the Option with respect to such Shares is granted. (ii)The Administrator will have complete discretion to determine the number of Shares subject to an Option granted to anyEligible Participant. (b)Term of Option. The term of each Option will be stated in the Award Agreement; provided, however, that the term will be no more thanten (10) years from the date of grant thereof. (c)Option Exercise Price and Consideration. (i)The per Share exercise price for the Shares to be issued pursuant to the exercise of an Option will be determined by theAdministrator, but will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date ofgrant. Notwithstanding the foregoing provisions of this Section 6(c)(i), Options may be granted with a per Shareexercise price of less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant pursuantto a transaction described in, and in a manner consistent with, Code Section 424(a). (ii)Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator will fix the period within whichthe Option may be exercised and will determine any conditions that must be satisfied before the Option may beexercised. (iii)Form of Consideration. The Administrator will determine the acceptable form(s) of consideration for exercising anOption, including the method of payment, to the extent permitted by Applicable Laws. Such consideration to the extentpermitted by Applicable Laws may include, but is not limited to: (1)cash; (2)check; (3)other Shares which have a Fair Market Value on the date of surrender equal to the aggregate exerciseprice of the Shares as to which said Option will be exercised and provided that accepting suchShares, in the sole discretion of the Administrator, will not result in any adverse accountingconsequences to the Company; 8 (4)by net exercise; (5)consideration received by the Company under a cashless exercise program implemented by theCompany in connection with the Plan; (6)a reduction in the amount of any Company liability to the Participant, including any liabilityattributable to the Participant’s participation in any Company-sponsored deferred compensationprogram or arrangement; (7)such other consideration and method of payment for the issuance of Shares to the extent permitted byApplicable Laws; or (8)any combination of the foregoing methods of payment. (d)Exercise of Option. (i)Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder will be exercisable according to theterms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in theAward Agreement. An Option may not be exercised for a fraction of a Share.An Option will be deemed exercised when the Company receives: (i) notice of exercise (in such form as theAdministrator specifies from time to time) from the person entitled to exercise the Option, and (ii) full payment for theShares with respect to which the Option is exercised (together with applicable tax withholdings). Full payment mayconsist of any consideration and method of payment authorized by the Administrator and permitted by the AwardAgreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, ifrequested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (asevidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of theCompany), no right to vote or receive dividends or any other rights as a shareholder will exist with respect to theShares subject to an Option, notwithstanding the exercise of the Option. The Company will issue (or cause to beissued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other rightfor which the record date is prior to the date the Shares are issued, except as provided in Section 14(a) of the Plan.Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of thePlan and for sale under the Option, by the number of Shares as to which the Option is exercised. (ii)Termination of Relationship as an Employee. If a Participant ceases to be an Employee, other than upon theParticipant’s termination as the result of the Participant’s death or Disability, the Participant may exercise his or herOption within such period of time as is specified in the Award Agreement to the extent that the Option is vested on thedate of termination (but in no event later than the expiration of the term of such Option as set forth in the AwardAgreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three(3) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date oftermination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of theOption will revert to the Plan. If after termination the Participant does not exercise his or her Option within the timespecified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to thePlan. 9 (iii)Disability of Participant. If a Participant ceases to be an Employee as a result of the Participant’s Disability, theParticipant may exercise his or her Option within such period of time as is specified in the Award Agreement to theextent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Optionas set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remainexercisable for twelve (12) months following the Participant’s termination. Unless otherwise provided by theAdministrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Sharescovered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercisehis or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Optionwill revert to the Plan. (iv)Death of Participant. If a Participant dies while an Employee, then the vesting and exercisability of all shares subject tothe Option shall be accelerated as to 100% of the Shares subject to the Option as of such Participant’s death. If aParticipant dies while an Employee, the Option may be exercised following the Participant’s death within such periodof time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no eventmay the Option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement),by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s deathin a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then suchOption may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom theOption is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. Inthe absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) monthsfollowing Participant’s death. If the Option is not so exercised within the time specified herein, the Option willterminate, and the Shares covered by such Option will revert to the Plan. (v)Other Termination. A Participant’s Award Agreement also may provide that if the exercise of the Option following thetermination of Participant’s status as an Employee (other than upon the Participant’s death or Disability) would resultin liability under Section 16(b) of the Exchange Act, then the Option will terminate on the earlier of (A) the expiration ofthe term of the Option set forth in the Award Agreement, or (B) the tenth (10th) day after the last date on which suchexercise would result in such liability under Section 16(b) of the Exchange Act. Finally, a Participant’s AwardAgreement may also provide that if the exercise of the Option following the termination of the Participant’s status as anEmployee (other than upon the Participant’s death or Disability) would be prohibited at any time solely because theissuance of Shares would violate the registration requirements under the Securities Act, then the Option will terminateon the earlier of (A) the expiration of the term of the Option, or (B) the expiration of a period of three (3) months after thetermination of the Participant’s status as an Employee during which the exercise of the Option would not be in violationof such registration requirements. 7.Stock Appreciation Rights. (a)Grant of Stock Appreciation Rights. Subject to the terms and conditions of the Plan, a Stock Appreciation Right may be granted toEligible Participants at any time and from time to time as will be determined by the Administrator, in its sole discretion. 10 (b)Number of Shares. The Administrator will have complete discretion to determine the number of Stock Appreciation Rights granted toany Eligible Participant. (c)Exercise Price and Other Terms. The Administrator, subject to the provisions of the Plan, will have complete discretion to determine theterms and conditions of Stock Appreciation Rights granted under the Plan, provided, however, that the exercise price will not be lessthan one hundred percent (100%) of the Fair Market Value of a Share on the date of grant. Notwithstanding the foregoing provisions ofthis Section 7(c), Stock Appreciation Rights may be granted with a per Share exercise price of less than one hundred percent (100%) ofthe Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with,Section 424(a) of the Code and the Treasury Regulations thereunder. If a Participant dies while an Employee, then the vesting andexercisability of all shares subject to the Stock Appreciation Rights shall be accelerated as to 100% of the Shares subject to the StockAppreciation Rights as of such Participant’s death. (d)Stock Appreciation Right Agreement. Each Stock Appreciation Right grant will be evidenced by an Award Agreement that will specify theexercise price, the term of the Stock Appreciation Right, the acceptable forms of consideration for exercise (which may include any formof consideration permitted by Section 6(c)(iii), the conditions of exercise, and such other terms and conditions as the Administrator, inits sole discretion, will determine. (e)Expiration of Stock Appreciation Rights. A Stock Appreciation Right granted under the Plan will expire upon the date determined by theAdministrator, in its sole discretion, and set forth in the Award Agreement; provided, however, that the term will be no more thanten (10) years from the date of grant thereof. Notwithstanding the foregoing, the rules of Section 6(d) relating to exercise also will apply toStock Appreciation Rights. (f)Payment of Stock Appreciation Right Amount. Upon exercise of a Stock Appreciation Right, a Participant will be entitled to receivepayment from the Company in an amount determined by multiplying: (i)The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times (ii)The number of Shares with respect to which the Stock Appreciation Right is exercised.At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in Shares of equivalentvalue, or in some combination thereof. 8.Restricted Stock. (a)Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, maygrant Shares of Restricted Stock to Eligible Participants in such amounts as the Administrator, in its sole discretion, will determine. (b)Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period ofRestriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, willdetermine. Unless the Administrator determines otherwise, the Company as escrow agent will hold Shares of Restricted Stock until therestrictions on such Shares have lapsed. (c)Transferability. Except as provided in this Section 8, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, orotherwise alienated or hypothecated until the end of the applicable Period of Restriction. 11 (d)Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it maydeem advisable or appropriate. (e)Removal of Restrictions. Except as otherwise provided in this Section 8, Shares of Restricted Stock covered by each Restricted Stockgrant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction or at suchother time as the Administrator may determine. The Administrator, in its sole discretion, may reduce or waive any restrictions for suchAward and may accelerate the time at which any restrictions will lapse or be removed. (f)Voting Rights. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may exercise fullvoting rights with respect to those Shares, unless the Administrator determines otherwise. (g)Dividends and Other Distributions. During the Period of Restriction, Participants holding Shares of Restricted Stock will be entitled toreceive all dividends and other distributions paid with respect to such Shares, unless the Administrator provides otherwise. If any suchdividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability asthe Shares of Restricted Stock with respect to which they were paid. In addition, with respect to a share of Restricted Stock withperformance-based vesting, dividends which are paid prior to vesting shall only be paid out to the Participant to the extent that theperformance-based vesting conditions are subsequently satisfied and the share of Restricted Stock vests. (h)Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions havenot lapsed will revert to the Company and again will become available for grant under the Plan. 9.Restricted Stock Units. (a)Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. After theAdministrator determines that it will grant Restricted Stock Units under the Plan, it will advise the Eligible Participant in an AwardAgreement of the terms, conditions, and restrictions related to the grant, including the number of Restricted Stock Units. (b)Vesting Criteria and Other Terms. The Administrator will set vesting criteria in its discretion, which, depending on the extent to whichthe criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. The Administrator mayset vesting criteria based upon the achievement of Company-wide, business unit, or individual goals (including, but not limited to,continued employment), or any other basis determined by the Administrator in its discretion. (c)Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout asdetermined by the Administrator. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the Administrator,in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout and may accelerate the time at whichany restrictions will lapse or be removed. (d)Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) set forth inthe Award Agreement or as otherwise provided in the applicable Award Agreement or as required by Applicable Laws. TheAdministrator, in its sole discretion, may pay earned Restricted Stock Units in cash, Shares, or a combination thereof. Sharesrepresented by Restricted Stock Units that are fully paid in cash again will not reduce the number of Shares available for grant under thePlan. (e)Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company. 1210.Performance Units and Performance Shares. (a)Grant of Performance Units/Shares. Performance Units and Performance Shares may be granted to Eligible Participants at any time andfrom time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have complete discretion indetermining the number of Performance Units and Performance Shares granted to each Participant provided that during any Fiscal Year. (b)Value of Performance Units/Shares. Each Performance Unit will have an initial value that is established by the Administrator on orbefore the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant. (c)Performance Objectives and Other Terms. The Administrator will set performance objectives or other vesting provisions (including,without limitation, continued status as an Employee) in its discretion which, depending on the extent to which they are met, willdetermine the number or value of Performance Units/Shares that will be paid out to the Eligible Participants. The time period duringwhich the performance objectives or other vesting provisions must be met will be called the “Performance Period.” Each Award ofPerformance Units/Shares will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms andconditions as the Administrator, in its sole discretion, will determine. The Administrator may set performance objectives based upon theachievement of Company-wide, divisional, or individual goals, applicable federal or state securities laws, or any other basis determinedby the Administrator in its discretion. (d)Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance Units/Shares willbe entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to bedetermined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved.After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectivesor other vesting provisions for such Performance Unit/Share and may accelerate the time at which any restrictions will lapse or beremoved. (e)Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/Shares will be made as soon aspracticable after the expiration of the applicable Performance Period, or as otherwise provided in the applicable Award Agreement or asrequired by Applicable Laws. The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash,in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of theapplicable Performance Period) or in a combination thereof. (f)Cancellation of Performance Units/Shares. On the date set forth in the Award Agreement, all unearned or unvested PerformanceUnits/Shares will be forfeited to the Company, and again will be available for grant under the Plan. 11.Compliance With Code Section 409A. Awards will be designed and operated in such a manner that they are either exempt from the application of, orcomply with, the requirements of Code Section 409A such that the grant, payment, settlement or deferral will not be subject to the additional tax orinterest applicable under Code Section 409A, except as otherwise determined in the sole discretion of the Administrator. The Plan and each AwardAgreement under the Plan is intended to meet the requirements of Code Section 409A and will be construed and interpreted in accordance with suchintent, except as otherwise determined in the sole discretion of the Administrator. To the extent that an Award or payment, or the settlement or deferralthereof, is subject to Code Section 409A the Award will be granted, paid, settled or deferred in a manner that will meet the requirements of CodeSection 409A, such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under CodeSection 409A. 1312.Leaves of Absence/Transfer Between Locations. Unless the Administrator provides otherwise and except as required by Applicable Laws, vesting ofAwards granted hereunder will be suspended during any unpaid leave of absence. A Participant will not cease to be an Employee in the case of (i) anyleave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. 13.Transferability of Awards. (a)Non-Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned,hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may beexercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, including,without limitation, by instrument to an inter vivos or testamentary trust in which the Awards are to be passed to beneficiaries upon thedeath of the trustor (settlor) or by gift to Family Members, such Award will contain such additional terms and conditions as theAdministrator deems appropriate. (b)Prohibition Against an Award Transfer Program. Notwithstanding anything to the contrary in the Plan, in no event will theAdministrator have the right to determine and implement the terms and conditions of any Award Transfer Program without shareholderapproval. 14.Adjustments; Dissolution or Liquidation; Merger or Change in Control. (a)Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or otherproperty), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination,repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Companyaffecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intendedto be made available under the Plan, will adjust the number and class of Shares that may be delivered under the Plan and/or the number,class, and price of Shares covered by each outstanding Award, and the numerical Share limits set forth in Section 3 of the Plan. (b)Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify eachParticipant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previouslyexercised, an Award will terminate immediately prior to the consummation of such proposed action. (c)Change in Control. In the event of a merger or Change in Control, each outstanding Award will be treated as the Administrator determineswithout a Participant’s consent, including, without limitation, that (i) Awards will be assumed, or substantially equivalent Awards willbe substituted, by the acquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments as to the number andkind of shares and prices; (ii) upon written notice to a Participant, that the Participant’s Awards will terminate upon or immediatelyprior to the consummation of such merger or Change in Control; (iii) outstanding Awards will vest and become exercisable, realizable, orpayable, or restrictions applicable to an Award will lapse, in whole or in part prior to or upon consummation of such merger or Changein Control, and, to the extent the Administrator determines, terminate upon or immediately prior to the effectiveness of such merger ofChange in Control; (iv) (A) the termination of an Award in exchange for an amount of cash and/or property, if any, equal to the amountthat would have been attained upon the exercise of such Award or realization of the Participant’s rights as of the date of the occurrence ofthe transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the Administrator determines ingood faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then suchAward may be terminated by the Company without payment), or (B) the replacement of such Award with other rights or propertyselected by the Administrator in its sole discretion; or (v) any combination of the foregoing. In taking any of the actions permitted underthis subsection (c), the Administrator will not be obligated to treat all Awards, all Awards held by a Participant, or all Awards of thesame type, similarly. 14In the event that the successor corporation does not assume or substitute for the Award (or portion thereof), the Participant will fully vestin and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights that are not assumed or substitutedfor, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock,Restricted Stock Units, and Performance Shares/Units not assumed or substituted for will lapse, and, with respect to Awards withperformance-based vesting not assumed or substituted for, all performance goals or other vesting criteria will be deemed achieved at onehundred percent (100%) of target levels and all other terms and conditions met. In addition, if an Option or Stock Appreciation Right isnot assumed or substituted for in the event of a Change in Control, the Administrator will notify the Participant in writing orelectronically that the Option or Stock Appreciation Right will be fully vested and exercisable for a period of time determined by theAdministrator in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the expiration of such period.For the purposes of this subsection (c), an Award will be considered assumed if, following the Change in Control, the Award confers theright to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whetherstock, cash, or other securities or property) or, in the case of a Stock Appreciation Right upon the exercise of which the Administratordetermines to pay cash or a Restricted Stock Unit, Performance Share or Performance Unit which the Administrator can determine topay in cash, the fair market value of the consideration received in the merger or Change in Control by holders of Common Stock foreach Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of considerationchosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change inControl is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successorcorporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payoutof a Restricted Stock Unit, Performance Unit or Performance Share, for each Share subject to such Award (or in the case of an Awardsettled in cash, the number of implied shares determined by dividing the value of the Award by the per share consideration received byholders of Common Stock in the Change in Control), to be solely common stock of the successor corporation or its Parent equal in fairmarket value to the per share consideration received by holders of Common Stock in the Change in Control.Notwithstanding anything in this subsection (c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of oneor more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goalswithout the Participant’s consent; provided, however, a modification to such performance goals only to reflect the successorcorporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.Notwithstanding anything in this subsection (c) to the contrary, if a payment under an Award Agreement is subject to Section 409A ofthe Code and if the change in control definition contained in the Award Agreement or other agreement related to the Award does notcomply with the definition of “change in control” for purposes of a distribution under Section 409A of the Code, then any payment ofan amount that is otherwise accelerated under this Section will be delayed until the earliest time that such payment would be permissibleunder Section 409A of the Code without triggering any penalties applicable under Section 409A of the Code. 1515.Tax Withholding. (a)Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof), the Company willhave the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfyfederal, state, local, foreign or other taxes (including the Participant’s FICA obligation) required to be withheld with respect to suchAward (or exercise thereof). (b)Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time totime, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation) (a) paying cash,(b) electing to have the Company withhold otherwise deliverable cash or Shares having a Fair Market Value equal to the statutoryamount required to be withheld, (c) delivering to the Company already-owned Shares having a Fair Market Value equal to the statutoryamount required to be withheld, provided the delivery of such Shares will not result in any adverse accounting consequences as theAdministrator determines in its sole discretion, (d) selling a sufficient number of Shares otherwise deliverable to the Participant throughsuch means as the Administrator may determine in its sole discretion (whether through a broker or otherwise) equal to the amountrequired to be withheld, or (e) retaining from salary or other amounts payable to the Participant cash having a sufficient value to satisfythe amount required to be withheld. The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date thatthe taxes are required to be withheld. 16.No Effect on Employment. Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’srelationship as an Employee with the Company, nor will they interfere in any way with the Participant’s right or the Company’s right to terminate suchrelationship at any time, with or without cause, to the extent permitted by Applicable Laws. 17.Date of Grant. The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting suchAward, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within areasonable time after the date of such grant. 18.Term of Plan. The Plan will become effective on the date the Plan is approved by the Board. The Plan will continue in effect until the earlier of (i) the dateon which the maximum aggregate number of Shares that may be subject to Awards and sold under the Plan under Section 3(a) have been issued or(ii) the date that is ten (10) years from the date the Plan is adopted by the Board. 19.Amendment and Termination of the Plan. (a)Amendment and Termination. The Administrator may at any time amend, alter, suspend or terminate the Plan. (b)Shareholder Approval not Required. It is expressly intended that approval of the Company’s shareholders not be required as a conditionof the effectiveness of the Plan, and the Plan’s provisions shall be interpreted in a manner consistent with such intent for all purposes.Specifically, Nasdaq Stock Market Rule 5635(c) generally requires shareholder approval for stock option plans or other equitycompensation arrangements adopted by companies whose securities are listed on the Nasdaq Stock Market pursuant to which stockawards or stock may be acquired by officers, directors, employees, or consultants of such companies. Nasdaq Stock Market Rule5635(c)(4) provides an exception to this requirement for issuances of securities to a person not previously an employee or director of theissuer, or following a bona fide period of non-employment, as an inducement material to the individual’s entering into employment withthe issuer; provided, such issuances are approved by either the issuer’s compensation committee comprised of a majority ofindependent directors or a majority of the issuer’s independent directors. Notwithstanding anything to the contrary herein, Awards underthe Plan may only be made to Employees who have not previously been an Employee or Director of the Company or 16 a Subsidiary, or following a bona fide period of non-employment by the Company or a Subsidiary, as an inducement material to theEmployee’s entering into employment with the Company or a Subsidiary. Awards under the Plan will be approved by (i) the Company’sCompensation Committee comprised of a majority of the Company’s Outside Directors or (ii) a majority of the Company’s OutsideDirectors. Accordingly, pursuant to Nasdaq Stock Market Rule 5635(c)(4), the issuance of Awards and the Shares issuable uponexercise or vesting of such Awards pursuant to the Plan are not subject to the approval of the Company’s shareholders. (c)Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan will impair the rights of anyParticipant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing andsigned by the Participant and the Company. Termination of the Plan will not affect the Administrator’s ability to exercise the powersgranted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination. 20.Conditions Upon Issuance of Shares. (a)Legal Compliance. Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuanceand delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Companywith respect to such compliance. (b)Investment Representations. As a condition to the exercise of an Award, the Company may require the person exercising such Award torepresent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any presentintention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 21.Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority isdeemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, will relieve the Company of any liability inrespect of the failure to issue or sell such Shares as to which such requisite authority will not have been obtained. 17Exhibit 10.28SAREPTA THERAPEUTICS, INC.2014 EMPLOYMENT COMMENCEMENT INCENTIVE PLANSTOCK OPTION AWARD AGREEMENTUnless otherwise defined herein, the terms defined in the 2014 Employment Commencement Incentive Plan (the “Plan”) will have the same definedmeanings in this Stock Option Award Agreement (the “Award Agreement”). I.NOTICE OF STOCK OPTION GRANTParticipant Name:Address:You have been granted an Option to purchase Common Stock of Sarepta Therapeutics, Inc. (the “Company”), subject to the terms and conditions of thePlan and this Award Agreement, as follows: Grant Number Date of Grant Vesting Commencement Date Exercise Price per Share $ Total Number of Shares Granted Total Exercise Price $ Type of Option: Nonstatutory Stock Option Term/Expiration Date: Vesting Schedule:Subject to any acceleration provisions contained in the Plan or set forth below, this Option may be exercised, in whole or in part, in accordance with thefollowing schedule:[INSERT VESTING SCHEDULE]Notwithstanding the foregoing, in the event of Participant’s termination as an Employee as a result of death, the vesting of all of the Shares subject to theOption shall be accelerated as to 100% of such Shares as of the date of Participant’s death.Termination Period:This Option will be exercisable for [three (3)] months after Participant ceases to be an Employee, unless such termination is due to Participant’s death orDisability, in which case this Option will be exercisable for [twelve (12)] months after Participant ceases to be an Employee. Notwithstanding the foregoing, inno event may this Option be exercised after the Term/Expiration Date as provided above and may be subject to earlier termination as provided in Section 14 ofthe Plan.By Participant’s signature and the signature of the Company’s representative below, Participant and the Company agree that this Option is granted underand governed by the terms and conditions of the Plan and this Award Agreement, including the Terms and Conditions of Stock Option Grant, attached heretoas Exhibit A, all of which are made a part of this document. Participant has reviewed the Plan and this Award Agreement in their entirety, has had anopportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understands all provisions of the Plan and Award Agreement.Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Planand Award Agreement. Participant agrees that Participant has not been previously employed in any capacity by the Company or a Subsidiary, or if previouslyemployed, has had a bona-fide period of non-employment, and that the grant of this Option is an inducement material to Participant’s agreement to enter intoemployment with the Company or Subsidiary. Participant further agrees to notify the Company upon any change in the residence address indicated below. PARTICIPANT: SAREPTA THERAPEUTICS, INC. Signature By Print Name TitleResidence Address: -2-EXHIBIT ATERMS AND CONDITIONS OF STOCK OPTION GRANT1. Grant of Option. The Company hereby grants to the Participant named in the Notice of Grant attached as Part I of this Award Agreement (the“Participant”) an option (the “Option”) to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per Share set forth in theNotice of Grant (the “Exercise Price”), subject to all of the terms and conditions in this Award Agreement and the Plan, which is incorporated herein byreference. Subject to Section 19 of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this AwardAgreement, the terms and conditions of the Plan will prevail.2. Vesting Schedule. Except as provided in Section 3, the Option awarded by this Award Agreement will vest in accordance with the vesting provisionsset forth in the Notice of Grant. Shares scheduled to vest on a certain date or upon the occurrence of a certain condition will not vest in Participant inaccordance with any of the provisions of this Award Agreement, unless Participant will have been continuously an Employee from the Date of Grant until thedate such vesting occurs.3. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of theunvested Option at any time, subject to the terms of the Plan. If so accelerated, such Option will be considered as having vested as of the date specified by theAdministrator.4. Exercise of Option.(a) Right to Exercise. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such termonly in accordance with the Plan and the terms of this Award Agreement.(b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit B (the “Exercise Notice”) or ina manner and pursuant to such procedures as the Administrator may determine, which will state the election to exercise the Option, the number of Shares inrespect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Companypursuant to the provisions of the Plan. The Exercise Notice will be completed by Participant and delivered to the Company. The Exercise Notice will beaccompanied by payment of the aggregate Exercise Price as to all Exercised Shares together with any applicable tax withholding. This Option will be deemed tobe exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.5. Method of Payment. Payment of the aggregate Exercise Price will be by any of the following, or a combination thereof, at the election of Participant.(a) cash;(b) check;(c) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or(d) surrender of other Shares which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the ExercisedShares, provided that accepting such Shares, in the sole discretion of the Administrator, will not result in any adverse accounting consequences to theCompany.6. Tax Obligations.(a) Withholding Taxes. Notwithstanding any contrary provision of this Award Agreement, no certificate representing the Shares will be issued toParticipant, unless and until satisfactory arrangements (as determined by the Administrator) will have been made by Participant with respect to the payment ofincome, employment and other taxes which the Company determines must be withheld with respect to such Shares. To the extent determined appropriate by theCompany in its discretion, it will have the right (but not the obligation) to satisfy any tax withholding obligations by reducing the number of Shares otherwisedeliverable to Participant. If Participant fails to make satisfactory arrangements for the payment of any required tax withholding obligations hereunder at thetime of the Option exercise, Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver Shares if suchwithholding amounts are not delivered at the time of exercise.(b) Code Section 409A. Under Code Section 409A, an option that vests after December 31, 2004 (or that vested on or prior to such date but whichwas materially modified after October 3, 2004) that was granted with a per Share exercise price that is determined by the Internal Revenue Service (the “IRS”) tobe less than the Fair Market Value of a Share on the date of grant (a “Discount Option”) may be considered “deferred compensation.” A Discount Option mayresult in (i) income recognition by Participant prior to the exercise of the option, (ii) an additional twenty percent (20%) federal income tax, and (iii) potentialpenalty and interest charges. The Discount Option may also result in additional state income, penalty and interest charges to the Participant. Participantacknowledges that the Company cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the FairMarket Value of a Share on the Date of Grant in a later examination. Participant agrees that if the IRS determines that the Option was granted with a per Shareexercise price that was less than the Fair Market Value of a Share on the date of grant, Participant will be solely responsible for Participant’s costs related tosuch a determination.7. Rights as Shareholder. Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of ashareholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares will have been issued,recorded on the records of the Company or its transfer agents or registrars, and delivered to Participant. After such issuance, recordation and delivery,Participant will have all the rights of a shareholder of the Company with respect to voting such Shares and receipt of dividends and distributions on suchShares.8. No Guarantee of Employment. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THEVESTING SCHEDULE HEREOF IS -2-EARNED ONLY BY CONTINUING AS AN EMPLOYEE AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYINGOR RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARESHEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AWARD AGREEMENT, THE TRANSACTIONSCONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIEDPROMISE OF CONTINUED EMPLOYMENT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE INANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING ORRETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS AN EMPLOYEE AT ANY TIME, WITH OR WITHOUTCAUSE.9. Address for Notices. Any notice to be given to the Company under the terms of this Award Agreement will be addressed to the Company at SareptaTherapeutics, Inc., 215 First Street, Suite 415, Cambridge, MA 02142, or at such other address as the Company may hereafter designate in writing.10. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distributionand may be exercised during the lifetime of Participant only by Participant.11. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Award Agreement will be binding upon andinure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.12. Additional Conditions to Issuance of Stock. If at any time the Company will determine, in its discretion, that the listing, registration or qualificationof the Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory authority is necessaryor desirable as a condition to the issuance of Shares to Participant (or his or her estate), such issuance will not occur unless and until such listing, registration,qualification, consent or approval will have been effected or obtained free of any conditions not acceptable to the Company. The Company will make allreasonable efforts to meet the requirements of any such state or federal law or securities exchange and to obtain any such consent or approval of any suchgovernmental authority. Assuming such compliance, for income tax purposes the Exercised Shares will be considered transferred to Participant on the date theOption is exercised with respect to such Exercised Shares. Participant acknowledges that the Plan is intended to conform with the requirements of rulespromulgated by the Nasdaq Stock Market and, without limiting the foregoing, in particular Nasdaq Stock Market Rule 5635(c).13. Plan Governs. This Award Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions ofthis Award Agreement and one or more provisions of the Plan, the provisions of the Plan will govern. Capitalized terms used and not defined in this AwardAgreement will have the meaning set forth in the Plan.14. Administrator Authority. The Administrator will have the power to interpret the Plan and this Award Agreement and to adopt such rules for theadministration, interpretation and -3-application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or notany Shares subject to the Option have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will befinal and binding upon Participant, the Company and all other interested persons. No member of the Administrator will be personally liable for any action,determination or interpretation made in good faith with respect to the Plan or this Award Agreement. In its absolute discretion, the Board may at any time andfrom time to time exercise any and all rights and duties of the Committee under the Plan and this Award Agreement; provided, however, any action taken bythe Board in connection with the administration of the Plan shall not be deemed approved by the Board unless such actions are approved by a majority of theOutside Directors.15. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Options awarded under the Plan byelectronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents byelectronic delivery and agrees to participate in the Plan through any on-line or electronic system established and maintained by the Company or another thirdparty designated by the Company.16. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this AwardAgreement.17. Agreement Severable. In the event that any provision in this Award Agreement will be held invalid or unenforceable, such provision will be severablefrom, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Award Agreement.18. Modifications to the Agreement. This Award Agreement constitutes the entire understanding of the parties on the subjects covered. Participantexpressly warrants that he or she is not accepting this Award Agreement in reliance on any promises, representations, or inducements other than thosecontained herein. Modifications to this Award Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer ofthe Company. Notwithstanding anything to the contrary in the Plan or this Award Agreement, the Company reserves the right to revise this Award Agreementas it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Code Section 409A or to otherwise avoidimposition of any additional tax or income recognition under Code Section 409A in connection to this Option.19. Amendment, Suspension or Termination of the Plan. By accepting this Award, Participant expressly warrants that he or she has received an Optionunder the Plan, and has received, read and understood a description of the Plan. Participant understands that the Plan is discretionary in nature and may beamended, suspended or terminated by the Company at any time.20. Governing Law. This Award Agreement will be governed by the laws of the State of Delaware, without giving effect to the conflict of law principlesthereof. For purposes of litigating any dispute that arises under this Option or this Award Agreement, the parties hereby submit to and consent to thejurisdiction of the State of Delaware, and agree that such litigation will be conducted in the state courts of Delaware, or the federal courts for the United Statesfor the District of Delaware, and no other courts, where this Option is made and/or to be performed. -4-21. Shareholder Approval Not Required. The Plan will not be submitted for approval by the Company’s shareholders. As more particularly described inSection 19(b) of the Plan, pursuant to Nasdaq Stock Market Rule 5635(c), the issuance of this Option and the shares of Stock issuable upon exercise orvesting of such Option pursuant to the Plan are not subject to the approval of the Company’s shareholders. -5-EXHIBIT BSAREPTA THERAPEUTICS, INC.2014 EMPLOYMENT COMMENCEMENT INCENTIVE PLANEXERCISE NOTICESarepta Therapeutics, Inc.215 First StreetSuite 415Cambridge, MA 021421. Exercise of Option. Effective as of today, , , the undersigned (“Purchaser”) hereby elects to purchase shares (the “Shares”)of the Common Stock of Sarepta Therapeutics, Inc. (the “Company”) under and pursuant to the 2014 Employment Commencement Incentive Plan (the“Plan”) and the Stock Option Award Agreement dated (the “Award Agreement”). The purchase price for the Shares will be $ , as requiredby the Award Agreement.2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price of the Shares and any required tax withholding to be paid inconnection with the exercise of the Option.3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Award Agreement and agreesto abide by and be bound by their terms and conditions.4. Rights as Shareholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agentof the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder will exist with respect to the Shares subject to theOption, notwithstanding the exercise of the Option. The Shares so acquired will be issued to Purchaser as soon as practicable after exercise of the Option. Noadjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 14 of the Plan.5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition ofthe Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase ordisposition of the Shares and that Purchaser is not relying on the Company for any tax advice.6. Entire Agreement; Governing Law. The Plan and Award Agreement are incorporated herein by reference. This Exercise Notice, the Plan and the AwardAgreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings andagreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser’s interest except bymeans of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of theState of Delaware. Submitted by: Accepted by:PURCHASER: SAREPTA THERAPEUTICS, INC. Signature By Print Name TitleResidence Address: Date Received -2-Exhibit 21.1Sarepta Therapeutics, Inc.Subsidiaries of the Registrant Name Jurisdiction of IncorporationST International Holdings, Inc. Delaware, USASTIH Two, Inc. Delaware, USASarepta Securities Corp. Massachusetts, USASarepta International CV NetherlandsAVI BioPharma International Limited United KingdomExhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of DirectorsSarepta Therapeutics, Inc.:We consent to the incorporation by reference in the registration statements (Nos. 333-160922, 333-150021, 333-138299, 333-133211, 333-109015, 333-86778,333-105412, 333-68502, 333-45888, 333-93135, 333-86039, 333-180258 and 333-184807) on Form S-3 and (Nos. 333-172823, 333-175031, 333-101826,333-49996, 333-49994, 333-34047 and 333-192287) on Form S-8 of Sarepta Therapeutics, Inc. (a development stage company) of our reports dated March 3,2014, with respect to the related consolidated balance sheets of Sarepta Therapeutics, Inc. as of December 31, 2013 and 2012, and the related consolidatedstatements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period endedDecember 31, 2013 and the information included in the cumulative from inception presentations for the period January 1, 2002 to December 31, 2013 (notseparately presented), and the effectiveness of internal control over financial reporting as of December 31, 2013, which reports appear in the December 31,2013 annual report on Form 10-K of Sarepta Therapeutics, Inc.Our report dated March 3, 2014, on the effectiveness of internal control over financial reporting as of December 31, 2013, expresses our opinion that SareptaTherapeutics, Inc. did not maintain effective internal control over financial reporting as of December 31, 2013 because of the effect of a material weakness onthe achievement of the objectives of the control criteria and contains an explanatory paragraph that states management has identified and included in itsassessment a material weakness as of December 31, 2013 related to the design and implementation of controls to adequately review and consider the recognitionand measurement of new significant research and development contracts./s/ KPMG LLPCambridge, MassachusettsMarch 3, 2014Exhibit 31.1CERTIFICATIONI, Christopher Garabedian, certify that:1. I have reviewed this Annual Report on Form 10-K of Sarepta Therapeutics, Inc., (the “Registrant”);2. 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 thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange 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 theRegistrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure 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;(b) 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 accordancewith generally accepted accounting principles;(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscalquarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theRegistrant’s internal control over financial reporting; and5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theRegistrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the Registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control overfinancial reporting. March 3, 2014 /s/ Christopher Garabedian Christopher Garabedian President and Chief Executive Officer (Principal Executive Officer)EXHIBIT 31.2CERTIFICATIONI, Sandesh Mahatme, certify that:1. I have reviewed this Annual Report on Form 10-K of Sarepta Therapeutics, Inc., (the “Registrant”);2. 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 thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange 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 theRegistrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure 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;(b) 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 accordancewith generally accepted accounting principles;(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscalquarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theRegistrant’s internal control over financial reporting; and5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theRegistrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the Registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control overfinancial reporting. March 3, 2014 /s/ Sandesh Mahatme Sandesh Mahatme Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)EXHIBIT 32.1CERTIFICATION PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002(18 U.S.C. SECTION 1350)I, Christopher Garabedian, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, thatthe Annual Report of Sarepta Therapeutics, Inc. on Form 10-K for the fiscal year ended December 31, 2013, fully complies with the requirements ofSection 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in allmaterial respects, the financial condition and results of operations of Sarepta Therapeutics, Inc. March 3, 2014 /s/ Christopher Garabedian Christopher Garabedian, President and Chief Executive Officer (Principal Executive Officer)A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Sarepta Therapeutics, Inc.and will be retained by Sarepta Therapeutics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extentrequired by such Act, be deemed filed by Sarepta Therapeutics, Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the“Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or theExchange Act, except to the extent that Sarepta Therapeutics, Inc. specifically incorporates it by reference.Exhibit 32.2CERTIFICATION PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002(18 U.S.C. SECTION 1350)I, Sandesh Mahatme, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that theAnnual Report of Sarepta Therapeutics, Inc. on Form 10-K for the fiscal year ended December 31, 2013, fully complies with the requirements of Section 13(a)or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects,the financial condition and results of operations of Sarepta Therapeutics, Inc. March 3, 2014 /s/ Sandesh Mahatme Sandesh Mahatme, Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Sarepta Therapeutics, Inc.and will be retained by Sarepta Therapeutics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extentrequired by such Act, be deemed filed by Sarepta Therapeutics, Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the“Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or theExchange Act, except to the extent that Sarepta Therapeutics, Inc. specifically incorporates it by reference.

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