Sarepta Therapeutics
Annual Report 2014

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, 2014Or ¨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: (617) 274-4000Securities 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 ¨ No xIndicate 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 Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the 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. xIndicate 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, 2014 was approximately$1,215,422,825.The number of outstanding shares of the registrant’s common stock as of the close of business on February 23, 2015 was 41,311,512. 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 2015annual 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 4 Item 1. Business 4 Item 1A. Risk Factors 27 Item 1B. Unresolved Staff Comments 45 Item 2. Properties 45 Item 3. Legal Proceedings 45 Item 4. Mine Safety Disclosures 46 PART II 47 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 47 Item 6. Selected Financial Data 49 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 50 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 66 Item 8. Financial Statements and Supplementary Data 67 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 67 Item 9A. Controls and Procedures 67 Item 9B. Other Information 70 PART III 71 Item 10. Directors, Executive Officers and Corporate Governance 71 Item 11. Executive Compensation 71 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 71 Item 13. Certain Relationships and Related Transactions, and Director Independence 71 Item 14. Principal Accounting Fees and Services 71 PART IV 72 Item 15. Exhibits, Financial Statement Schedules 72 -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” sectionin Item 7, and other materials accompanying this Annual Report on Form 10-K contain forward-looking statements or incorporate by reference forward-looking statements. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-lookingstatements are often identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “estimate,” “could,” “continue,”“ongoing,” “predict,” “potential,” “likely,” “seek” and other similar expressions, as well as variations or negatives of these words. You should read thesestatements carefully because they discuss future expectations, contain projections of future 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 theassumptions that underlie these statements. These forward-looking statements include, but are not limited to: • our expectations regarding the timing of research, development, preclinical and clinical trial results and analyses relating to the safety profileand potential clinical benefits of our product candidates, including eteplirsen, our phosphorodiamidate morpholino oligomer (“PMO”)chemistries, our other PMO-based chemistries and our other RNA-targeted technology; • our expectations regarding additional data and analysis collected by us on eteplirsen, the Food and Drug Administration’s (“FDA”)interpretation of this additional information and the impact of such data or interpretation on our new drug application (“NDA”) filing plansand timelines; • our estimates regarding how long our currently available cash, cash equivalents and investments will be sufficient to finance our operationsand business plans and statements about our future capital needs; • our expectations regarding our ability to become a leading developer and marketer of PMO-based and RNA-targeted therapeutics andcommercial viability of our product candidates, chemistries and technologies; • the potential safety, efficacy, potency and utility of our product candidates, chemistries and technologies in the treatment of Duchennemuscular dystrophy (“DMD”) and rare and infectious diseases, and their potential to treat a broad number of other human diseases; • our expectations regarding the timing, completion and receipt of results from our ongoing development programs for our pipeline of productcandidates including their potential consistency with prior results; • our ability to effectively manage the clinical trial process for our product candidates on a timely basis, such as our confirmatory studies foreteplirsen; • our expectations regarding our ability to engage a number of manufacturers with sufficient capability and capacity to meet our manufacturingneeds, including with respect to the manufacture of subunits, drug substance (“API’s”) and drug product, within the time frames and quantitiesneeded to provide our product candidates, including eteplirsen, to patients in larger scale clinical trials or in potential commercial quantities,and meet regulatory and Company quality control requirements; • the impact of regulations as well as regulatory decisions by the FDA and other regulatory agencies on our business, including with respect tothe finalization of the pivotal clinical study design for eteplirsen, NDA submissions and the issuance of an Emergency Use Authorization(“EUA”) for our product candidate intended to treat Marburg virus, as well as the development of our product candidates and our financialand contractual obligations; • our expectations regarding the potential markets for our product candidates; -1-Table of Contents • the potential acceptance of our product candidates, if introduced, in the marketplace; • the possible impact of competing products on our product candidates and our ability to compete against such products; • the impact of potential difficulties in product development, manufacturing, or the commercialization of our product candidates, includingdifficulties in establishing the commercial infrastructure necessary for the commercialization of eteplirsen; • 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, toour technologies and programs; • our plans and ability to file and progress to issue additional patent applications to enhance and protect our new and existing technologies andprograms; • our ability to invalidate some or all of the claims of patents issued to competitors and pending patent applications if issued to competitors, andthe potential impact of those claims on the potential commercialization of our product candidates; • our ability to enter into contracts, including collaborations or licensing agreements, with respect to our technology and product candidates,with third parties, including government entities; • our estimates regarding future revenues, research and development expenses, other expenses, capital requirements and payments to thirdparties; • our ability to successfully challenge the patent positions of our competitors and successfully defend our patent positions in the actions that theUnited States Patent and Trademark Office (“USPTO”) may take or has taken with respect to our patent claims or those of third parties,including with respect to interferences that have been declared between our patents and patent applications held by Prosensa Holding N.V.(“Prosensa”), which is now owned by BioMarin Pharmaceuticals, Inc., relating to eteplirsen and SRP-4053 and our expectations regarding theimpact of these interferences on our business plans, including our current commercialization plans for eteplirsen and SRP-4053; • our ability to operate our business without infringing the intellectual property rights of others; • the impact of litigation on us, including actions brought by stockholders; • our ability to attract and retain key employees needed to execute our business plans and strategies and our expectations regarding our abilityto manage the impact of any loss of key employees; • our ability to comply with applicable environmental laws and regulations; • our expectations relating to potential funding from government and other sources for the development of some of our product candidates,including those targeting Ebola and Marburg viruses; • our beliefs and expectations regarding milestone, royalty or other payments that could be due to third parties under existing agreements; 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 update anyof the forward-looking statements after the date of this Annual Report on Form 10-K, except as required by law or the rules and regulations of the U.S.Securities and Exchange Commission. We caution readers not to place undue reliance on forward-looking statements. 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, andother written and oral forward-looking statements made by us from time to time, are subject to certain risks and uncertainties that could cause actual resultsto differ materially from those anticipated in the forward-looking statements. Applicable risks and -2-Table of Contentsuncertainties include, among others, the fact that: we may be delayed or may not be able to make an NDA submission for eteplirsen or the FDA may not filethe NDA or approve eteplirsen as a DMD therapeutic; we may be delayed or may not be able to comply with the FDA’s requests for additional informationin connection with our planned eteplirsen NDA submission; the additional information and data we collect for the eteplirsen NDA submission may not beconsistent with prior data or results or may not support an eteplirsen NDA submission, filing or approval; we may be delayed in and may not be able tosuccessfully conduct or obtain positive results in our current and planned clinical trials for eteplirsen and other product candidates in our pipeline; wemay not have sufficient funds to execute on our business plans and strategy; we may not be able to obtain regulatory approvals for our product candidatesin a timely manner nor achieve commercial viability; we may not be able to incorporate our PMO and other technology into therapeutic commercialproducts; we may not be able to successfully navigate the uncertainties related to regulatory processes; we may not be able to demonstrate acceptablelevels of safety, efficacy and quality in our product candidates through our preclinical and clinical trials; compliance with environmental laws could havea negative impact on our business if we are not able to effectively manage our real estate, manufacturing and other company operations that may deal withhazardous materials; we rely on third parties to provide service, including the manufacturing of our product candidates, in connection with our preclinicaland clinical development programs and commercialization plan; the pharmaceutical industry is subject to greater government scrutiny and regulation, andwe may not be able to respond to changing laws and regulations affecting our industry, including any reforms to the regulatory approval processadministered by the FDA or changing enforcement practices related thereto; we may not be able to obtain and maintain patent protection for our productcandidates, preserve our trade secrets or prevent third parties from infringing on our proprietary rights; we may not be able to retain key personnel orattract qualified personnel; we may not be able to establish and maintain arrangements with third parties who are able to meet manufacturing needs forlarge-scale clinical trials or potential commercial needs within sufficient timelines or at acceptable costs; competitive products and pricing may have anegative impact on our business; there are uncertainties associated with future capital needs; we may not be able to attract sufficient capital or failure toenter into strategic relationships; the outcome of investigations and litigation and associated damages and expenses is uncertain; and those risks anduncertainties discussed in Part I, Item 1 “Business” and Item 1A “Risk Factors” of this Annual Report on Form 10-K. -3-Table of ContentsPART IItem 1. Business.OverviewWe are a biopharmaceutical company focused on the discovery and development of unique RNA-targeted therapeutics for the treatment of rare,infectious and other diseases. Our highly-differentiated RNA-targeted technologies work at the most fundamental level of biology. Applying our proprietaryand innovative platform technologies, we are able to target a broad range of diseases and disorders through distinct RNA-targeted mechanisms of action. Weare primarily focused on rapidly advancing the development of our potentially disease-modifying DMD drug candidates, including our lead DMD productcandidate, eteplirsen, designed to skip exon 51. We are also developing therapeutics using our technology for the treatment of drug-resistant bacteria andinfectious, rare and other human diseases.Objectives and Business StrategyWe believe that our highly-differentiated and proprietary RNA-targeted technology platforms can be used to develop novel pharmaceutical products totreat a broad range of diseases and address key unmet medical needs. We intend to leverage our RNA-targeted technology platforms, organizationalcapabilities and resources to become a leading developer and marketer of RNA-targeted therapeutics, including for the treatment of rare, infectious and otherdiseases, with a diversified portfolio of product candidates. 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 potentially provide significant clinical benefits; • further explore funding, collaboration and other opportunities to support continued development of our rare, infectious and other research anddevelopment programs; and • leveraging RNA-targeted technology platforms and toll-like receptor (“TLR”) technology to identify product candidates in additionaltherapeutic areas and explore various strategic opportunities, including potential partnering, licensing or collaboration arrangements withindustry partners.Development ProgramsDMD. Our lead program, with a pipeline of eight product candidates, focuses on the development of disease-modifying therapeutic candidates forDMD, a rare genetic muscle-wasting disease caused by the absence of dystrophin, a protein necessary for muscle function. Currently, there are no approveddisease-modifying therapies for DMD in the U.S. If we are successful in our development efforts, eteplirsen, our lead DMD product candidate, and our follow-on exon-skipping DMD candidates will address a severe and unmet medical need. We are in the process of conducting several studies with eteplirsen and ourfollow-on DMD candidates including: • Study 4658-202 (“Study 202”) – an ongoing U.S. open label extension study with more than 168 weeks of data collected to date (an extensionof our initial Phase IIb clinical trial which was completed in 2011). After more than three years of treatment with eteplirsen, results of the 6-minute walk test (“6MWT”) at 168 weeks showed continued ambulation across all patients evaluable on the test, however all patients showed adecline in distance walked on this measure since the week 144 time point. In addition, a continued stability of respiratory muscle function wasobserved, as assessed by pulmonary function tests and measures including maximum inspiratory pressure (“MIP”), maximum expiratory pressure(“MEP”) and forced vital capacity (“FVC”); • Study 4658-301 (“Study 301”) – a confirmatory U.S. study, started in 2014, with a treated arm evaluating the safety and efficacy of eteplirsen inambulatory DMD patients amenable to exon-51 skipping and an untreated concurrent control arm with patients that are not amenable to exon-51skipping; -4-Table of Contents • Study 4658-204 (“Study 204”) – a U.S. study, started in 2014, evaluating the safety and tolerability of eteplirsen in patients with advanced stageDMD; • Study 4658-203 (“Study 203”) – a U.S. study, expected to start in 2015, evaluating the safety and tolerability of eteplirsen in patients with earlystage DMD; • SKIP-NMD Exon 53 Study – a European Union (“E.U.”) study we are conducting in collaboration with a consortium of scientific, clinical andindustrial partners in the E.U. Part I of the study, started in 2014, is a dose titration, placebo-controlled study evaluating the safety, tolerabilityand pharmacokinetics of SRP-4053. The focus of the planned Part II of the study will be to evaluate the safety and efficacy of SRP-4053 inpatients with DMD amenable to exon 53 skipping.In addition, we are currently working towards starting a confirmatory study in 2015 for eteplirsen, evaluating the safety and efficacy of our productcandidates designed to skip exons 45 and 53. We plan to submit an NDA for eteplirsen for the treatment of DMD by mid-year 2015, subject to and pendingany additional discussions with, or feedback or requests from, the FDA, our ability to satisfactorily respond to FDA requests and the favorability of additionalinformation and data we collect to support an eteplirsen NDA submission.Infectious Diseases. The antisense technology platform has been applied to the development of potential therapeutics for Ebola and Marburghemorrhagic fever and pandemic H1N1 influenza viral infections. Though our original discovery and development contracts from the Department of Defense(“DoD”) are no longer active, we are active partners with the National Institutes of Health (“NIH”) National Institute of Allergy and Infectious Diseases(“NIAID”) for continued development of our influenza product candidate, and, if funding opportunities are secured, will continue developing thehemorrhagic fever virus countermeasures. Following encouraging preclinical results, in February 2012, we announced Phase I results for the Ebola andMarburg and influenza product candidates, which showed no clinical or toxicologic safety concerns. All three product candidates use our PMOplustechnology. We are currently exploring possibilities for funding, collaboration and other avenues to support further development of these Ebola, Marburgand influenza product candidates; however, if we do not succeed in these efforts, we will likely curtail their further development.Discovery and Research ProgramsOur discovery and research programs include collaborations with various parties and focus on developing therapeutics in rare, genetic, anti-infective,neuromuscular and central nervous system diseases. We are exploring the application of our proprietary PMO platform technology and TLR technology invarious diseases including drug-resistant bacteria, DMD, Becker muscular dystrophy (“Becker”), progeria, adult onset pompe disease and lupus and graft-versus-host disease.Proprietary Manufacturing TechniquesWe believe we have developed proprietary state-of-the-art manufacturing and scale-up techniques that allow synthesis and purification of our productcandidates to support clinical development as well as potential commercialization. We have entered into certain manufacturing and supply arrangementswith third parties which will in part utilize these techniques to support production of certain of our product candidates and their components. We currently donot have any of our own internal mid-to-large scale manufacturing capabilities to support a clinical or commercial supply of our product candidates.General Corporate InformationWe 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 (617) 274-4000. On July 12, 2012, ourcommon stock began -5-®Table of Contentstrading under the symbol “SRPT” on the NASDAQ Global Market on a split-adjusted basis following a one-for-six reverse stock split that was effective onJuly 11, 2012. As of January 2, 2014, our Common Stock is quoted on the NASDAQ Global Select Market under the same symbol. Unless otherwise noted, allshare amounts, share prices and exercise prices included throughout this report give effect to the July 2012 one-for-six reverse stock split.We have not generated any revenue from product sales to date and there can be no assurance that revenue from product sales will be achieved. Even ifwe do achieve revenue from product sales, we are likely to continue to incur operating losses in the near term.As of December 31, 2014, we had approximately $211.1 million of cash, cash equivalents and investments, consisting of $73.6 million of cash andcash equivalents, $136.8 million of short-term investments and $0.8 million of restricted cash and investments. We believe that our balance of cash, cashequivalents and investments is sufficient to fund our current operational plan for the next twelve months. In addition to pursuing additional cash resourcesthrough public or private financings, we may also seek to enter into contracts, including collaborations or licensing agreements with respect to ourtechnology, with third parties, including government entities.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 U.S.Securities and Exchange Commission (“SEC”). These reports may also be obtained without charge by submitting a written request via mail to InvestorRelations, Sarepta Therapeutics, Inc., 215 First Street, Suite 415, Cambridge, MA 02142 or by e-mail to investorrelations@sarepta.com. Our internet websiteand the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K. In addition, thepublic may read and copy any materials we file or furnish with the SEC, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 ormay obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Moreover, the SEC maintains an Internet sitethat contains reports, proxy and information statements, and other information regarding reports that we file or furnish electronically with the SEC atwww.sec.gov.Lead Development Program: Pipeline of Exon-Skipping PMO Product Candidates for Duchenne Muscular DystrophyDMD BackgroundDMD is one of the most common fatal genetic disorders affecting children (primarily boys) around the world. DMD is a devastating and incurablemuscle-wasting disease associated with specific mutations in the gene that codes for dystrophin, a protein that plays a key structural role in muscle fiberfunction. The absence of dystrophin in muscle cells leads to significant cell damage and ultimately causes muscle cell death and fibrotic replacement.Females are rarely affected by the disorder. In the absence of dystrophin protein, affected individuals generally experience: • Muscle damage characterized by inflammation, fibrosis and loss of myofibers beginning at an early age • Muscle weakness and progressive loss of muscle function beginning in the first few years of life • Decline of ambulation and respiratory function after the age of 7 • Total loss of ambulation in the pre-teenage or early teenage years • Progressive loss of upper extremity function during mid to late teens • Respiratory and/or cardiac failure in their 20s to which they typically succumb to -6-Table of ContentsThere is currently no approved disease modifying treatment or cure for DMD in the U.S. The yearly cost of care for individuals with DMD is high andincreases with disease progression. Although DMD is a rare disease, we believe it represents a substantial product opportunity due to the severity andinexorable progression of the symptoms.Exon-Skipping PipelineEteplirsen. Eteplirsen, our lead DMD product candidate, is an antisense PMO therapeutic in Phase III clinical development for the treatment ofindividuals with DMD who have an error in the gene coding for dystrophin that is amenable to skipping exon 51. Eteplirsen targets the most frequent seriesof mutations that cause DMD. Eteplirsen has been granted orphan drug designation in the U.S. and E.U. In 2007, the FDA granted eteplirsen fast track statusand we are continuing to discuss with the FDA the possibility of expedited regulatory programs for eteplirsen. For over three years, we have been collectingdata on the safety and efficacy of eteplirsen through a Phase llb open label extension study, “Study 202”, which met its primary endpoint of increased noveldystrophin as assessed by the measurements taken of muscle biopsies at 48 weeks. In July 2014, we announced that at 144 weeks (i) patients evaluable on the6MWT showed a decline in walking ability at a rate slower than would be expected based on available DMD natural history data and (ii) a continuedstabilization of respiratory muscle function was observed, as assessed by pulmonary function tests. In January 2015, we announced that at 168 weeks(i) continued ambulation across all patients evaluable on the 6MWT was observed, however, all patients showed a decline in distance walked on this measuresince the week 144 time point, (ii) stability of respiratory muscle function was observed, as assessed by pulmonary function tests and (iii) good tolerabilityand no clinically significant treatment-related adverse events or serious adverse events reported. Please read Management’s Discussion and Analysis ofFinancial Condition and Results of Operations — Summary and Timeline of Eteplirsen Data Disclosure included elsewhere in this Annual Report on Form10-K for more information. Based on FDA feedback to date, we are in the process of collecting additional information and data for eteplirsen, includingconducting additional eteplirsen studies, and plan to respond to the FDA’s requests in preparation for an NDA submission by mid-year 2015. We willcontinue to evaluate our NDA submission plans based on additional FDA discussions and as additional data become available. Please read Overview andGovernment Regulation for additional information.The table below summarizes our DMD studies and the confirmatory trials we initiated in 2014 or plan to start in 2015: Study Duration(weeks) US/EU n Status Exon TargetTreatment DMD Population4658-33 Single Dose EU 7 Completed Exon 51 10-17 yrs, non-amb4658-28 12 EU 19 Completed Exon 51 5-15 yrs, amb4658-201 28 US 12 Completed Exon 51 7-13 yrs, amb4658-202 240 US 12 Data through 168 weeks Exon 51 7-13 yrs, amb4658-301 48 US 160 Dosing Exon 51 7-16 yrs, amb4658-204 96 US 40 Dosing Exon 51 7-21 yrs, non-amb4658-203 96 US 40 Dosing mid-year 2015 Exon 51 4-6 yrs, amb4053-101 48 EU 48 Dosing Exon 53 6-15 yrs, amb4045-804 48 EU/US 90 TBD Exon 45/53 7-16 yrs, ambAdditional DMD Product Candidates. In addition to our lead product candidate, eteplirsen, we are pursuing development of additional exon-skippingdrugs, to support our broad-based development program for the treatment of DMD. Our additional seven product candidates target skipping of exons 8, 44,45, 50, 52, 53 and 55 and are at various stages of development.Exon 53. To support certain clinical proof of concept studies and investigational new drug (“IND”) -enabling activities for an exon 53-skippingtherapeutic, we announced in November 2012 that we are -7-1Table of Contentscollaborating in the SKIP-NMD Consortium with University College London’s scientist, Professor Francesco Muntoni, M.D., the Dubowitz NeuromuscularCentre, the Institute of Child Health and other scientists from the E.U. and the U.S. In connection with this collaboration, the consortium received an E.U.Health Innovation-1 2012 collaborative research grant (grant agreement No. 305370) to support development of an exon 53-skipping therapeutic, based onour PMO chemistry. Targeting exon 53 with this technology will potentially address one of the most prevalent sets of mutations in DMD that are amenable toexon-skipping (deletion of exons 42-52, 45-52, 47-52, 48-52, 49-52, 50-52, or 52). As of January 2015, the SKIP-NMD Consortium has advanced SRP-4053to a Phase I study evaluating the safety, tolerability and pharmacokinetics of SRP-4053. If Part 1 is successfully completed, the study will move on to Part 2which will study the safety and efficacy of SRP-4053. In addition to this E.U. study, we plan to further explore the safety and efficacy of SRP-4053 as part ofan eteplirsen confirmatory study which we plan to start in 2015.Exon 45. In collaboration with Children’s National Medical Center (“CNMC”) in Washington, D.C. and the Carolinas Medical Center (“CMC”) inCharlotte, N.C., we have developed an exon 45-skipping product candidate. This collaboration is funded primarily through two grants, one from DoD’sCongressionally Directed Medical Research Program to CNMC and the other from the National Institute of Neurological Disorders and Stroke to the CMC.This funding is intended to pursue the most promising treatments for DMD. The collaboration has supported a series of Good Laboratory Practice (“GLP”)toxicology studies for an exon 45-skipping drug candidate based on our PMO chemistry. SRP-4045, designed to skip exon 45, is expected to advance to theclinical stage of development in 2015 as part of the eteplirsen confirmatory trial we plan to start in 2015.Exons 8, 44, 50, 52 and 55. Selection of lead sequences for product candidates designed to skip each of these exons are underway and we plan tocontinue our pre-clinical development of these product candidates in 2015. Although we were previously collaborating with the NIH for the development ofan exon 50 product candidate, we mutually agreed to terminate our Collaborative Research and Development Agreement in February 2013 and we are nowdeveloping an exon 50 skipping candidate utilizing our own research and development capabilities.Our DMD program is part of our larger pan-exon strategy for the development of drug candidates to address the most prevalent exon deletions in theDMD population. Because the majority of DMD patients have exon deletions that cluster together, a small number of exon-skipping therapies willpotentially be disease-modifying for a relatively large percentage of DMD patients. Approximately 75-80% of the total DMD population is potentiallytreatable with exon-skipping therapeutics.Development Program: Infectious DiseasesOur infectious disease therapeutic programs use our translation suppression technology and apply our proprietary PMOplus chemistry platform, anadvanced generation of our base PMO chemistry platform that selectively introduces positive backbone charges to improve selective interaction between thedrug and its target. With the prior financial support of the U.S. government, we implemented our RNA-targeted technology in our infectious disease programsfor the development of therapeutics to treat various diseases including Marburg, Ebola and influenza. Although we are no longer receiving DoD funding forour infectious disease programs, we have partnered with the NIAID, part of NIH, for clinical support in the development of our influenza therapeuticcandidate. We are currently exploring possibilities for funding, collaboration and other avenues to support further development of these Ebola, Marburg andInfluenza product candidates; however, if we do not succeed in these efforts, we will likely curtail their further development.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, 2014, we had completed all development activities of our contracts with the U.S. government. -8-®Table of ContentsMarburg Virus. Marburg hemorrhagic fever is a severe and often fatal disease in humans that was first recognized in 1967. It is caused by an RNA virusof the Filoviridae family and is understood to be endemic to Central Africa. Onset of the disease is often sudden and the symptoms include fever, chills,nausea, vomiting, chest pain and diarrhea. Increasingly severe symptoms may also include massive hemorrhaging and multiple organ dysfunction. Themortality rate for Marburg virus is very high and there are currently no approved treatments beyond supportive care. The Marburg virus is classified as aCategory A bioterrorism agent by the Centers for Disease Control and Prevention (“CDC”), and was determined to be a material threat to national security bythe Secretary of Homeland Security. For Marburg virus infection, our lead product candidate is currently AVI-7288 which is designed for post-exposureprophylaxis after documented or suspected exposure to the Marburg virus. During the 2012 fiscal year, we completed Phase I single ascending-dose studiesin healthy volunteers with our candidates for the treatment of Ebola virus and Marburg virus. In July 2012, we announced results from a non-human primatestudy of the efficacy of AVI-7288, which demonstrated up to 100% survival when treatment is delayed to various time points post-infection. In September2012, we announced that the FDA granted fast track status for the development of AVI-7288 and our product candidate against Ebola, AVI-7537. In March2013, with the support of DoD’s Joint Project Manager Medical Countermeasure Systems (“JPM-MCS”), in a non-human primate study, we completed anevaluation of the feasibility of an intramuscular route of administration using AVI-7288, including an evaluation of the tolerability, pharmacokinetics andefficacy of intramuscular AVI-7288. The data showed that intramuscular administration of AVI-7288 resulted in survival rates up to 100 percent in treatedsubjects, similar to efficacy observed in previous studies that evaluated the drug when administered by intravenous injection. In May 2013, we initiateddosing of AVI-7288 in a Phase I multiple ascending dose study. In February 2014, we announced the results of the Phase I multiple ascending dose study ofAVI-7288 in healthy human subjects and found no safety or toxicity concerns. In addition, in October 2014, we announced the publication of the singleascending dose safety and pharmacokinetic studies of both the Ebola and the Marburg drug candidates in the November issue of the American Society ofMicrobiology’s journal, Antimicrobial Agents and Chemotherapy. The DoD contract under which AVI-7288 was being developed expired in July 2014.Please read Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary and Timeline of Marburg ProductCandidate Data Disclosures — Government Contracts and Note 12, Government Contracts to the consolidated financial statements included elsewhere inthis Annual Report on Form 10-K for more information.Ebola virus. The hemorrhagic fever caused by the Ebola virus, an RNA virus similar to Marburg virus, is severe and often fatal in humans and there arecurrently no approved treatments for Ebola beyond supportive care. The Ebola virus is classified as a Category A bioterrorism agent by the CDC, and wasdetermined to be a material threat to national security by the Secretary of Homeland Security. Our Ebola product candidate, AVI-7537, is a single agentdesigned for post-exposure prophylaxis after documented or suspected exposure to the Ebola virus. Although we believe AVI-7537 has the potential to be atherapeutic option for the Ebola virus, demonstrating survival rates between 60-80% in treated non-human primates, we suspended our development effortswith respect to our Ebola program after the DoD issued the August 2012 stop-work order and subsequently terminated the program for convenience due to thegovernment’s fiscal constraints. In October 2014, we announced the publication of the results of a single dose ascending study of our Ebola productcandidate which showed no clinical or toxicologic safety concerns.Influenza. Symptoms of H1N1 influenza include fever, cough, runny nose, headache, chills and fatigue. Many people infected with H1N1 also haverespiratory symptoms without a fever. Severe illness and deaths have also occurred. The CDC estimated that between April 2009 and April 2010 there wereup to 89 million cases of H1N1 infection in the U.S. The CDC also estimated that there were up to 403,000 H1N1-related hospitalizations in the U.S. duringthe same time period. AVI-7100 is our lead product candidate for the treatment of influenza, previously developed under a DoD contract, and employs ourPMOplus technology. During our pre-clinical research, AVI-7100 showed a favorable safety profile in ferrets, rats and monkeys. In separate ferret studies,AVI-7100 demonstrated activity as a potentiator of Tamiflu and activity towards preventing transmission of Tamiflu-resistant H1N1. In December 2012, weentered into an agreement with NIAID to conduct a Phase I single and multiple ascending dose study with AVI-7100. The single ascending dose portion ofthis Phase I -9-®®®Table of Contentsstudy, a randomized, double-blind and placebo-controlled study, was completed in the summer of 2014 and we announced results in September 2014.Results showed that AVI-7100 was well tolerated with no reported serious or clinically significant adverse events. The pharmacokinetic analysis of AVI-7100revealed a highly similar dose-dependent profile to that of Sarepta’s Ebola and Marburg PMOplus drug candidates. AVI-7100 also received a favorablereview from the Data and Safety Monitoring Board (“DSMB”), to proceed to the multiple ascending dose portion of the study. Please read Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Government Contracts and Note 12, Government Contracts to the consolidatedfinancial statements included elsewhere in this Annual Report on Form 10-K for additional information.Discovery and Research ProgramsRare Diseases. We are currently exploring a splice-altering approach used to inhibit myostatin protein production at the messenger RNA (“mRNA”)level and its application possibilities in DMD and Becker using our PMOplus, PMO and PMO-X technology. The results of early research appear promisingwith our PMOs restoring mdx mouse weight to normal mouse levels in a 10 week-old mouse and leading to increased mobility. The mdx mouse is oftenstudied in DMD because it does not normally produce dystrophin due to a point mutation in the dystrophin gene. We are also researching possibleapplication of our proprietary PMO technology to regulate progerin in progeria patients and alphaglucosidase in patients with adult onset pompe disease.Our early pompe research has shown our PMO technology to successfully induce exon inclusion and generate enzyme activity. In March 2014, we enteredinto a patent assignment agreement that secures our proprietary rights to antisense oligonucleotides (“AONs”) that antagonize TLR 7/8/9 and are currentlyfurthering research and development on the application of such AONs in a variety of potential diseases including autoimmune disorders, inflammatorydisorders, skin disorders, allergies and asthma. We continue to work on these discovery phase research programs and are open to collaborations with thirdparties.Anti-Infectives. The rapid emergence of broad antibiotic resistance has underscored the urgent need for new paradigms in antimicrobial development.Our anti-infectives program is focused on drug-resistant bacteria identified by the CDC as urgent or serious threats to the U.S. healthcare system. Earlyresearch findings demonstrate that targeted peptide conjugated PMOs, or PPMOs, can successfully inhibit translation of essential structural genes such asacyl carrier protein (“acpP”), resistance proteins such as NDM-1, or those responsible for biofilm formation, which is critical for bacterial colonies to evadehost immune responses or systemic antibiotics such as cepI., which is responsible for biofilm expression. Additionally, though acpP alone can be bactericidalat clinically achievable concentration, data demonstrates that co-administration of the PPMOs targeting acpP can restore antibiotic activity to clinicallyachievable levels in multidrug resistant Acinetobacter, E. coli, Klebsiella, and Burkholderia spp in both bench top and mouse models. Finally, we have alsoseen that PPMOs targeting structural genes such as acpP or cepI (responsible for biofilm expression) can penetrate and disrupt established biofilm;furthermore, the PPMOs targeting acpP can successfully kill the established bacterial colonies in Burkholderia cepacia models. We believe the results of thisearly research could have broad commercial applicability. We are exploring IND enabling studies now, and are open to partnership opportunities in thedevelopment of our anti-infective program.Proprietary Platform TechnologyPMO. The basis of our chemistry platform is based on PMOs. This core chemistry has been safely dosed in over 400 patients. PMOs are syntheticcompounds that bind to complementary sequences of RNA by standard Watson-Crick nucleobase pairing. When targeted to mRNA, PMOs control proteintranslation by steric blockade. The two key structural differences between PMOs and naturally occurring RNA are that the PMO nucleobases are bound tosynthetic morpholino rings (instead of ribose in RNA), and the morpholino-nucleobase subunit is linked by a phosphorodiamidate group instead of aphosphodiester group. Replacement of negatively charged phosphodiester in RNA with the uncharged phosphorodiamidate group in PMO eliminateslinkage ionization at physiological pH. Because of these modifications, PMOs are resistant to degradation by plasma and intracellular enzymes. Unlike theRNA-targeted technologies of siRNAs and DNA gapmers, PMOs rely on steric blocking rather than cellular enzymatic activity to achieve their biologicaleffects. PMOs thus operate fundamentally differently from these other well-known RNA-targeted technologies. -10-®®®Table of ContentsOur PMO technologies can be used to selectively up-regulate or down-regulate the production of a target protein and correct disease-causing geneticerrors by inducing targeted expression of novel proteins. Therapeutic drug candidates applying our PMO technology act upon RNA-targeted mechanisms ofaction through steric blockade. These mechanisms of action include, but are not limited to, pre-mRNA splice alteration and mRNA translation blockade. Ineffect, this enables us to design precision product candidates that intervene to create more, less, or none of certain proteins, or an analogue of the originalprotein that may attain greater functionality than a patient’s endogenous protein.In therapeutic applications requiring regular dosing to sustain treatment efficacy to its fullest extent, the safety of therapeutic agents is clearly ofparamount concern. We believe that our PMO and PMO-based compounds significantly reduce potential for off-target effects specifically because of theirdemonstrated inactivity with key molecular mechanisms that are known to be toxicologically active when stimulated. Additionally, consistent with ourresearch and development to date, we believe that PMOs do not exhibit the coagulation and immune stimulatory effects, do not stimulate TLRs or those ofthe RIG-I-like receptor family and do not sequester metal ions away from the catalytic centers of polymerases.In addition to our original PMO technology, we have also developed three new PMO-based chemistry platforms. 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 PPMOs, in which cellular uptake of the PMO component, as well as its potency and specificityof tissue targeting, may be significantly enhanced.PMOplus. The second of these chemistries, PMOplus, includes the addition of selectively introduced positive charges to PMOs. We believe thatwhile PMOplus has potentially broad therapeutic applications, it has thus far shown to be particularly effective in increasing the potency of such oligomersand in targeting specific cell populations.PMO-X. The third of these chemistries, PMO-X, involves novel and proprietary chemistry modifications to PMOs. We believe PMO-X may provideenhanced in vivo potency for our drug candidates, as well as greater flexibility in modulation of their selective tissue targeting, cellular delivery and uptake.We believe that our PMO-based technology platforms can be used to develop novel pharmaceutical products to treat a broad range of diseases andaddress key unmet medical needs. We intend to leverage our PMO-based technology platforms, organizational capabilities and resources to become a leadingdeveloper and marketer of PMO-based therapeutics, including for the treatment of rare and infectious diseases, with a diversified portfolio of productcandidates and approved products.Material AgreementsWe believe that our RNA-targeted technology could be broadly applicable for the potential development of pharmaceutical products in manytherapeutic areas. To further exploit our core technologies, we have and may continue to enter into research, development or commercialization allianceswith universities, hospitals, independent research centers, non-profit organizations, pharmaceutical and biotechnology companies and other entities forspecific molecular targets or selected disease indications. We may also selectively pursue opportunities to access certain intellectual property rights thatcomplement our internal portfolio through license agreements or other arrangements.U.S. Department of Defense and Department of Health and Human Services AgreementsWe previously had contracts with DoD and its agencies and the Department of Health and Human Services (“DHHS”) and its agencies that fundedand/or supported some of our infectious diseases programs. The period of -11-®®®®®®Table of Contentsperformance of our last U.S. government contract ended in July 2014. We are currently in the process of closing out our last U.S. government contract andfurther development of Ebola and Marburg product candidates may be limited by our ability to obtain additional funding for these programs and by theintellectual property and other rights retained by the U.S. government. For a more detailed description of our contracts with the U.S. government, please readManagement’s Discussion and Analysis of Financial Condition and Results of Operations—Government Contracts and Note 12, Government Contracts tothe consolidated financial statements included elsewhere in this Annual Report on Form 10-K. For a description of the risks we face relating to such rights ofthe government, please read Risk Factors—Risks Relating to Our Business. Any contracts that we may enter into with the government may be subject torenegotiation or termination at the election of the government.University of Western AustraliaIn November 2008, we entered into an exclusive license agreement with the University of Western Australia (“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 (“the Amended and Restated UWA License Agreement”). The Amended and Restated UWA LicenseAgreement grants us specific rights to the treatment of DMD by inducing the skipping of certain exons. Our lead clinical candidate, eteplirsen, falls under thescope of the license granted under the Amended and Restated UWA License Agreement. Any future drug candidates developed for the treatment of DMD byexon skipping may or may not fall under the scope of the Amended and Restated UWA License Agreement.Under the Amended and Restated UWA License Agreement, we are required to meet certain performance diligence obligations related to developmentand commercialization of products developed under the license. We believe we are currently in compliance with these obligations. In 2013, we made aninitial upfront payment to UWA of $1.1 million upon execution of the Amended and Restated UWA License Agreement. We may be required to makeadditional payments to UWA of up to $6 million in aggregate based on successful achievement of certain regulatory and commercial milestones relating toeteplirsen and up to five additional product candidates and may also be required to pay royalties of single-digit percentages on net sales of products coveredby issued patents licensed from UWA during the term of the Amended and Restated UWA License Agreement. As of December 31, 2014, we are not under anycurrent obligation to make royalty payments to UWA until achievement of the first 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 November 2030, however, pending patents couldresult in a later expiration date.Strategic AlliancesIsis—Ercole AgreementIn May 2003, Ercole Biotechnology, Inc. (“Ercole”) and Isis Pharmaceuticals, Inc. (“Isis”), entered into a collaboration and license agreement related toRNA splicing. Research collaboration activity defined in the -12-Table of Contentsagreement expired in 2006. In March 2008, we acquired all of the stock of Ercole in exchange for 5,811,721 shares of our common stock, which was valued atapproximately $8.4 million, and the assumption of approximately $1.8 million in liabilities of Ercole. We also issued warrants to purchase our common stock(classified as equity), which were valued at $437,000, in exchange for certain outstanding warrants issued by Ercole. In connection with the March 2008acquisition, we assumed Ercole’s obligations under the Isis agreement. This agreement contains several cross-licenses between the parties granting each partycertain exclusive and nonexclusive rights under a selected set of the other parties’ patents and patent applications for the research, development andcommercialization 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 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, 2014,we have not made and are not under any current obligation to make any such milestone payments, as the conditions triggering any such milestone paymentobligations have not been satisfied. The range of percentage royalty payments required to be made by us under the terms of this agreement is from a fractionof a percent to mid-single-digit percentages. We believe that our DMD, Ebola, Marburg and influenza programs will not fall under the scope of thisagreement and therefore will not be subject to milestone or royalty obligations under its provisions.Subject to the satisfaction of certain milestones triggering the obligation to make any such payments, Isis may be obligated to make milestonepayments to 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, 2014,Isis has not made and is not under any current obligation to make any such milestone payments, as the conditions triggering any such milestone paymentobligations have 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 any product commercialized under the agreement, the agreement will terminate on the expiration date of the last to expire licensed patentcovering such product. The last to expire Sarepta-owned patent covered under this agreement expired on September 9, 2014. The last Isis-owned patentcovered under this agreement expires on 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 portionof the assets for the benefit of creditors by the other party with certain exceptions.Charley’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 us a research grant of approximately $2.5 million and, in May 2009, the grant authorization was increased to a total of $5.0 million. Pursuantto the related sponsored research agreement, the grant was provided to support the development of product candidates related to exon 50 skipping using ourproprietary exon skipping technologies. As of December 31, 2014, Charley’s Fund has made payments of approximately $3.4 million to us. Revenueassociated with this research and development arrangement is recognized based on the proportional performance method, using the payment receivedmethod. To date, we have recognized $60,000 as revenue. We have deferred $3.3 million of previous receipts which are anticipated to be recognized asrevenue upon resolution of outstanding performance obligations.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 -13-Table of Contentsarising or derived from the research sponsored by Charley’s Fund for reasons other than safety or efficacy, we must grant to Charley’s Fund an exclusive,royalty-bearing, fully-paid, worldwide license, with right of sublicense, to any such product. Depending on whether and when Charley’s Fund obtains alicense to any such product, percentage royalty payments on net sales required to be made by Charley’s Fund to us under the terms of the sponsored researchagreement, as amended, would be in the mid-single-digits. Under the terms of the sponsored research agreement, as amended, if we are able to successfullycommercialize any molecular candidate arising or derived from the research sponsored by Charley’s Fund either through sales of products or throughlicensing or partnership arrangements with a third party that include rights for such third party to sell, distribute, promote or market such products or theunderlying intellectual property, we are obligated to repay the research funds paid to us by Charley’s Fund, up to an amount equal to the total amount offunds provided by Charley’s Fund to us. In connection with this repayment obligation, we agreed that we would pay a mid-single-digit percentage royalty onnet sales of products containing any molecular candidate arising or derived from the research sponsored by Charley’s Fund and a mid-teens amount of anyupfront cash and/or milestone payments received from a licensing or partnership arrangement 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 to us). This agreement will be terminated by its own terms at the completionof the research being sponsored by Charley’s Fund. Our technology upon which the agreement is based is covered by certain patents, the last of which expiresfollowing 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 in the gene coding for dystrophin that can be treated by skipping exon 50. We haveconducted additional preclinical studies and have not alleviated the toxicity problem. Pursuant to the terms of our agreement with Charley’s Fund, thereceipt of additional funds is tied to the satisfaction of certain clinical milestones. Because of the toxicity issues with AVI-5038, satisfaction of the additionalmilestones under the agreement is unlikely and we do not expect to receive any additional funds from Charley’s Fund.ManufacturingWe believe we have developed proprietary state-of-the-art manufacturing and scale-up techniques that allow synthesis and purification of our productcandidates to support clinical development as well as potential commercialization. We have entered into certain manufacturing and supply arrangementswith third-party suppliers which will in part utilize these techniques to support production of certain of our product candidates and their components. Wecurrently do not have any of our own internal 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 theproduction of the custom raw materials required for PMO production and the APIs, for our product candidates.For our DMD program, we are working with our existing manufacturers to increase our API production capacity from mid-scale to large-scale. During2015, 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 2015 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 theirmanufacturing facilities and quality systems, we are considering our existing manufacturers, as well as other manufacturers with relevant expertise, for thefurther scale-up of the production of raw materials and APIs for our DMD program. Establishing a relationship with alternative suppliers can be a lengthyprocess and might cause delays in our development efforts. If we are required to seek alternative supply arrangements, the resulting delays and potentialinability to find a suitable replacement could materially and adversely impact our business. -14-Table of ContentsManufacturers and suppliers of product candidates are subject to the FDA’s current Good Manufacturing Practices (“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 ordistribution capabilities. Due to the rare nature of DMD and the lack of disease-modifying treatments, patients suffering from DMD, together with theirphysicians, often have a high degree of organization and are well informed, which may simplify the identification of a target population for eteplirsen, ourlead product candidate, if it is approved. We believe that, if approved for commercial sale, it will be possible to commercialize eteplirsen with a relativelysmall specialty sales force that calls on the physicians, foundations and other patient-advocacy groups focused on DMD. Our current expectation is tocommercialize eteplirsen ourselves in the U.S. and plan to recruit a sales force and take other steps to establish the necessary commercial infrastructure at suchtime as we believe that eteplirsen is approaching marketing approval. We will continue to evaluate whether to market our DMD product candidates outside ofthe U.S. ourselves or enter into arrangements with other pharmaceutical or biotechnology companies for the marketing and sale of our products outside theU.S. either globally or on a country-by-country basis.Patents 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.Our patents and patent applications are directed to our product candidates as well as to our PMO-based technology platforms. We seek patentprotection for certain of our product candidates and proprietary technologies by filing patent applications in the U.S. and other countries. As of February 4,2015, we owned or controlled approximately 355 U.S. and corresponding foreign patents and 235 U.S. and corresponding foreign patent applications. Weintend to protect our proprietary technology with additional filings as appropriate.Our product candidates and our technology are primarily protected by composition of matter and use patents and patent applications. Currently, ourclinical product candidates include AVI-7288 (Marburg), AVI-7100 (influenza) and eteplirsen (DMD). We own issued patents covering composition andmethods of use for AVI-7288 in the U.S. We have exclusively licensed patents covering composition of matter and methods of use for eteplirsen in the U.S.and Europe. Additionally, we have pending patent applications for composition and methods of use for AVI-7100 and issued and/or pending patentapplications for composition and methods of use for other product candidates in the U.S., Canada, South America, Europe, Asia, Australia, New Zealand,and/or the Middle East. Patent protection based on currently granted patents and patents granting from currently pending patent applications covering ourproduct candidates and our technology will expire over the following 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)Antibacterial 2018 (patents) – 2035 (patent applications)Other rare diseases 2025 (patent applications) – 2034 (patent applications)Other targets and programs 2019 (patents) – 2032 (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. -15-®®Table of ContentsIn 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 inventionsassignment agreement before beginning their employment, consulting or advisory relationship with us. These agreements generally provide that theindividual must keep confidential and not disclose to other parties any confidential information developed or learned by the individual during the course oftheir relationship with us except in limited circumstances. These agreements also generally provide that we shall own all inventions conceived by theindividual in the course of rendering services to us.We are the owner of multiple federal trademark registrations in the United States including Sarepta, Sarepta Therapeutics, PMOplus, PMO-X , Let’sSkip Ahead and the Sarepta Therapeutics logo. We have multiple pending trademark applications in the United States including: The Promise of Science,Realized™; Transformation, Within Reach™; and Turning Discovery Into Recovery™. In the E.U., we have trademark registrations for Sarepta, the SareptaTherapeutics logo, Transformation, Within Reach and Turning Discovery Into Recovery.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 theextent to 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 U.S. 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; • 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 andfactual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in biotechnologypatents has emerged to date in the U.S. 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. Patents which may be issuedto us may be subjected to further governmental review that may ultimately result in the reduction of their scope of protection, and pending patentapplications may have their requested breadth of protection significantly limited before being issued, if issued at all. For example, we are aware of certainclaims that our competitor Prosensa has rights to in the United States that, if granted, may provide the basis for Prosensa or other parties that have rights tothese claims to assert that our drug candidates, eteplirsen and/or SRP-4053, infringe on such claims. In 2014, the Patent Trial and Appeal Board (“PTAB”) ofthe USPTO declared various patent interferences between certain patents held by Sarepta under a license from the UWA and patent applications held byProsensa under license from Academisch -16-®®®®®®®®Table of ContentsZiekenhuis Leiden (“AZL”) related to exon 51 and exon 53 skipping therapies designed to treat DMD. Patents held or licensed to Sarepta and included inthese interference proceedings are presumed valid by statute for the duration of these proceedings and any appeals. These interferences do not currentlychange our plans to submit an NDA for eteplirsen, continue with our clinical development plans for eteplirsen and SRP-4053 or our ability to launcheteplirsen commercially if it is approved by the FDA under an accelerated approval pathway, however, if final resolution of these interferences and relatedappeals, if any, are not in our favor, our current business, development and commercialization plans for eteplirsen and SRP-4053 may be negativelyimpacted. For details on and risks related to the interferences that PTAB has declared involving our patents, please read Risk Factors—Risks Relating to OurBusiness—Our success, competitive position and future revenue, 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 proprietary rights andto operate without infringing on the proprietary rights of third parties.The pharmaceutical, biotechnology and other life sciences patent situation outside the U.S. can be even more uncertain. For example, Prosensa hasrights to European Patent No. EP 1619249. We opposed this patent in the Opposition Division of the European Patent Office (“Opposition Division”), and inNovember 2011, we announced that, although we succeeded in invalidating some of the patent’s claims, the Opposition Division maintained in amendedform certain claims of this patent relating to the treatment of DMD by skipping dystrophin exons 51 and 46. We and Prosensa both appealed this decision inJune 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 suchpatent to assert that our drug candidate, eteplirsen, infringes on such patent. The outcome of the appeal cannot be predicted or determined as of the date ofthis report. If as part of any appeal in the European Union we are unsuccessful in invalidating Prosensa’s claims that were maintained by the OppositionDivision or if claims previously invalidated by the Opposition Division are restored on appeal, our ability to commercialize both eteplirsen and othertherapeutic candidates for our pan-exon strategy could be materially impaired.In addition to government, court and regulatory patent decisions, changes in either the patent laws or in interpretations of patent laws in the U.S. andother countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced inthe patents that we own or have licensed or in third-party patents. Further, since publication of discoveries in scientific or patent literature often lags behindactual discoveries, there is no assurance that we were the first creator of inventions covered by our pending patent applications, or that we were the first to filepatent applications for these inventions.Government RegulationThe testing, manufacturing, labeling, advertising, promotion, distribution, exportation and marketing of our products are subject to extensiveregulation by governmental authorities in the U.S. and in other countries. In the U.S., 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 orjudicial sanctions, such as FDA refusal to approve pending NDAs, withdrawal of approval of approved products, warning letters, untitled letters, productrecalls, 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, first and foremost, submit clinical data providing substantial evidence of safety and efficacyof the product for its intended use, as well as detailed information on product composition, its manufacture and controls and proposed labeling. The testingand collection of data and the preparation of necessary applications are expensive and time-consuming. The FDA may not act quickly or favorably inreviewing these applications, and we may encounter significant difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude usfrom marketing our products. -17-Table of ContentsThe steps required before a drug may be approved for marketing in the U.S. generally include the following, with exceptions noted in the sectioncaptioned Government Regulation—Animal Rule: • preclinical laboratory tests and animal toxicity testing; • submission of an IND application for conducting human clinical testing to the FDA, which must become effective before human clinical trialscommence; • adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug product for each indication; • the submission to the FDA of an NDA; • satisfactory completion of an FDA inspection of the commercial manufacturing facilities at which the drug substance and drug product are madeto assess compliance with cGMP; • satisfactory FDA audit of the clinical trial site(s) that generated the pivotal safety and efficacy data included in the NDA and also potentially thenonclinical manufacturing site(s) in the form of a pre-approval inspections; and • FDA review and approval of the NDA.Preclinical studies may include laboratory evaluations of the product chemistry, pharmacology, toxicity and formulation, as well as animal studies toassess the pharmacokinetics, metabolism, biodistribution and toxicity of the product candidate. The conduct of the preclinical tests and formulation of thecompounds for testing must comply with federal regulations and requirements. The results of the preclinical studies, manufacturing information, analyticaldata and a proposed first in human clinical trial protocol are submitted to the FDA as part of the IND, which must become effective before clinical trials maybe initiated. The IND will become effective approximately 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the supportivedata, the design, particularly regarding potential safety issues of conducting the clinical trial as described in the protocol. In this situation, the trials areplaced on clinical hold and the IND sponsor must resolve any outstanding FDA concerns before clinical trials can proceed.Clinical trials involve the administration of the product candidate to healthy volunteers or patient participants under the supervision of a qualifiedprincipal investigator. Clinical trials are conducted under protocols detailing the objectives of the study, the administration of the investigational product,study procedures, parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as asubmission to the IND. Clinical trials must be conducted in accordance with the FDA’s Good Clinical Practice (“GCP”) requirements and federal and statelaws and regulations protecting study subjects. Further, each clinical trial must be reviewed and approved by the Institutional Review Board (“IRB”) at orservicing each institution in which the clinical trial will be conducted. The IRB will consider, among other things, rationale for conducting the trial, clinicaltrial design, participant informed consent, ethical factors, the safety and rights of human subjects and the possible liability of the institution. The FDA cantemporarily or permanently halt a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial is not being conducted in accordancewith FDA requirements or presents an unacceptable risk to the clinical trial subjects. The IRB may also require the clinical trial at a particular site be halted,either temporarily or permanently, for failure to comply with the GCP or IRB’s requirements, or may impose other conditions.Clinical trials typically are conducted in three sequential drug development phases (Phases I, II and III) prior to approval, a portion of these phases mayoverlap. A fourth post-approval phase (Phase IV) may include additional clinical studies. A general description of clinical trials conducted in each phase ofdevelopment is provided below. However, the number of study subjects involved in each phase of drug development for rare diseases can be significantlyless than typically expected for more common diseases with larger patient populations: • Phase I. Phase I clinical trials involve the initial introduction of the drug into human subjects. These studies are usually designed to determinethe safety of single and multiple doses of the compound and -18-Table of Contents determine any dose limiting toxicities or intolerance, as well as the metabolism and pharmacokinetics of the drug in humans. Phase I studiesusually involve less than 100 subjects and are conducted in healthy adult volunteers unless the drug is toxic (e.g., cytotoxics) in which case theyare tested in patients. • Phase II. Phase II clinical trials are usually conducted in a limited patient population to evaluate the safety and efficacy of the drug for a specificindication to determine optimal dosage and to identify possible adverse effects and safety risks. Phase II studies usually involve patients with thedisease under investigation and may vary in size from several dozen to several hundred. • Phase III. If an investigational drug is found to be potentially effective and to have an acceptable safety profile in early phase studies, largerPhase III clinical trials are conducted to confirm clinical efficacy, dosage and safety in the intended patient population, which may involvegeographically dispersed clinical trial sites. Phase III studies usually include several hundred to several thousand patients. Generally, twoadequate and well-controlled Phase III clinical trials which establish the safety and efficacy of the drug for a specific indication are required forapproval of an NDA. • Phase IV. Phase IV trials are clinical studies conducted after the FDA has approved a product for marketing. Typically there are two forms ofPhase IV trials: those that are conducted to fulfill mandatory conditions of product approval and those that are voluntarily conducted to gainadditional experience from the treatment of patients in the intended therapeutic indication. The mandatory studies are used to confirm clinicalbenefit in the case of drugs approved under the accelerated approval regulations or to provide additional clinical safety or efficacy data for “full”approvals. Failure to promptly conduct and complete mandatory 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 U.S. must submit to the FDA the results of the preclinical and clinical trials, togetherwith, among other things, detailed information on the manufacture and composition of the product candidate and proposed labeling, in the form of an NDA,including payment of a user fee unless the submission is for an Orphan Indication. The FDA assesses all NDAs submitted for completeness before it acceptsthem for filing and review. FDA may request additional information before accepting an NDA for filing. Once the submission is accepted for filing, the FDAbegins an in-depth review of the NDA. Under the current NDA review goals mandated under the Prescription Drug User Fee Act (“PDUFA”), the FDA has tenmonths in which to complete its initial review of a standard NDA and respond to the applicant, and six months for a priority NDA. The FDA does not alwaysmeet its PDUFA goal dates for standard or priority NDAs. The review process and the PDUFA goal date may be extended by three months if the FDA requestsor the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last threemonths before the PDUFA goal date. If the FDA’s evaluations of the NDA and the clinical and manufacturing procedures and facilities are favorable, the FDAmay issue an approval letter. If the FDA finds deficiencies in the NDA, it may issue a complete response letter, which defines the conditions that must be metin order to secure final approval of the NDA. If and when those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter,authorizing commercial marketing of the drug. Sponsors that receive a complete response letter may submit to the FDA information that represents acomplete response to the issues identified by the FDA. Resubmissions by the NDA sponsor in response to a complete response letter trigger new reviewperiods of varying length (typically two to six months) based on the content of the resubmission. If the FDA’s evaluation of the NDA and the commercialmanufacturing procedures and facilities is not favorable, the FDA may refuse to approve the NDA. The FDA may also refer an application to an advisorycommittee, typically comprised of a panel of expert clinicians and researchers, for review, evaluation and a recommendation as to whether the applicationshould be approved for the proposed indication. The FDA is not bound by, but typically follows, the recommendations of the advisory committee.A sponsor may also seek designation of its drug candidates under programs designed to accelerate the FDA’s review and potential approval of NDAs.For instance, a sponsor may seek FDA designation of a drug -19-Table of Contentscandidate as a “fast track product.” Fast track products are those products intended for the treatment of a serious or life-threatening disease or condition andwhich demonstrate the potential to address unmet medical needs for such disease or condition. If fast track designation is obtained, the FDA may initiateearly and frequent communication and begin reviewing sections of an NDA before the application is complete. This “rolling review” is available if theapplicant provides, and the FDA approves, a schedule for the remaining information. Eteplirsen was granted fast track status in 2007 and both AVI-7288 andAVI-7537 were granted fast track status in September 2012.The Food and Drug Administration Safety and Innovation Act (“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 the sponsor companiesand the FDA with greater flexibility and 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 to be eligible for accelerated approval, they do not need to be designated under the fast track pathway.FDASIA reinforces the FDA’s authority to grant accelerated approval of a drug that treats a serious condition and generally provides a meaningful advantageover available therapies and demonstrates an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint thatcan be measured earlier than irreversible morbidity or mortality (“IMM”) that is reasonably likely to predict an effect on IMM or other clinical benefit (i.e., anintermediate clinical endpoint). Approvals of this kind typically include requirements for appropriate post-approval Phase IV clinical trials to confirmclinical benefit. FDASIA retains this requirement and further requires those studies to verify and describe the predicted effect on irreversible morbidity ormortality or other clinical benefit. We had multiple meetings with the FDA during 2013 and 2014 to discuss the most appropriate regulatory pathway forearly registration/approval of eteplirsen based on the Phase IIb data. In addition, we also had discussions with the FDA to finalize the confirmatory studydesigns for a potential accelerated approval for eteplirsen. Based on feedback from these meetings, we will continue to pursue the most appropriate regulatorypathway 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 existingtherapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA issuedguidance entitled “Expedited Programs for Serious Conditions––Drugs and Biologics” in May 2014. We will continue to evaluate, with input from the FDA,which expedited programs are appropriate to incorporate in our regulatory approach for eteplirsen and our other DMD product candidates.Finally, if a drug candidate demonstrates a significant benefit over existing therapy, it may be eligible for priority review, which means it will bereviewed within a six-month timeframe from the date a complete NDA is accepted for filing.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. -20-Table of ContentsHolders of an approved NDA are required to: • report serious adverse drug reactions to the FDA; • submit annual and periodic reports summarizing product information and safety data; • comply with requirements concerning advertising and promotional labeling; and • continue to have quality control and manufacturing procedures conform to cGMP after approval.The 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 tomaintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of anapproved NDA, 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 theUnited Kingdom (U.K.) and intend to submit for marketing approval in countries other than the U.S. 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 where conducting controlled clinical trials to determineefficacy may be unethical or unfeasible, such as infection caused by exposure to various hemorrhagic fever viruses, alternative methods for demonstrating thesafety and efficacy of product candidates may be applied. Under regulations issued by the FDA in 2002 (“Animal Rule”), the approval of such products canbe based on clinical data from trials in healthy human subjects that demonstrate adequate safety and immunogenicity and efficacy data from adequate andwell-controlled animal studies. Among other requirements, the animal studies must establish that the drug or biological product is reasonably likely toproduce clinical benefits in humans. Because the FDA must agree that data derived from animal studies may be extrapolated to establish safety andeffectiveness in humans, seeking approval under the Animal Rule adds significant time, complexity and uncertainty to the testing and approval process. Noanimal model is established as predicting human outcomes in the prevention or treatment of any filo virus disease. We have yet to demonstrate the predictivevalue of our animal studies to the FDA’s satisfaction. In addition, products approved under the Animal Rule are subject to additional requirements includingpost-marketing study requirements, restrictions imposed on marketing or distribution or requirements to provide information to patients. The Animal Rule isa rarely-used regulatory pathway and most of the products approved to-date under the Animal Rule have built upon existing indications with human data tosupport efficacy. Additional clarity on Animal Rule requirements was provided by the FDA Draft Guidance For Industry Product Development Under theAnimal Rule released in May 2014.Emergency Use AuthorizationThe Commissioner of the FDA, under delegated authority from the Secretary of DHHS may, under certain circumstances, issue an Emergency UseAuthorization (“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 -21-Table of Contents • a determination by the Secretary of DHHS of a public health emergency that effects or has the significant potential to affect, national security,and that involves a specified biological, chemical, radiological, or nuclear agent or agents, or a specified disease or condition that may beattributable to 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 reasonableto believe that the product may be effective in diagnosing, treating, or preventing a disease attributable to the agents described above, that the product’spotential benefits outweigh its potential risks and that there is no adequate, approved alternative to the product.The Pandemic and All-Hazards Preparedness Reauthorization Act of 2013 (“PAHPRA”) enhanced existing EUA requirements, by: • clarifying the FDA’s authority to issue EUAs, before a chemical, biological, radiological or nuclear emergency occurs, to enable stakeholders toprepare for use of unapproved medical products, or unapproved uses of approved products, if certain criteria are met (referred to as pre-eventEUAs); • allowing the FDA to issue an EUA based on the DHHS Secretary’s determination that there is a potential for a public health emergency involvinga chemical, 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; and • expressly permitting FDA, as part of issuance of an EUA, to categorize the complexity of an in vitro diagnostic device to indicate whether thetest can be performed at a point-of-care setting or only in a more sophisticated laboratory.Orphan Drug Designation and ExclusivityIn the U.S., 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 U.S., or more than 200,000 individuals in the U.S. for which there is no reasonable expectation that the cost of developing and makingavailable in the U.S. a drug for this type of disease or condition will be recovered from sales in the U.S. for that drug. In the U.S., orphan drug designationmust be requested before submitting an application for marketing approval. An orphan drug designation does not shorten the duration of the regulatoryreview and approval process. The approval of an orphan designation request does not alter the regulatory requirements and process for obtaining marketingapproval. Safety and efficacy of a compound must be established through adequate and well-controlled studies. If a product which has an orphan drugdesignation subsequently receives FDA approval for the indication for which it has such designation, the product is generally entitled to an orphan drugexclusivity period, which means the FDA may not grant approval to any other application to market the same chemical entity for the same indication for aperiod of seven years, except in limited circumstances, such as where an alternative product demonstrates clinical superiority to the product with orphanexclusivity. In addition, holders of exclusivity for orphan drugs are expected to assure the availability of sufficient quantities of their orphan drugs to meetthe needs of patients. Failure to do so could result in the withdrawal of orphan exclusivity for the drug.Distinct from orphan drug exclusivity, the FDA may provide six months of pediatric exclusivity to a sponsor of an NDA, if the sponsor conducted apediatric study or studies of such product. This process is applied to products developed for adult use and is initiated by the FDA as a written request forpediatric studies that applies to sponsor’s product. If the sponsor conducts qualifying studies and the studies are accepted by the FDA, then an additional sixmonths of pediatric exclusivity will be added to previously granted exclusivity, such as orphan drug exclusivity and new chemical entity exclusivity.Competitors may receive approval of different drugs or biologics for the indications for which a prior approved orphan drug has exclusivity. We have beengranted orphan drug designation for eteplirsen, AVI-7288, AVI-7537 and AVI-5038 in the U.S. -22-Table of ContentsIn Europe, Orphan Medicinal Product designation is considered by the European Medicines Agency (“EMA”) for drugs intended to diagnose, preventor treat a life-threatening or very serious condition afflicting five or fewer out of 10,000 people in the E.U., including compounds for serious and chronicconditions that 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. Benefitsof being granted orphan designation are significant, including up to ten years of market exclusivity. During this ten-year period, the EMA may not accept anew marketing application for a similar drug for the same therapeutic indication as the orphan drug. Distinct from orphan drug exclusivity, the EMA mayprovide a sponsor having an approved Pediatric Investigation Plan (“PIP”) or pediatric exclusivity waiver, which may lead to a two-year extension of marketexclusivity beyond the original ten-year period of orphan drug exclusivity. We have been granted orphan drug designation for eteplirsen and AVI-5038 inthe E.U.Ex-U.S. Regulatory RequirementsIn addition to regulation by the FDA and certain state regulatory agencies, we are also subject to a variety of foreign regulations governing clinicaltrials and the marketing of other medicinal products. Outside of the U.S., our ability to market a product depends upon receiving a marketing authorizationfrom the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, applications for marketing authorization, pricing andreimbursement vary widely from country to country. In any country, however, we will only be permitted to commercialize our products if the appropriateregulatory authority is satisfied that we have presented adequate evidence of safety, quality and efficacy. Whether or not FDA approval has been obtained,approval of a product by the comparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing of the productin those countries. The time needed to secure approval may be longer or shorter than that required for FDA approval. The regulatory approval and oversightprocess in other countries includes all of the risks associated with regulation by the FDA and certain state regulatory agencies as described above.Other Regulatory RequirementsIn addition to regulations enforced by the FDA and foreign authorities relating to the clinical development and marketing of products, we are or maybecome subject to regulation under the Occupational Safety and Health Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Actand other present and potential future foreign, federal, state and local laws and regulations. Although we believe that we are in material compliance withapplicable environmental laws that apply to us, we cannot predict whether new regulatory restrictions will be imposed by state or federal regulators andagencies or whether existing laws and regulations will adversely affect us in the future.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 U.S.,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 U.S. to fundamental changes. There have been, and weexpect there will continue to be, legislative and regulatory -23-Table of Contentsproposals to change the healthcare system in ways that could significantly affect our business, including the Patient Protection and Affordable Care Act of2010. We anticipate that the U.S. Congress, state legislatures and the private sector will continue to consider and may adopt healthcare policies intended tocurb 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; • 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 perperson.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 organizationshave substantially greater financial, technical, manufacturing and marketing resources than we have. Several of them have developed or are developingtherapies that could be used for treatment of the same diseases that we are targeting. In addition, many of these competitors have significantly greatercommercial infrastructures 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. -24-Table of ContentsDMD Program Competition. Currently, no disease-modifying product has been granted full approval for the treatment of DMD and no product iscommercially available outside the European Economic Area (“EEA”). Companies including, but not limited to, Prosensa which announced it regained rightsto drisaparsen and all other programs for the treatment of DMD from GlaxoSmithKline plc, (“GSK”), in January 2014, and PTC Therapeutics, Inc., (“PTC”),have product candidates in development for the treatment of DMD. Nippon Shinyaku also has product candidates in early clinical development for exonskipping for multiple exons but we are not aware of any public release of clinical data to date.PTC has a small molecule candidate, ataluren, which targets nonsense mutations in development. The European Commission granted conditionalmarketing authorization for ataluren for the treatment of a subset of DMD patients in August 2014. Ataluren uses a distinct scientific approach that addressesa different genotype of DMD patients compared to eteplirsen. Therefore, we do not believe ataluren is appropriate for the treatment of DMD patients that areamenable to exon-skipping therapy. Additionally companies such as Santhera, Summit, Pfizer and Tivorsan have unique product candidates in differentstages of development or approval in DMD which we believe could be seen as complementary to exon skipping and not a direct replacement of our clinicalcandidates at this time.Prosensa submitted the first module for an NDA regulatory filing for its exon 51 skipping product candidate, drisapersen, and has announced its plansto complete the submission by end of first quarter of 2015. In November 2014, BioMarin Pharmaceuticals, Inc. announced its intention to acquire Prosensaand in January 2015, announced the completion of a tender offer for Prosensa’s shares. The Prosensa program commenced treatment in December 2010 in aPhase III clinical study in ambulant individuals with DMD who have a dystrophin gene mutation amenable to treatment by skipping exon 51. Thisrandomized, placebo-controlled study was fully enrolled, with approximately 180 participants who were being dosed for 48 weeks. The primary efficacyendpoint for Prosensa’s study was a measure of muscle function using the 6MWT. In September 2013, GSK and Prosensa announced that the Phase III clinicalstudy of drisaparsen did not meet the primary endpoint of a statistical significant improvement in the 6MWT compared to placebo. In September 2010, theProsensa / GSK program commenced a Phase II double-blind, placebo-controlled study. This study is designed to assess the efficacy of two different dosingregimens of GSK2402968 administered over 24 weeks in DMD patients, and then to continue observing the patients over a second 24-week interval for atotal study time frame of 48 weeks. This study completed enrollment with 54 DMD patients in October 2011 and has since concluded. Another study usingGSK2402968 in non-ambulatory DMD patients has been initiated using a 6 mg/kg dose and is anticipated to enroll 20 patients. Like Prosensa, othercompanies continue to pursue approval of products for the treatment of DMD and their products may or may not prove to be safer and/or more efficaciousthan, or obtain marketing approval before, eteplirsen.Additionally, several companies have recently entered into collaborations or other agreements for the development of product candidates, includingmRNA, gene or small molecule therapies that are potential competitors for therapies being developed in the muscular dystrophy, neuromuscular and raredisease space, including Biogen Idec, Inc., Isis, Alexion Pharmaceuticals, Inc., Sanofi, Eli Lilly, Alnylam Pharmaceuticals, Inc., (“Alnylam”), ModernaTherapeutics, Inc., Summit plc and Oxford University.Hemorrhagic Fever Virus Program Competition. No specific treatment has been proven effective, and no approved vaccine currently exists fortreatment or prophylaxis of either Ebola virus or Marburg virus. These agents must be tested extensively in animals and meet strict government regulations.Investigational compounds can only be tested for efficacy in humans during outbreak situations such as the current Ebola outbreak in West Africa that beganin early 2014. The exigency and scale of the 2014 Ebola virus outbreak in West Africa has accelerated the development of both treatments and vaccines forEbola. Several vaccine candidates have reached the clinical development stage and are actively being tested for population safety and potentially efficaciousimmunoprotective effect as a prophylactic agent. These include vaccine candidates sponsored by the biotechnology industry and also candidates indevelopment by U.S. government agencies (e.g., the National Institute of Allergy and Infectious Diseases and the DoD). The government is also supportingearly -25-Table of Contentsstage research on therapeutics against hemorrhagic fever viruses, including broad-spectrum therapeutics. Among the most advanced therapeutic candidatesthat might have utility in combating Ebola virus, are candidates being developed by the Tekmira Pharmaceutical Corp., Toyama Chemical Co. LTD,BioCryst Pharmaceuticals Inc., and Mapp Bioharmaceutical Inc. with the support of the US government. Additionally, investigation of the use ofconvalescent plasma containing Ebola virus antibodies as a treatment modality, as well as for the potentially efficacious repurposing of drugs not intended totreat Ebola virus, remain an ongoing pursuit by the biopharmaceutical industry and several national government agencies.Influenza Program Competition. Currently, there are three therapeutic products for influenza that have received market approval from the FDA and arerecommended for use in the U.S. These are: (1) oseltamivir (Tamiflu), a Roche Holding and Gilead product; (2) zanamivir (Relenza), a GSK product; and(3) peramivir (Rapivab), a BioCryst Pharmaceuticals Inc. product. In addition to these products, Biota Pharmaceuticals and Daiichi Sankyo’s laninamivir waslaunched in 2010 in Japan. Currently, funding from the DHHS Biomedical Advanced Research and Development Authority is helping support clinical trialsof, Romark Laboratories’ nitazoxanide. In addition, other companies have influenza therapeutic compounds against viral and host targets in various stages ofdevelopment, including Vertex Pharmaceutical and Janssen Pharmaceutical’s VX-787, Biota Pharmaceutical’s laninamivir, Autoimmune Technologiesflufirvitide-3, Ansun BioPharma’s fludase, and Toyama Chemical’s favipiravir which is in a Phase II clinical trial in the United States, under a DoD contractwith MediVector, Inc., and has completed a Phase III trial in Japan. Several additional companies, including Crucell Inc., Celltrion Inc., Visterra Inc. andGenentech Inc. are also currently developing monoclonal antibodies for use against various influenza strains to confer passive or active immunotherapeuticresponse. DHHS is currently seeking additional 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 clinical trials. Successful development of a universalinfluenza vaccine could lead to a reduction in the number of influenza cases and, therefore, the market size.Platform Technology Competition. We believe that other biotechnology and pharmaceutical companies share a focus on RNA-targeted drug discoveryand development. Competitors with respect to our RNA-targeted technologies include, but are not limited to, Alnylam, Tekmira Pharmaceuticals Corp., Isis,Prosensa, Sanofi, Synthena AG and Santaris Pharma A/S.Research and DevelopmentOur discovery, research and development programs span various disease targets. The lengthy process of securing FDA approvals for new drugs requiresthe expenditure of substantial resources. Accordingly, we cannot currently estimate, with any degree of certainty, the amount of time or money that we will berequired 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 trials and manufacturingactivities. We do not maintain or evaluate, and therefore do not allocate, internal research and development costs on a project-by-project basis. As a result, asignificant portion of our research and development expenses are not tracked on a project-by-project basis, as the costs may benefit multiple projects. -26-Table of ContentsThe 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 periods indicated: For the Year Ended December 31, 2014 2013 2012 (in thousands) Development programs DMD $43,710 $43,511 $12,181 Infectious diseases 3,011 5,701 22,956 Internal research and development expenses 47,510 23,697 17,265 Total research and development expenses $94,231 $72,909 $52,402 EmployeesAs of December 31, 2014, we had 204 employees, 84 of whom hold advanced degrees. Of these employees, 133 are engaged directly in research anddevelopment activities and 71 are in general and administration. None of our employees are covered by collective bargaining agreements and we considerrelations with our employees to be good.Item 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 this AnnualReport on Form 10-K. Please review our legend titled “Forward-Looking Information” at the beginning of this Annual Report on Form 10-K which isincorporated herein by reference. Because of the following factors, as well as other variables affecting our operating results, past financial performanceshould not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in futureperiods. The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currentlydeem immaterial also affect our results of operations and financial condition.Risks Relating to Our BusinessMost of our product candidates are at an early stage of development and may never receive regulatory approval.With the exception of eteplirsen, which is being studied in several studies, including a confirmatory clinical trial, our product candidates are inrelatively early stages of development. These product candidates will require significant further development, financial resources and personnel to developinto commercially viable products and obtain regulatory approval, if at all. Currently, eteplirsen in DMD and AVI-7100 in influenza are in active clinicaldevelopment. We have begun a Phase I clinical trial to study an exon 53 skipping product candidate in the European Union. We now have an open IND forour exon 45 skipping product candidate and plan to begin a clinical study of exon 53 and exon 45 this year. AVI-7537 in Ebola and AVI-7288 in Marburgwere being developed through a program with the DoD and further development is conditioned in part on obtaining additional funding, collaborations oremergency use. Our other product candidates are in preclinical development or inactive. We expect that much of our effort and many of our expenditures overthe next several years will be devoted to clinical development and regulatory activities associated with eteplirsen and other exon-skipping candidates as partof our larger pan-exon strategy in DMD, our infectious disease candidates, our proprietary chemistry, and other potential therapeutic areas that provide long-term market opportunities. We may be delayed, -27-Table of Contentsrestricted, or unable to further develop our active and other product candidates and successfully obtain approvals needed to market them.Our RNA-targeted antisense technology has not been incorporated into a therapeutic commercial product and is still at a relatively early stage ofdevelopment.Our RNA-targeted platforms, utilizing proprietary PMO-based technology, have not been incorporated into a therapeutic commercial product and arestill at a relatively early stage of development. This technology is used in all of our product candidates, including eteplirsen. Although we have conductedclinical studies with eteplirsen and preclinical studies with our other product candidates that use our PMO-based antisense technology, additional studiesmay be needed to determine the safety and efficacy of our PMO-based antisense technology. In addition, nonclinical models used to evaluate the activity andtoxicity of product candidate compounds are not necessarily predictive of toxicity or efficacy of these compounds in the treatment of human disease. Assuch, there may be substantially different results observed in clinical trials from those observed in preclinical studies. Any failures or setbacks in developingor utilizing our PMO-based technology, including adverse effects in humans, could have a detrimental impact on our product candidate pipeline and ourability to maintain and/or enter into new corporate collaborations regarding these technologies, which would negatively affect our business and financialposition.We have been granted orphan designations in the U.S. and in the E.U. for certain of our product candidates, however, there can be no guarantee that wewill maintain orphan status for these product candidates nor that we will be able to be granted orphan product status at the time of approval and henceprevent third parties from developing and commercializing products that are competitive to these product candidates in the absence of other barriers toentry.To date we have been granted orphan drug designation under the Orphan Drug Act by the FDA for two of our product candidates in DMD (includingeteplirsen), AVI-7537 for the treatment of Ebola virus and AVI-7288 for the treatment of the Marburg virus. Upon approval from the FDA of an NDA, productsgranted orphan drug status are generally provided with seven years of marketing exclusivity in the United States, meaning the FDA will generally notapprove applications for other product candidates for the same orphan indication that contain the same active ingredient. Even if we are the first to obtainapproval of an orphan product and are granted exclusivity in the United States, there are limited circumstances under which a later competitor product maybe approved for the same indication during the seven-year period of marketing exclusivity, such as if the later product is shown to be clinically superior toour product or due to an inability to assure a sufficient quantity of the orphan drug.We also have been granted orphan medicinal product designations in the European Union for two of our product candidates in DMD (includingeteplirsen). Product candidates granted orphan status in Europe can be provided with up to 10 years of marketing exclusivity, meaning that anotherapplication for marketing authorization of a later similar medicinal product for the same therapeutic indication will generally not be approved in Europe.Although we may have drug candidates that may obtain orphan drug exclusivity in Europe, the orphan status and associated exclusivity period may bemodified for several reasons, including a significant change to the orphan medicinal product designations or status criteria after market authorization of theorphan product (e.g., product profitability exceeds the criteria for orphan drug designation), problems with the production or supply of the orphan drug or acompetitor drug, although similar, is safer, more effective or otherwise clinically 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 are grantedorphan 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 status for any of our products, if granted or maintained, wouldprovide market exclusivity in the United States and the European Union for the time periods specified -28-Table of Contentsabove, we would not be able to exclude other companies from manufacturing and/or selling products using the same active ingredient for the same indicationbeyond the exclusivity period applicable to our product on the basis of orphan drug status. In addition, we cannot guarantee that another company will notreceive approval before we do of an orphan drug application in the United States or the European Union for a product candidate that has the same activeingredient or is a similar medicinal product for the same indication as any of our drug candidates for which we plan to file for orphan designation and status.If that were to happen, our orphan drug applications for our product candidate for that indication may not be approved until the competing company’s periodof exclusivity has expired in the United States or the European Union, as applicable. Moreover, we cannot guarantee that another company will not receiveapproval before we do to market a product candidate that is granted orphan drug status in the United States or the European Union for a product candidatethat has the same active ingredient or is a similar medicinal product for the same indication as any of our drug candidates for which we plan to file a new drugapplication or marketing authorization application. If that were to happen, any pending new drug application or marketing authorization application for ourproduct candidate for that indication may not be approved until the competing company’s period of exclusivity has expired in the United States or theEuropean Union, as applicable. Further, application of the orphan drug regulations in the United States and Europe is uncertain, and we cannot predict howthe respective regulatory bodies will interpret and apply the regulations to our or our competitors’ product candidates.Even if we receive regulatory approvals for any of our product candidates it is possible that they may not become commercially viable products.Even if a product candidate receives regulatory approval, the product may not gain market acceptance among physicians, patients, healthcare or third-party payers and the medical community which could limit commercialization of the product. Assuming that any of our product candidates receives therequired regulatory approvals, commercial success will depend on a number of factors, including but not limited to the following: • demonstration and/or confirmation 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 government payers such as the Medicare and Medicaid programs,managed care organizations and private health insurers; • the product’s potential advantage over alternative or competitive treatment methods; • whether the product can be manufactured in commercial quantities and at acceptable costs; • marketing and distribution support for the product; • any exclusivities or patent rights applicable to the product; • the market-size for the product which may be different than expected; and • our ability to achieve and sustain profitability, which may not occur if we are unable to develop and commercialize any of our productcandidates, development is delayed or sales revenue from any product candidate that receives marketing approval is insufficient.If there are significant delays in obtaining or we are unable to obtain or maintain required regulatory approvals, we will not be able to commercialize ourproduct candidates in a timely manner or at all, which would materially impair our ability to generate revenue and have a successful business.The research, testing, manufacturing, labeling, approval, commercialization, marketing, selling and distribution of drug products are subject toextensive regulation by applicable local, regional and national regulatory authorities and regulations may differ from jurisdiction to jurisdiction. In theUnited States, approvals and oversight from federal (e.g. FDA), state and other regulatory authorities are required for these activities. Sale and marketing ofour product candidates in the United States or other countries is not permitted until we obtain -29-Table of Contentsthe required approvals from the applicable regulatory authorities. Our ability to obtain the government or regulatory approvals required to commercialize anyof our product candidates, including eteplirsen, on an accelerated approval (e.g. under FDASIA) or any other basis, in any jurisdiction, including in theUnited States, cannot be assured, may be significantly delayed or may never be achieved for various reasons including the following: • Our preclinical, clinical, Chemistry, Manufacturing and Controls (“CMC”) and other data and analyses from past, current and future studies forany of our product candidates may not be sufficient to meet regulatory requirements for submissions, filings or approvals. The FDA coulddisagree with our beliefs, interpretations and conclusions regarding data prior to or as part of an NDA submission, including any of the additionalinformation and data we are currently collecting for eteplirsen, or other product candidates, and may delay, reject or refuse to file our plannedNDA submission until we meet their additional requirements, if ever. Even if we meet such requirements and our NDA is accepted for review orfiled, the FDA could still deny approval of eteplirsen, or other product candidates, based on their review of the data or other factors. • The regulatory approval process for product candidates targeting orphan diseases, such as DMD, that use new technologies and processes, suchas antisense oligonucleotide therapies, and novel surrogate endpoints, such as dystrophin measures, is uncertain due to the broad discretion ofregulatory authorities, lack of precedent, varying levels of applicable expertise of regulators or their advisory committees, scientificdevelopments, changes in the competitor landscape, shifting political priorities and changes in applicable laws, rules or regulations andinterpretations of the same. For example, it is unclear how the FDA will interpret and implement FDASIA provisions, in particular, in consideringwhat the appropriate regulatory approval pathway is for eteplirsen. We cannot be sure that any of our drug candidates will qualify for any ofthese 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. As a result of uncertainty in the approvalprocess, we may not be able to anticipate, prepare for or satisfy requests or requirements from regulatory authorities, including completing andsubmitting planned INDs and NDAs for our product candidates, in a timely manner, or at all. Examples of such requests or requirements couldinclude, but are not limited to, conducting additional or redesigned trials and procedures (e.g., additional patient muscle biopsies and dystrophinanalysis), repeating or completing additional analysis of our data, or providing additional supportive data. In addition, even if initially accepted,regulators may disagree with our data analysis, interpretations and conclusions at any point in the approval process. Furthermore, we arecurrently in the process of collecting additional eteplirsen data and analysis, some in direct response to FDA requests. For example, the FDA hasexpressed concerns with dystrophin as a surrogate endpoint and has requested an independent assessment of dystrophin positive fibers measuredin our eteplirsen Phase IIb study. The FDA has also requested matched natural history to better evaluate the ongoing clinical results of oureteplirsen 201/202 study. We plan to discuss these additional data with the FDA once collected and include them in our planned NDAsubmission. Material inconsistencies between our existing data and analysis and the new and additional data we are collecting, including theindependent assessment of dystrophin positive fibers, safety data, matched natural history and data from a fourth biopsy, could delay orotherwise negatively impact our planned eteplirsen NDA submission. Additionally, the FDA may determine, after evaluating the totality of ourexisting data and analysis, the additional data and analysis we are generating and any material inconsistencies between them that such data andanalysis do not support an NDA submission, filing or approval. • We may not have the resources required to meet regulatory requirements and successfully navigate what is generally a lengthy, expensive andextensive approval process for commercialization of drug product candidates. Responding to requests from regulators and meeting requirementsfor submissions, filings and approvals may require substantial personnel, financial or other resources, which, as a small pre-commercialbiopharmaceutical company, we may not be able to obtain in a timely manner or at all. In addition, our ability to respond to requests fromregulatory authorities that involve our agents, third-party vendors and associates may be complicated by our own limitations and those of theparties we -30-Table of Contents work with. For example, changes to CMC processes for the production of eteplirsen may require coordination with our third-party manufacturers,which may or may not be limited in their abilities to execute such regulatory requests. It may be difficult or impossible for us to conform toregulatory guidance or successfully execute our product development plans in response to regulatory guidance, including related to clinical trialdesign and the timing of NDA filings.Due to the above factors, among others, our product candidates could take a significantly longer time to gain regulatory approval than we expect, ormay never gain regulatory approval, which could delay or eliminate any potential commercialization or product revenue for us. Even if we are able to complywith all regulatory requests and requirements, the delays resulting from satisfying such requests and requirements, the cost of compliance, or the effect ofregulatory decisions (e.g., limiting labeling and indications requested by us for a product candidate) may no longer make commercialization of a productcandidate desirable for us from a business perspective, which could lead us to decide not to commercialize a product candidate.Even after approval and commercialization of a product candidate, we would remain subject to ongoing regulatory compliance and oversight tomaintain our approval. If we are not able to maintain regulatory compliance, we may be subject to civil and criminal penalties or we may not be permitted tocontinue marketing our products, which could have a material adverse effect on our financial condition and harm our competitive position in the marketplace.Our preclinical and clinical trials may fail to demonstrate acceptable levels of safety, efficacy, and quality of our product candidates, which could preventor significantly 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 maynot show sufficient safety, efficacy or adequate quality to obtain or maintain regulatory approvals. Furthermore, success in preclinical and early clinical trialsdoes not ensure that the subsequent trials we plan to conduct will be successful, nor does it predict final results of a confirmatory trial. If our study data do notconsistently or sufficiently demonstrate the safety or efficacy of any of our product candidates, the regulatory approvals for such product candidates could besignificantly delayed as we work to meet approval requirements, or, if we are not able to meet these requirements, such approvals could be withheld. Forexample, 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. Following completion ofthis study, we initiated Study 202, an ongoing open label extension study with the same participants from Study 201. These trials were initiated, in part, tofurther demonstrate efficacy and safety, including the production of dystrophin, and explore and identify a more consistently effective dose that may be moreappropriate for future clinical trials. While Studies 201 and 202 met their primary endpoints of dystrophin production based on the measurements taken atweeks 24 and 48, respectively, and six-minute walk test results reported for weeks 62, 74, 84, 96 and 120 supported stabilization of disease progression, wecannot provide assurances that data from the ongoing open label extension study will continue to be positive or consistent through the study periods. Forexample, on July 10, 2014, we announced the results for week 144 in Study 202, which showed a decline in walking ability at a rate slower than would beexpected based on available DMD natural history; however, the decline on the six-minute walk test from baseline, although in prior study results was below5%, was measured at approximately 8.5%. Additionally, on January 12, 2015, we announced results for week 168 in Study 202, which showed continuedambulation across all patients evaluable on the test, however all patients showed a decline in distance walked on this measure since the week 144 time point.If the data from the confirmatory studies for eteplirsen do not produce the safety and efficacy data required by regulatory authorities for an NDA submission,filing or approval, we may need to continue working with the FDA on the design and subsequent execution of any further studies or analysis we plan toconduct or that may be required for the approval of eteplirsen or our other DMD product candidates. For example, in October 2014, we received meetingminutes from a Type B Pre-NDA meeting that took place in September 2014 in which the FDA provided updated guidance regarding the information to beprovided as part of, or at the time of, our planned NDA submission for eteplirsen. The guidance stated that the FDA was requiring additional data as part ofthe -31-Table of ContentsNDA submission, including the results from an independent assessment of dystrophin images and the 168 week clinical data from Study 202. Additionally,the guidance requested more specific data, such as a minimum duration of safety in new patients exposed to eteplirsen, patient-level natural history data to beobtained by us from independent academic institutions and MRI data from a recent study conducted by an independent group. The FDA also indicated thatfurther discussion would be needed to determine what would constitute a complete NDA submission. The results of the additional data we are collecting inresponse to the FDA’s request may not be consistent with prior results or may not support our planned NDA submission.We currently rely on third parties in the manufacturing process to produce our product candidates and our dependence on these parties, or our inability toengage third parties to meet manufacturing needs for large-scale clinical trials or potential commercial needs within sufficient timelines, may impair theadvancement of our research and development programs and potential commercialization of our product candidates.We do not currently have the internal ability to undertake the manufacturing process for our product candidates in the quantities needed to conductour research and development programs, supply clinical trials or meet commercial demand. We therefore rely on, and expect for the foreseeable future tocontinue relying on, a limited number of third parties to manufacture and supply materials (including raw materials and subunits), drug substance (“API”) anddrug product, as well as to perform additional steps in the manufacturing process, such as the filling and labeling of vials and storage of our productcandidates. There are a limited number of third parties with facilities and capabilities suited for the manufacturing process of our product candidates whichcreates a heightened risk that we may not be able to obtain materials and APIs in the quantity and purity that we require. Any interruption of the developmentor operation of those facilities due to, among other reasons, events such as order delays for equipment or materials, equipment malfunction, quality controland quality assurance issues, regulatory delays and possible negative effects of such delays on supply chains and expected timelines for product availability,production yield issues, shortages of qualified personnel, discontinuation of a facility or business or failure or damage to a facility by natural disasters, couldresult in the cancellation of shipments, loss of product in the manufacturing process or a shortfall in available product candidates or materials.If these third parties were to cease providing quality manufacturing and related services to us, and we are not able to engage appropriate replacementsin a timely manner, our ability to have our product candidates manufactured in sufficient quality and quantities required for planned preclinical testing,clinical trials and potential commercial use would be adversely affected.We have not engaged or contracted with all the third parties needed for the production of materials and APIs for any of our product candidates,including eteplirsen, in quantities sufficient for their potential commercial demand or for multiple large-scale clinical trials. In light of the limited number ofthird parties with the expertise to produce our product candidates, and the underlying materials, we may not be able to, in a timely manner or at all, establishor maintain sufficient commercial manufacturing arrangements on the commercially reasonable terms necessary to provide adequate supply of our productcandidates. Further, we may not be able to obtain the significant financial capital that may be required in connection with such arrangements. Even aftersuccessfully engaging third parties to execute the manufacturing process for our product candidates, such parties may not comply with the terms andtimelines they have agreed to for various reasons, some of which may be out of their or our control, which could impact our ability to execute our businessplans on expected or required timelines in connection with the regulatory approval process and potential commercialization. We may also be required toenter into long-term manufacturing agreements that contain exclusivity provisions and/or substantial termination penalties which could have a materialadverse effect on our business prior to and after commercialization of any of our product candidates.The manufacturing process for our product candidates may fail to comply with cGMP standards.Our contract manufacturers are required to produce our materials, APIs and drug products under current cGMP standards. We and our contractmanufacturers are subject to periodic unannounced inspections by the FDA and corresponding state and foreign authorities to ensure strict compliance withcGMP and other applicable government regulations and corresponding foreign standards. We do not have control over a third-party -32-Table of Contentsmanufacturer’s compliance with these regulations and standards. In addition, changes in cGMP standards could negatively impact the ability of our contractmanufacturers to complete the manufacturing process of our product candidates in a compliant manner on the schedule we require for clinical trials or forpotential commercial use. The failure to achieve and maintain high quality standards, including failure to detect or control anticipated or unanticipatedmanufacturing errors, could result in patient injury or death or product recalls. Any difficulties or delays in our contractors’ manufacturing and supply ofproduct candidates, or any failure of our contractors to maintain compliance with the applicable regulations and standards could increase our costs, make uspostpone or cancel clinical trials, prevent or delay regulatory approvals by the FDA and corresponding state and foreign authorities, prevent the importand/or export of our products, cause us to lose revenue, result in the termination of the development of a product candidate, or have our product candidatesrecalled or withdrawn from use.We may not be able to successfully scale up manufacturing of our product candidates in sufficient quality and quantity or within sufficient timelines, or beable to secure ownership of intellectual property rights developed in this process, which could delay or prevent us from developing or commercializing ourproduct candidates.To date, our product candidates have been manufactured in small quantities for preclinical studies and early stage clinical trials. As we prepare forlarger and later stage clinical trials for our product candidates, including eteplirsen, and potential commercialization, we are working to increase themanufacturing capacity and scale up production of some of the components of our drug products. During 2015, we will continue to increase material and APIproduction capacity to provide the drug product needed for additional eteplirsen trials and studies for our other product candidates (including a placebo-controlled study planned for one or more of our follow-on exon product candidates) and any planned subsequent commercialization, on an accelerated orother pathway. We may not be able to successfully increase manufacturing capacity or scale up the production of materials, APIs and drug products, whetherin collaboration with third-party manufacturers or on our own, in a manner that is safe, compliant with cGMP conditions or other applicable legal orregulatory standards or is cost-effective, or in a time frame required to meet our timelines for clinical trials, potential commercialization and other businessplans, or at all. cGMP and other quality issues may arise during our efforts to increase manufacturing capacity and scale up production with our current or anynew contract manufacturers. These issues may arise in connection with the underlying materials, the inherent properties of a product candidate itself or theproduct candidate in combination with other components added during the manufacturing and packaging process or during shipping and storage of the APIsor finished drug product. In addition, in order to release product and demonstrate stability of product candidates for use in late stage clinical trials (and anysubsequent drug products for commercial use), our analytical methods must be validated in accordance with regulatory guidelines. We may not be able tosuccessfully validate, or maintain validation of, our analytical methods or demonstrate adequate purity, stability or comparability of the product candidatesin a timely or cost-effective manner, or at all. If we are unable to successfully validate our analytical methods or to demonstrate adequate purity, stability orcomparability, the development of our product candidates and regulatory approval or commercial launch for any resulting drug products may be delayed,which could significantly harm our business.During work with our third-party manufacturers to increase manufacturing capacity and scale up production, it is possible that they could makeimprovements in the manufacturing and scale-up processes for our product candidates. We may not own or be able to secure ownership of such improvementsor may have to share the intellectual property rights to those improvements. Additionally, it is possible that we will need additional processes, technologiesand validation studies, which could be costly and which we may not be able to develop or acquire from third parties. Any failure to secure the intellectualrights required for the manufacturing process needed for large-scale clinical trials or commercialization of our product candidates could cause significantdelays in our business plans or could prevent commercialization of our product candidates.We are currently winding down our expired U.S. government contract and further development of Ebola and Marburg product candidates may be limitedby our ability to obtain additional funding for these programs and by the intellectual property and other rights retained by the U.S. government.We have historically relied on U.S. government contracts and awards to fund and support certain development programs, including our Ebola andMarburg programs. The July 2010 DoD contract providing -33-Table of Contentsfunds for our Marburg program expired in July 2014, and the Ebola portion of the contract was previously terminated by the DoD in 2012. We are currentlyinvolved in contract wind-down activities and may be subject to additional government audits prior to collecting final cost reimbursements and fees owed bythe government. If we are not able to complete such audits and other government requirements successfully, the government may withhold some or all of thecurrently outstanding amounts owed to us.We are currently exploring and evaluating options to continue advancing the development of our Ebola and Marburg product candidates, which mayor may not include funding through U.S. government programs. As a result of government budgetary cuts, appropriations and sequestration, among otherreasons, the viability of the government and its agencies as a partner for further development of our Ebola and Marburg programs, or other programs, isuncertain. The options for us to further develop product candidates that were previously developed under contracts with the U.S. government with thirdparties may be limited or difficult in certain respects given that, after termination or expiration of a U.S. government contract, the government has broadlicense rights in intellectual property developed under such contract. Therefore, the U.S. government may have the right to develop all or some parts ofproduct candidates we have developed under a U.S. government contract after such contract has terminated or expired.We may not be able to successfully conduct clinical trials due to various process-related factors which could negatively impact our business plans.The successful start and completion of any of our clinical trials within time frames consistent with our business plans is dependent on various factors,which include, but are not limited to, our ability to: • recruit and retain employees, consultants or contractors with the required level of expertise; • recruit and retain sufficient patients needed to conduct a clinical trial: –Participant enrollment and retention is a function of many factors, including the size of the relevant population, the proximity ofparticipants to clinical sites, activities of patient advocacy groups, the eligibility criteria for the trial, the existence of competing clinicaltrials, the availability of alternative or new treatments, side effects from the therapy, lack of efficacy, personal issues and ease ofparticipation; • timely and effectively contract with (under reasonable terms), manage and work with investigators, institutions, hospitals and the contractresearch organizations (“CROs”) involved in the clinical trial: –Negotiating contracts and other related documents with clinical trial parties and iIRBs, such as informed consents, CRO agreements andsite agreements, can be subject to extensive negotiations that could cause significant delays in the clinical trial process. In addition,terms may vary significantly among different trial sites and CROs and may subject the Company to various risks; • ensure adherence to trial designs and protocols agreed upon and approved by regulatory authorities and applicable legal and regulatoryguidelines; • manage or resolve unforeseen adverse side effects during a clinical trial; • conduct the clinical trials in a cost effective manner, including managing foreign currency risk in clinical trials conducted in foreignjurisdictions and cost increases due to unforeseen or unexpected complications such as enrollment delays, or needing to outsource certainCompany functions during the clinical trial; and • execute clinical trial designs and protocols approved by regulatory authorities without deficiencies.If we are not able to manage the clinical trial process successfully, our business plans could be delayed or be rendered unfeasible for us to executewithin our planned or required time frames, or at all.We have incurred operating losses since our inception and we may not achieve or sustain profitability.We incurred an operating loss of $133.8 million for twelve months ended December 31, 2014. Our accumulated deficit was $679.0 million as ofDecember 31, 2014. Substantially all of our revenue to date has -34-Table of Contentsbeen derived from research and development contracts with the DoD, the last of which expired in July 2014. We have not yet generated any material revenuefrom product sales and have generally incurred expenses related to research and development of our technology and product candidates, from general andadministrative expenses that we have incurred while building our business infrastructure. We anticipate that our expenses will increase substantially if and aswe: • continue our research, preclinical and clinical development of our product candidates; • respond to and satisfy requests and requirements from regulatory authorities in connection with development and potential approval of ourproduct 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 including capital expenditures related to our real estate facilities and entering into manufacturingagreements; • 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 with third parties for one or more of ourprograms, complete development of our product candidates, obtain regulatory approvals and market our approved products, if any. It is uncertain when, ifever, we will become profitable and if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Ourfailure to become and remain profitable would decrease the value of the Company and could impair our ability to raise capital, maintain our research anddevelopment efforts, expand our business or continue our operations.We will need additional funds to conduct our planned research, development and manufacturing efforts. If we fail to attract significant capital or fail toenter 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 andto expand 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.These factors include the success of our research and development efforts, the status of our preclinical and clinical testing, costs and timing relating tosecuring regulatory 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 available, the financing terms will be commercially reasonable. If we are unable toobtain additional financing when and if we require it or on commercially reasonable terms, this would have a material adverse effect on our business andresults of operations. -35-Table of ContentsIf 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, on April 29, 2014, we sold 2,650,000 shares of ourcommon stock in an underwritten public offering at a price to the public of $38.00 per share. Debt financing, if available, may involve agreements thatinclude covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaringdividends.Further, we may also enter into relationships with pharmaceutical or biotechnology companies to perform research and development with respect to ourtechnologies, research programs, conduct clinical trials or market our product candidates. Other than preclinical collaborations with academic or researchinstitutions and government entities for the development of additional exon-skipping product candidates for the treatment of DMD and a product candidatefor the treatment of influenza, we currently do not have a strategic relationship with a third party to perform research or development using our technologiesor assist us in funding the continued development and commercialization of any of our programs or product candidates. If we were to have such a strategicrelationship, such third party may require us to relinquish valuable rights to our technologies, future revenue streams, research programs or productcandidates, or to grant licenses on terms that may not be favorable to us.The estimates and judgments we make, or the assumptions on which we rely, in preparing our consolidated financial statements could prove inaccurate.Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. Thepreparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities,revenues and expenses, the amounts of charges accrued by us and related disclosure of contingent assets and liabilities. Such estimates and judgmentsinclude those related to revenue recognition, accrued expenses, assumptions in the valuation of stock-based compensation and accounting for and valuationof liability classified warrants. We base our estimates on historical experience, facts and circumstances known to us and on various other assumptions that webelieve to be reasonable under the circumstances. We cannot provide assurances, however, that our estimates, or the assumptions underlying them, will notchange over time or otherwise prove inaccurate. If this is the case, we may be required to restate our consolidated financial statements, which could in turnsubject us to securities class action litigation. Defending against such potential litigation relating to a restatement of our consolidated financial statementswould be expensive and would require significant attention and resources of our management. Moreover, our insurance to cover our obligations with respectto the ultimate resolution of any such litigation may be inadequate. As a result of these factors, any such potential litigation could have a material adverseeffect on our financial results and cause our stock price to decline, which could in turn subject us to securities class action litigation.Our ability to use net operating loss carryforwards and other tax attributes to offset future taxable income may be limited as a result of future transactionsinvolving our common stock.In general, under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an ‘‘ownership change’’ is subject tolimitations on its ability to utilize its pre-change net operating losses and certain other tax assets to offset future taxable income. In general, an ownershipchange occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowestpercentage ownership during the testing period, which is generally three years. An ownership change could limit our ability to utilize our net operating lossand tax credit carryforwards for taxable years including or following such “ownership change.” Limitations imposed on the ability to use net operating lossesand tax credits to offset future taxable income could require us to pay U.S. federal income taxes earlier than we estimated than would have otherwise beenrequired if such limitations were not in effect and could cause -36-Table of Contentssuch net operating losses and tax credits to expire unused, in each case reducing or eliminating the benefit of such net operating losses and tax credits andpotentially adversely affecting our financial position. Similar rules and limitations may apply for state income tax purposes.We rely on third parties to provide services in connection with our preclinical and clinical development programs. The inadequate performance by or lossof 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, 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, ourdevelopment programs may be delayed.If we fail to retain our key personnel or are unable to attract and retain additional qualified personnel, our future growth and our ability to compete wouldsuffer.We are highly dependent on the efforts and abilities of the principal members of our senior management. Additionally, we have scientific personnelwith significant and unique expertise in RNA-targeted therapeutics and related technologies. The loss of the services of any one of the principal members ofour managerial team or staff may prevent us from achieving our business objectives.The competition for qualified personnel in the biotechnology field is intense, and our future success depends upon our ability to attract, retain andmotivate such personnel. In order to develop and commercialize our products successfully, we will be required to retain key management and scientificemployees. In certain instances, we may also need to expand or replace our workforce and our management ranks. In addition, we rely on certain consultantsand advisors, including scientific and clinical advisors, to assist us in the formulation and advancement of our research and development programs. Ourconsultants and advisors may be employed by other entities or have commitments under consulting or advisory contracts with third parties that limit theiravailability to us, or both. If we are unable to attract, assimilate or retain such key personnel, our ability to advance our programs would be adversely affected.If we are unable to effectively manage our growth, execute our business strategy and implement compliance controls and systems, the trading price of ourcommon stock could decline. Any failure to establish and maintain effective internal control over financial reporting could adversely affect investorconfidence in our reported financial information.We anticipate continued growth in our business operations due, in part, to advancing our product candidates. This future growth could create a strainon our organizational, administrative and operational infrastructure. Our ability to manage our growth properly and maintain compliance with all applicablerules and regulations will require us to continue to improve our operational, legal, financial and management controls, as well as our reporting systems andprocedures. We may not be able to build the management and human resources and infrastructure necessary to support the growth of our business. The timeand resources required to implement systems and infrastructure that may be needed to support our growth is uncertain, and failure to completeimplementation in a timely and efficient manner could adversely affect our operations.For example, although there was no material error in our consolidated financial statements, in connection with our assessment of the effectiveness ofinternal control over financial reporting as of December 31, 2013, our management identified a material weakness in our internal control over financialreporting. We designed and implemented controls to address the material weakness that was identified. However, we cannot provide assurances that materialweaknesses in our internal control over financial reporting will not be identified in the -37-Table of Contentsfuture. Any failure to maintain or implement new or improved internal controls, or any difficulties that we may encounter in their maintenance orimplementation, could result in additional material weaknesses or material misstatements in our consolidated financial statements and cause us to fail to meetour 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 efficientmanner could adversely affect our operations.We may engage in future acquisitions or collaborations with other entities that increase our capital requirements, dilute our stockholders, cause us toincur 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 abilityto maintain key business relationships of the acquired entities. In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incurdebt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense.Our success, competitive position and future revenue, if any, depend in part on our ability and the abilities of our licensors to obtain and maintain patentprotection for our technologies and product candidates, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights andto 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 casein the United States as well as rights under European patents and patent applications. We anticipate filing additional patent applications both in the UnitedStates and 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. Even when our patent claims are allowed, the claims maynot issue, or in the event of issuance, may not be sufficient to protect the technology owned by or licensed to us or our collaborators. Even if our patents andpatent applications do provide our product candidates and platform technology with a basis for exclusivity, we and our collaborators may not be able todevelop or commercialize such product candidates or platform technology due to patent positions held by a third party.We may not be able to obtain and maintain patent protection for our product candidates necessary to prevent competitors from commercializingcompeting product candidates. Our patent rights might be challenged, invalidated, circumvented or otherwise might not provide any competitive advantage,and we might not be successful in challenging the patent rights of our competitors through litigation or administrative proceedings. For example, in July2014, the Patent Trial and Appeal Board (the “PTAB”) of the USPTO declared patent interferences between certain patents held by Sarepta (under licensefrom the University of Western Australia, “UWA”) and patent applications held by Prosensa (under license from Academisch Ziekenhuis Leiden, “AZL”)related to exon 51 and exon 53 skipping therapies designed to treat DMD. In particular, the PTAB declared Interference No. 106,008, which identifiesSarepta’s/UWA’s U.S. Patent Nos. 7,807,816 and 7,960,541, both covering eteplirsen, as interfering with Prosensa’s/AZL’s U.S. Application No. 13/550,210.The PTAB also declared Interference No. 106,007, which identifies Sarepta’s/UWA’s U.S. Patent No. 8,455,636, covering SRP-4053, as interfering withProsensa’s/AZL’s U.S. Application No. 11/233,495. In September 2014, the PTAB declared a third patent interference relating to certain methods concerningthe exon 51 skipping therapies that are -38-Table of Contentsthe subject of Interference No. 106,008. In particular, the PTAB declared Interference No. 106,013, which identifies Sarepta’s/UWA’s U.S. PatentNo. 8,486,907, which covers certain methods of using eteplirsen, as interfering with Prosensa’s/AZL’s U.S. Application No. 14/198,992. In addition, in aSeptember 2014 Order in Interference No. 106,007, the PTAB authorized us to file a motion with the PTAB, which we filed in November 2014, requesting thedeclaration of a fourth interference relating to certain methods concerning the exon 53 skipping therapies that are the subject of Interference No. 106,007,including SRP-4053, and between Sarepta’s/UWA’s U.S. Patent No. 8,455,636 and Prosensa’s/AZL’s U.S. Application No. 14/248,279. If final resolution ofthe interferences and related appeals, if any, are not in our favor, then the Sarepta/UWA patents and any other Sarepta patents or applications also found to beinterfering may be invalidated, and as a result, we may not have any patent-based exclusivity available for our product candidates, which may have a materialnegative impact on our business plans. In addition, if final resolution of the interferences and related appeals, if any, are not in our favor, then the USPTO mayissue the Prosensa/AZL patent applications resulting in the grant of one or more patents that may provide a basis for Prosensa to allege that our drugcandidates, eteplirsen and/or SRP-4053, infringe such patents. These interferences may require significant financial resources that we may have planned tospend on other Company objectives, resulting in delays or other negative impacts on such other objectives. In addition, Prosensa may continue to evaluateother opportunities to challenge our intellectual property rights or seek to broaden their patent positions in an attempt to cover our product candidates in theUnited States and in other jurisdictions. We are also aware of certain pending and granted claims that have been issued to Prosensa in Japan and certain othercountries outside of Europe and the United States that may provide the basis for Prosensa or other parties to assert that eteplirsen infringes on such claims.Because we have not yet initiated an invalidation proceeding in Japan, the outcome and timing of any such proceeding cannot be predicted or determined asof the date of this report.As a matter of public policy, there might be significant pressure on governmental bodies to limit the scope of patent protection or impose compulsorylicenses for disease treatments that prove successful. Additionally, jurisdictions other than the United States might have less restrictive patent laws than theUnited States, giving foreign competitors the ability to exploit these laws to create, develop and market competing products. The USPTO and patent officesin other jurisdictions have often required that patent applications concerning pharmaceutical and/or biotechnology-related inventions be limited or narrowedsubstantially to cover only the specific innovations exemplified in the patent application, thereby limiting the scope of protection against competitivechallenges. Accordingly, even if we or our licensors are able to obtain 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 patentlitigation. The USPTO has issued regulations and procedures to govern administration of the Leahy-Smith Act, but many of the substantive changes to patentlaw associated with the Leahy-Smith Act have only recently become effective. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will haveon the operation of our business. However, the Leahy-Smith Act and its implementation 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.The full impact of several recent U.S. Supreme Court decisions relating to patent law is 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 measuring drugmetabolite levels from patient samples and correlating them to drug doses were not patentable subject matter. The decision appears to impact diagnosticspatents that merely apply a law of nature via a series of routine steps and it has created uncertainty around the ability to patent certain biomarker-relatedmethod claims. Additionally, on June 13, 2013, in Association for Molecular Pathology v. Myriad Genetics, Inc., the Court held that claims to isolatedgenomic DNA are not patentable, but claims to complementary DNA molecules were held to be valid. The effect of the -39-Table of Contentsdecision on patents for other isolated natural products is uncertain and, as with the Leahy-Smith Act, these decisions could increase the uncertainties andcosts surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverseeffect on our business and financial condition.Our business prospects will be impaired if third parties successfully assert that our product candidates or technologies infringe proprietary rights of suchthird parties.Our competitors may make significant investments in competing technologies, and might have or obtain patents that limit, interfere with or eliminateour ability 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 diversionof financial and management resources.Any of these events could substantially harm our potential earnings, financial condition and operations. Prosensa, which is developing competitivepipeline products, has rights to patent claims that, absent a license, may preclude us from commercializing eteplirsen in several jurisdictions. Prosensa hasrights to European Patent No. EP 1619249, for example. We opposed this patent in the Opposition Division of the European Patent Office (“EPO”), and theOpposition Division maintained certain claims of this patent relating to the treatment of DMD by skipping dystrophin exons 51 and 46, which may provide abasis to maintain that commercialization of eteplirsen in Europe would infringe on such patent. Both we and Prosensa have appealed the Opposition Divisiondecision, submitted briefs in support of our respective positions and have also submitted responses to each other’s briefs. Prosensa recently filed argumentswith the EPO in response to Sarepta’s previously filed briefs. The Opposition Division decision, if maintained at the appeals level, could have a substantialeffect on our business and leaves open the possibility that Prosensa or other parties that have rights to such patent could assert that our drug candidate,eteplirsen, infringes on such patent. The timing and outcome of appeal cannot be predicted or determined as of the date of this report. If as part of any appealin 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 existing patent claims Prosensa is pursuing in the United States, including those involved in the interferences declared by theUSPTO in July 2014 and September 2014 and discussed in these risk factors, and others that it has or is pursuing in other countries, that where granted mayprovide the basis for Prosensa or other parties to assert that commercialization of eteplirsen and certain other of our product candidates would infringe onsuch claims.The DMD patent landscape is continually evolving and multiple parties, including both commercial entities and academic institutions, may haverights to claims or may be pursuing additional claims that could provide these parties a basis to assert that our product candidates infringe on the intellectualproperty rights of such parties. Similarly, we may be able to assert that certain activities engaged in by these parties infringe on our -40-Table of Contentscurrent or future patent rights. There has been, and we believe that there will continue to be, significant litigation in the biopharmaceutical andpharmaceutical industries regarding patent and other intellectual property rights. We also cannot be certain that other third parties will not assert patentinfringement in the future with respect to any of our development programs.We face intense competition and rapid technological change, which may result in others discovering, developing or commercializing competitive products.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, webelieve that companies including Alnylam Pharmaceuticals, Inc., Isis Pharmaceuticals, Inc., SantarisPharma A/S and Nippon Shinyaku Co. Ltd. share a focuson RNA-targeted drug discovery and development. Competitors with respect to our exon-skipping DMD program, or eteplirsen, include Prosensa, NipponShinyaku and Daiichi Sankyo; and other companies such as PTC Therapeutics and Summit plc have also been working on DMD programs.Although Prosensa/GlaxoSmithKline plc announced in 2013 that the primary endpoint for their lead DMD drug candidate was not met, we may stillface competitive risks arising from the Prosensa exon skipping platform and product candidate pipeline, which may include limitations on our ability to gainmarket share in the 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,among other 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 product liability 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, expanded access programs, the sale of any products in the future, or the use of our products under emergency use vehiclesmay expose us to liability claims inherent to the manufacture, clinical testing, marketing and sale of medical products. These claims might be made directlyby consumers or healthcare providers or indirectly by pharmaceutical companies, -41-Table of Contentsour collaborators or others selling such products. Regardless of merit or eventual outcome, we may experience financial losses in the future due to suchproduct liability claims. We have obtained limited general commercial liability insurance coverage for our clinical trials. We intend to expand our insurancecoverage to include the sale of commercial products if we obtain marketing approval for any of our product candidates. However, we may not be able tomaintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against all losses. If a successful product liability claim or series ofclaims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our businessoperations could be impaired.Our operations involve the use of hazardous materials, and we must comply with environmental laws, which can be expensive, and may affect our businessand operating results.Our research and development activities involve the use of hazardous materials, including organic and inorganic solvents and reagents. Accordingly,we are subject to federal, state and local laws and regulations governing the use, storage, handling, manufacturing, exposure to and disposal of thesehazardous materials. In addition, we are subject to environmental, health and workplace safety laws and regulations, including those governing laboratoryprocedures, exposure to blood-borne pathogens and the handling of bio-hazardous materials. Although we believe that our activities conform in all materialrespects with such 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,equipment failure or other causes. Liability under environmental, health and safety laws can be joint and several and without regard to fault or negligence.The failure to comply with past, present or future laws could result in the imposition of substantial fines and penalties, remediation costs, property damageand personal injury claims, loss of permits or a cessation of operations, and any of these events could harm our business and financial condition. We expectthat our operations will be affected by other new environmental, health and workplace safety laws on an ongoing basis, and although we cannot predict theultimate impact 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 wereto result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur a liabilityand our 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 lawsuits and other disputes such as securities claims,intellectual property challenges, including interferences declared by the USPTO, and employee matters. It is possible that we may not prevail in claims madeagainst us in such disputes even after expending significant amounts of money and company resources in defending our positions in such lawsuits anddisputes. The outcome of such lawsuits and disputes is inherently uncertain and may have a negative impact on our business, financial condition and resultsof operations. -42-Table of ContentsRisks 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, has been historically volatile.Historically, our stock has had significant swings in trading prices, in particular in connection with our public communications regarding feedback receivedfrom regulatory authorities. For example, over the past year, in a single day, our stock has increased as much as 64% in a single day or decreased as much as39% in a single day. The market has from time to time experienced significant price and volume fluctuations unrelated to the operating performance ofparticular companies. The market price of our common stock may fluctuate significantly due to a variety of factors, including but not limited to: • the timing of our submissions to regulatory authorities and regulatory decisions and developments including any potential decision by the FDAto review eteplirsen on an expedited or normal pathway, if at all; • positive or negative results from or regulatory interpretations of testing and clinical trials by ourselves, strategic partners, our competitors orother companies 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 candidatesor entry 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 applicable government regulations or regulatory requirements in the approval process; • developments concerning proprietary rights, including patents and patent litigation matters, such as developments in the interferences declaredby the USPTO; • public concern relating to the commercial value, efficacy 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; • developments in litigation such as the stockholder lawsuits against us; 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 a company’s 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 and preventor 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; -43-Table of Contents • directors may only be removed for cause by the affirmative vote of majority of the voting power of all the then-outstanding shares of votingstock; • 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; • 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. Our operating results may fluctuatedue to the variable nature of our revenue and research and development expenses. Likewise, our research and development expenses may experiencefluctuations 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 we expect to issue additional stock awardsand shares of common stock in the future. Exercise of these awards and sales of shares will dilute the interests of existing security holders and may depressthe price of our common stock.As of December 31, 2014, there were 41.3 million shares of common stock outstanding and outstanding awards to purchase 5.3 million shares ofcommon stock under various incentive stock plans. Additionally, as of December 31, 2014, there were 1.8 million shares of common stock available forfuture issuance under our Amended and Restated 2011 Equity Incentive Plan, 0.2 million shares of common stock available for issuance under our 2013Employee Stock Purchase Plan and 0.6 million shares of common stock available for issuance under our 2014 Employment Commencement Incentive Plan.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. -44-Table of ContentsItem 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 Cambridge,Massachusetts, Andover, Massachusetts and Corvallis, Oregon are suitable and will provide sufficient capacity to meet the projected needs of our business forthe 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, Cambridge, MA 02142 88,329 January –February 2021 Laboratory and office space Corporateheadquarters100 Federal Street, Andover, MA 60,000 N/A – facilityis owned Manufacturing and officespace Primarilymanufacturingspace**4575 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. (“Perpetua”), agreed to lease approximately 25,000 square feet of thebuilding until March 2017. Perpetua has the option to extend the lease for an additional year if notice is provided no less than 12 months prior to theexpiration date. Perpetua also has a right of first refusal relating to the lease of the remaining space at the building and was granted an option topurchase the building during the term of the lease, provided there is no uncured default by Perpetua at the time of exercise. If the purchase option isexercised, the price for the building is $2.0 million until February 2015, $2.1 from March 2015 until February 2016 and $2.2 million from March 2016through the remainder of the initial lease term. If Perpetua exercises its extension option, the purchase price will be $2.3 million during the term of theextension.**Currently, this facility is not ready for use in a manufacturing capacity.Item 3. Legal Proceedings.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, includingmatters involving securities, employment, intellectual property, effects from the use of therapeutics utilizing its technology, or others. For example, purportedclass action complaints were filed against the Company and certain of its officers in the U.S. District Court for the District of Massachusetts on January 27,2014 and January 29, 2014. The complaints were consolidated into a single action (Corban v. Sarepta, et. al., No. 14-cv-10201) by order of the court onJune 23, 2014, and plaintiffs were afforded 28 days to file a consolidated amended complaint. Plaintiffs’ consolidated amended complaint, filed on July 21,2014, seeks to bring claims on behalf of themselves and persons or entities that purchased or acquired securities of the Company between July 10, 2013 andNovember 11, 2013. The consolidated amended complaint alleges that Sarepta and certain of its officers violated the federal securities laws in connectionwith disclosures related to eteplirsen, the Company’s lead therapeutic candidate for DMD, and seeks damages in an unspecified amount. -45-Table of ContentsPursuant to the court’s June 23, 2014 order, Sarepta filed a motion to dismiss the consolidated amended complaint on August 18, 2014, which remainspending. In addition, another complaint was filed in the U.S. District Court for the District of Massachusetts on December 3, 2014 by William Kader,Individually and on Behalf of All Others Similarly Situated v. Sarepta Therapeutics Inc., Chris Garabedian, and Sandy Mahatme, 1:14-cv-14318, assertingviolations of Section 10(b) of the Exchange Act and SEC Rule 10b-5 against the Company, and Chris Garabedian and Sandy Mahatme. Plaintiff alleges thatthe defendants made material misrepresentations or omissions during the putative class period of April 21, 2014 through October 27, 2014, regarding thesufficiency of the Company’s data for submission of an new drug application for eteplirsen and the likelihood of the FDA accepting a new drug applicationbased on that data. Plaintiff seeks compensatory damages and fees. The Company received service of the complaint on January 5, 2015. Sarepta will move todismiss the complaint. Additionally, on September 23, 2014, a derivative suit was filed against the Company’s Board of Directors with the Court of Chanceryof the State of Delaware (Terry McDonald, derivatively on behalf of Sarepta Therapeutics, Inc., et. al vs. Goolsbee et. al., No. 10157). The claims allege,among other things, that (i) the Company’s non-employee directors paid themselves excessive compensation fees for 2013, (ii) that the compensation for theCompany’s CEO was also excessive and such fees were the basis for the CEO not objecting to or stopping the excessive fees for the non-employee directorsand (iii) that the disclosure in the 2013 proxy statement was deficient. The relief sought, among others, are disgorgement and rescindment of excessive orunfair payments and equity grants to the CEO and directors, unspecified damages plus interest, a class action declaration for the suit, declaring approval ofthe Company’s Amended and Restated 2011 Equity Plan at the 2013 meeting ineffective and a revote for approved amendments, correction of misleadingdisclosures and plaintiff’s attorney fees.Item 4. Mine Safety Disclosures.Not applicable. -46-Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Market InformationOur Common Stock is quoted on The NASDAQ Global Select Market under the symbol “SRPT.” Prior to January 2, 2014, our Common Stock wasquoted on The NASDAQ Global Market. The following table sets forth the high and low intraday sales prices as reported by The NASDAQ Global SelectMarket for each quarterly period in the two most recent years, including the effect of the reverse stock split: High Low Year Ended December 31, 2014 First Quarter $31.28 $17.50 Second Quarter $40.00 $20.89 Third Quarter $31.35 $18.59 Fourth Quarter $24.95 $12.58 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 23, 2015, we had 193 stockholders of record of our common stock.DividendsWe did not declare or pay cash dividends on our common stock in 2014, 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 relatedto our dividend policy will be made at the discretion of our board of directors. -47-Table of ContentsPerformance GraphThe following graph compares the performance of our Common Stock for the periods indicated with the performance of the NASDAQ CompositeIndex, NASDAQ Biotechnology Index and the NYSE ARCA Biotechnology Index. This graph assumes an investment of $100 on December 31, 2009 in eachof our common stock, the NASDAQ Composite Index, NASDAQ Biotechnology Index and the NYSE ARCA Biotechnology Index, and assumes reinvestmentof dividends, if any. The stock price performance shown on the graph below is not necessarily indicative of future stock price performance. This graph is not“soliciting material,” is not deemed “filed” with the U.S. Securities and Exchange Commission and is not to be incorporated by reference into any of ourfilings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof andirrespective of any general incorporation language in any such filing. Recent Sales of Unregistered Securities.None.Purchases of Equity Securities by the Issuer and Affiliated Purchasers.None. -48-Table of ContentsItem 6. Selected Financial Data.The following selected financial data is derived from our consolidated financial statements and should be read in conjunction with, and is qualified inits entirety by, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements andSupplementary Data. For the Year Ended December 31, 2014 2013 2012 2011 2010 (in thousands, except per share amounts) Operations data: Revenue $9,757 $14,219 $37,329 $46,990 $29,420 Research and development 94,231 72,909 52,402 66,862 35,972 General and administrative 49,315 31,594 14,630 16,055 14,382 Operating loss (133,789) (90,284) (29,703) (35,927) (20,934)Interest income and other, net 779 326 354 587 259 (Loss) gain on change in warrant valuation (2,779) (22,027) (91,938) 33,022 (11,502)Net loss $(135,789) $(111,985) $(121,287) $(2,318) $(32,177)Net loss per share—basic and diluted $(3.39) $(3.31) $(5.14) $(0.11) $(1.74)Balance sheet data: Cash and cash equivalents $73,551 $256,965 $187,661 $39,904 $33,589 Working capital 210,929 234,840 115,022 24,583 (8,019)Total assets 295,033 291,569 204,993 54,368 45,976 Stockholders’ equity (deficit) 247,653 247,192 123,679 31,017 (2,817) -49-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 statements thatinvolve risks and uncertainties. Please review our legend titled “Forward-Looking Information” at the beginning of this Annual Report on Form 10-Kwhich is incorporated herein by reference. Our actual results could differ materially from those discussed below. Factors that could cause or contribute tosuch differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in thisAnnual Report on Form 10-K. Throughout this discussion, unless the context specifies or implies otherwise, the terms “Sarepta”, “we”, “us” and “our” referto Sarepta Therapeutics, Inc. and its subsidiaries.OverviewWe are a biopharmaceutical company focused on the discovery and development of unique RNA-targeted therapeutics for the treatment of rare,infectious and other diseases. Applying our proprietary, highly-differentiated and innovative platform technologies, we are able to target a broad range ofdiseases and disorders through distinct RNA-targeted mechanisms of action. We are primarily focused on rapidly advancing the development of ourpotentially disease-modifying Duchenne muscular dystrophy (“DMD”) drug candidates, including our lead DMD product candidate, eteplirsen, designed toskip exon 51. We are also developing therapeutics using our technology for the treatment of drug resistant bacteria and infectious, rare and other humandiseases.Our RNA-targeted technologies work at the most fundamental level of biology and potentially could have a meaningful impact across a broad range ofhuman diseases and disorders. Our lead program focuses on the development of disease-modifying therapeutic candidates for DMD, a rare genetic muscle-wasting disease caused by the absence of dystrophin, a protein necessary for muscle function. Currently, there are no approved disease-modifying therapiesfor DMD in the U.S. Eteplirsen is our lead therapeutic candidate for DMD. If we are successful in our development efforts, eteplirsen will address a severe butunmet medical need. We are in the process of conducting or starting several studies for product candidates designed to skip exons 45, 51 and 53 in the U.S.and in Europe. These include an ongoing open label extension study following completion of our initial Phase IIb clinical trials, several clinical trials inexon 51 amenable genotypes, including a confirmatory study in ambulatory patients, studies on participants with early stage and advanced stage DMD and aplacebo-controlled confirmatory study with product candidates designed to skip exons 45 and 53. Additionally, we have begun Phase I of a Phase I/IIaclinical trial for an exon 53 skipping product candidate in the European Union (“E.U.”) with the SKIP-NMD Consortium. We plan to file a new drugapplication (“NDA”) for eteplirsen for the treatment of DMD by mid-year 2015, although we will continue to evaluate our NDA submission plans based ondiscussions with the Food and Drug Administration (“FDA”) and as additional data become available. We have also leveraged the capabilities of our RNA-targeted technology platforms to develop therapeutics for the treatment of infectious diseases such as influenza, Marburg and Ebola under prior contractswith the Department of Defense (“DoD”), however, further development of these product candidates would be conditioned, in part, on obtaining additionalfunding, collaborations or emergency use. Our discovery and research programs include collaborations with various third parties and focus on developingtherapeutics in rare, genetic, anti-infective, neuromuscular and central nervous system diseases amongst other diseases. We are exploring the application ofour proprietary phosphorodiamidate morpholino oligomer (“PMO”) platform technology and toll-like receptor (“TLR”) technology in various diseasesincluding drug resistant bacteria, DMD, Becker muscular dystrophy (“Becker”), Progeria, Adult Onset Pompe Disease, Lupus and Graft-versus-Host Disease.We believe we have developed proprietary state-of-the-art manufacturing and scale-up techniques that allow synthesis and purification of our productcandidates to support clinical development as well as potential commercialization. We have entered into certain manufacturing and supply arrangementswith third-party suppliers which will in part utilize these techniques to support production of certain of our product candidates -50-Table of Contentsand their components. We currently do not have any of our own internal mid-to-large scale manufacturing capabilities to support our product candidates.The basis of our novel RNA-targeted therapeutics is the PMO. Our next generation PMO-based chemistries include PMO-X, PMOplus and PPMO.PMOs are highly resistant to degradation by enzymes, potentially enabling robust and sustained biological activity. In contrast to other RNA-targetedtherapeutics, which are usually designed to down-regulate protein expression, our technologies are designed to selectively up-regulate or down-regulateprotein expression, and more importantly, create novel proteins. PMOs have demonstrated inhibition of messenger RNA (“mRNA”) translation and alterationof pre-mRNA splicing. The chemistry of PMO-based molecules has the potential to reduce off-target effects, such as the immune stimulation often observedwith ribose-based RNA technologies. We believe that our highly differentiated, novel, proprietary and innovative RNA-targeted PMO-based platforms mayrepresent a significant improvement over other RNA-targeted technologies. In addition, PMOs are highly adaptable molecules: with minor structuralmodifications, they can potentially be rapidly designed to target specific tissues, genetic sequences, or pathogens, and therefore, we believe they couldpotentially be applied to treat a broad spectrum of diseases.We have not generated any revenue from product sales to date and there can be no assurance that revenue from product sales will be achieved. Even ifwe do achieve revenue from product sales, we are likely to continue to incur operating losses in the near term.As of December 31, 2014, we had approximately $211.1 million of cash, cash equivalents and investments, consisting of $73.6 million of cash andcash equivalents, $136.8 million of short-term investments and $0.8 million of restricted cash and investments. We believe that our balance of cash, cashequivalents and investments is sufficient to fund our current operational plan for the next twelve months. As of December 31, 2014, we have completed alldevelopment activities under the agreements with the DoD. We are currently exploring possibilities for funding, collaboration and other avenues to supportfurther development of these Ebola, Marburg and influenza product candidates. Without funding from the U.S. government, we would likely curtail certaininfectious disease research and development efforts, though we may pursue additional cash resources through public or private financings, seek additionalgovernment contracts and establish collaborations with or license 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 government sponsored programsand the complex regulatory environment in which we operate. There can be no assurance that we will ever achieve significant revenue or profitableoperations.Summary and Timeline of Eteplirsen Data DisclosureIn 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 -51-®®Table of Contentsthe University College London Institute of Child Health / Great Ormond Street Hospital in London and at the Royal Victoria Infirmary in Newcastle-Upon-Tyne. In AVI Study 28, (i) eteplirsen induced exon 51 skipping in all cohorts and new dystrophin protein expression in cohort 3; (ii) eteplirsen was welltolerated in all participants with no drug-related serious adverse events or severe adverse events observed, except that one participant exhibited deterioratingcardiac function, which was considered probably disease related; (iii) adverse events were mostly mild or moderate in intensity, not dose-related, and nonewere 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 (“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-controlledstudy to assess the efficacy, safety, tolerability and pharmacokinetics of eteplirsen administered intravenously in two different doses over 24 weeks for thetreatment of ambulant boys with DMD. Exploratory clinical measures of ambulation, muscle function and strength were also captured and evaluated duringthe 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 ineach group. The first treatment group received a weekly intravenous administration of eteplirsen at a dose of 50.0 mg/kg. The second treatment groupreceived a weekly intravenous administration of eteplirsen at a dose of 30.0 mg/kg. The third and final treatment group received a weekly administration ofplacebo. Participants receiving the 50.0 mg/kg dose received a second biopsy at 12 weeks after initiation of treatment, and participants receiving the 30.0mg/kg dose received a second biopsy at 24 weeks after initiation of treatment. The results from Study 201 determined that treatment with eteplirsen met theprimary efficacy endpoint in the study. Eteplirsen administered once weekly at 30mg/kg over 24 weeks resulted in a statistically significant (p < 0.002)increase in the measurement taken of novel dystrophin (22.5% dystrophin-positive fibers as a percentage of normal) compared to no increase in the placebogroup. In the study, a shorter duration of eteplirsen treatment, 12 weeks, did not show a significant increase in the measurement taken of novel dystrophin(0.79% dystrophin-positive fibers as a percentage of normal; p-value NS), despite administration of the drug at a higher dose (50mg/kg once weekly). Nosignificant improvements in clinical outcomes in the treated groups were observed compared to placebo.All participants in Study 201 were enrolled in an open-label extension study 4658-US-202 (“Study 202”), following the completion of Study 201 andall participants, 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. Thepurpose of Study 202 is to evaluate the ongoing safety, efficacy and tolerability of eteplirsen. The primary efficacy endpoint was the change from baseline atweek 48 in the percentage of dystrophin-positive fibers in muscle biopsy tissue as measured by immunohistochemistry. The primary clinical outcomemeasure was the change from baseline to week 48 on the six-minute walk test (“6MWT”). Study 202 is now in a long-term extension phase in which patientscontinue to be followed for safety and clinical outcomes approximately every 12 weeks through week 108 (which includes the original 28 weeks ofStudy 201).In July 2012, we announced interim results from Study 202 which indicated that treatment with eteplirsen over 36 weeks achieved a significant clinicalbenefit on the primary clinical outcome measure, the 6MWT, over a placebo/delayed treatment cohort. Eteplirsen administered once weekly at 50mg/kg over36 weeks resulted in a 69.4 meter benefit compared to patients who received placebo for 24 weeks followed by 12 weeks of treatment with eteplirsen. In thepredefined prospective analysis of the study’s intent-to-treat (“ITT”) population on the primary clinical outcome measure, the change in 6MWT distancefrom baseline, eteplirsen-treated patients who received 50mg/kg of the drug weekly demonstrated a decline of 8.7 meters in distance walked from baseline(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 significant differencein the 6MWT between the cohort of patients who received 30mg/kg weekly of eteplirsen and the placebo/delayed treatment cohort. The safety profile ofeteplirsen was evaluated across all subjects through the 36 weeks eteplirsen was administered -52-Table of Contentsand there were no treatment-related adverse events, no serious adverse events and no discontinuations. Furthermore, no treatment-related changes weredetected on any safety laboratory parameters, including several biomarkers for renal function.In October 2012, we announced 48-week results from Study 202 which indicated that treatment with eteplirsen met the predefined primary efficacyendpoint, increase in the measurement taken of novel dystrophin, and achieved a significant clinical benefit on the predefined primary clinical outcomemeasure, the 6MWT, over the placebo/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 significant increase (p<0.001) in the measurement taken of dystrophin-positive fibers to 47.0% of normal. The placebo/delayedtreatment cohort, which had received 24 weeks of eteplirsen at either 30 mg/kg or 50 mg/kg following 24 weeks of placebo (n=4), also showed a statisticallysignificant increase in the measurement taken of dystrophin-positive fibers to 38.3% of normal (p<0.009).In the predefined analysis of the study’s ITT population on the primary clinical outcome measure, the change in 6MWT distance from baseline at week48, eteplirsen-treated patients who received 50 mg/kg of the drug weekly (n=4) demonstrated an increase of 21.0 meters in distance walked from baseline(mean=396.0 meters), while patients who received placebo/delayed-eteplirsen treatment (n=4) showed a decline of 68.4 meters from baseline (mean=394.5meters), for a statistically significant treatment benefit of 89.4 meters over 48 weeks (p=0.016, using analysis of covariance for ranked data using mixedmodel repeated measures). There was no statistically significant difference between the cohort of patients who received 30 mg/kg weekly of eteplirsen andthe placebo/delayed treatment cohort. The safety profile of eteplirsen was evaluated across all subjects through 48 weeks and there were no treatment-relatedadverse events, no serious adverse events, and no discontinuations. Furthermore, no clinically significant treatment-related changes were detected on anysafety laboratory parameters, including several biomarkers for renal function.In December 2012, we announced updated data from Study 202 which showed patients treated with eteplirsen and evaluable on ambulatory measuresin modified intent-to-treat population (“mITT population”) for 62 weeks maintained a statistically significant clinical benefit on the primary clinicaloutcome 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, patients treated with eteplirsen for 62 weeks demonstrateda statistically significant benefit (p < 0.007) of 62 meters over the placebo/delayed-treatment cohort using a mixed-model repeated measure statistical test.The mITT population utilized for the 62 week analysis consisted of 10 of the enrolled 12 patients (4 eteplirsen-treated patients receiving 50 mg/kg weekly, 2eteplirsen-treated patients receiving 30 mg/kg weekly, and 4 placebo/delayed-treatment patients), and excluded two patients who showed signs of rapiddisease progression and lost ambulation by week 24. The eteplirsen treatment cohort (n=6) continued to show disease stabilization with less than a 5%decline in walking distance on the 6MWT from baseline. The placebo/delayed-treatment cohort (n=4) also demonstrated stability in walking distance fromweek 36 through week 62 with a less than 10 meter change over this timeframe, the period in which dystrophin was likely produced, with confirmation ofsignificant 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 orinterruption of treatment. This patient did not show elevations of the specific renal markers of cystatin C or KIM-1. Across both the treatment andplacebo/delayed treatment cohorts there is evidence of continued stabilization on pulmonary function tests, echocardiogram, muscle strength and clinicallaboratory tests over the 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 -53-Table of Contentsambulatory clinical measures for the remainder of Study 202. Given there was no significant difference between the 30 mg/kg and 50 mg/kg arms on theproduction of dystrophin through 48 weeks based on the measurements taken, we believe this mITT population is the most appropriate to assess dystrophinproduction and its potential predictive benefits on ambulatory clinical outcomes, such as the 6MWT.In April 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-treatedpatients in the mITT population demonstrated less than 13.4 meters, or 5 percent decline from baseline in walking ability. After experiencing a substantialdecline earlier in the study, the placebo/delayed-treatment cohort also demonstrated stabilization in walking ability from week 36 through 74, the period inwhich meaningful levels of dystrophin were likely produced, with a less than 10 meter decline over this timeframe. Through 74 weeks, eteplirsen was welltolerated and there were no clinically significant treatment-related adverse events, serious adverse events, hospitalizations or discontinuations. As previouslyreported at 62 weeks, one patient had a transient elevation of urine protein on a laboratory urine dipstick test, which resolved and resulted in no clinicalsymptoms. The patient continued treatment without interruption and remained free of proteinuria through week 74. Across both the eteplirsen-treated andplacebo/delayed-treatment cohorts, there was evidence of continued stabilization on clinical laboratory tests, echocardiogram, pulmonary function tests andmuscle strength through 74 weeks of participating in Study 202.In June 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-treatedpatients in the mITT population demonstrated less than a 6 percent decline (20.5 meters) from baseline in walking ability. The placebo/delayed-treatmentcohort also demonstrated stabilization in walking ability from Week 36 through 84, the period from which meaningful levels of dystrophin were likelyproduced, with an increase of 3.3 meters over this timeframe. These analyses were based on the maximum 6MWT score when the test was performed on twoconsecutive days. Through 84 weeks, eteplirsen was well tolerated and there were no clinically significant treatment-related adverse events, no seriousadverse events, hospitalizations or discontinuations. One boy in the placebo/delayed-treatment cohort was not able to perform the 6MWT at the Week 84clinic visit due to a physical injury unrelated to treatment, and therefore had no 6MWT data captured at the Week 84 time point. The boy has recovered fromthe injury, continues to be ambulatory and is expected to be evaluated on the 6MWT at future clinic visits. Across all patients in the eteplirsen andplacebo/delayed-treatment cohorts, there was evidence of continued stabilization on clinical laboratory tests, echocardiograms, pulmonary function tests andmeasures of muscle strength through 84 weeks of participating in Study 202.In September 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 17.5 meters, or 5 percent decline 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, hiswalking ability 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 overalldecline in the placebo/delayed-treatment cohort. The decline in walking distance observed in this cohort from Week 36 improves from a decline of 18.5meters to a decline of 4.7 meters when this patient’s 96-week test score is excluded from the analysis. Through 96 weeks, eteplirsen was well tolerated andthere were no reported clinically significant treatment-related adverse events, no treatment-related serious adverse events, hospitalizations ordiscontinuations. Across patients in the eteplirsen and placebo/delayed-treatment cohorts, -54-Table of Contentsthere is evidence of continued stabilization on clinical laboratory tests, echocardiograms, pulmonary function tests and measures of muscle strength through84 weeks of participating in Study 202.In January 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(mITT population; n=6) experienced a decline of 13.9 meters, or less than 5 percent, from baseline in walking ability. A statistically significant treatmentbenefit 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 period from which meaningfullevels of dystrophin were likely produced, with a decline of 9.5 meters over this timeframe. These analyses were based on the maximum 6MWT score whenthe test was performed on two consecutive days. In addition, in February 2014, we announced that results through more than two years of treatment showedstable pulmonary function in the ITT study population (N=12). Through 120 weeks, eteplirsen was well tolerated and there were no reported clinicallysignificant treatment-related adverse events and no treatment-related serious adverse events. In addition, there were no treatment-related hospitalizations ordiscontinuations.In July 2014, we announced that at 144 weeks, patients in the 30 mg/kg and 50 mg/kg eteplirsen cohorts who were able to perform the 6MWT (mITTpopulation; n=6) experienced a decline of 33.2 meters, or about 8.5 percent, from baseline in walking ability. A statistically significant treatment benefit of75.1 meters (p <0.004) was observed for the mITT population compared with the placebo/delayed-treatment cohort (n=4), which initiated treatment at Week25 following 24 weeks of placebo. After experiencing a substantial decline of 68.4 meters from baseline to Week 36, the placebo/delayed-treatment cohortdemonstrated a decline of 39.0 meters in walking ability from Week 36 through Week 144, the period from which meaningful levels of dystrophin werelikely produced. These analyses were based on the maximum 6MWT score when the test was performed on two consecutive days. Respiratory musclefunction from baseline through Week 144 in the ITT population (n=12), as measured by maximum inspiratory and expiratory pressure (MIP and MEP),showed a 14.7 percent mean increase in MIP and a 12.8 percent mean increase in MEP. Analyses of MIP percent predicted (MIP adjusted for weight) and MEPpercent predicted (MEP adjusted for age) demonstrated a mean change from 91.7 percent at baseline to 93.9 percent at Week 144 in MIP percent predicted,and a mean change from 79.3 percent at baseline to 75.7 percent at Week 144 in MEP percent predicted. In addition, there was a mean increase in forced vitalcapacity (“FVC”), a measure of lung volume, of 11.0 percent. FVC percent predicted (FVC adjusted for age and height) was maintained above a mean of 90percent at Week 144, with 101.3 percent at baseline and 90.9 percent at Week 144. Through 144 weeks, eteplirsen was well tolerated and there were noreported clinically significant treatment-related adverse events and no treatment-related serious adverse events. In addition, there were no treatment-relatedhospitalizations or discontinuations.In January 2015, we announced that at Week 168, the six patients in the mITT population in the 30 and 50 mg/kg eteplirsen cohorts who were able toperform the 6MWT experienced a decline of 76.7 meters, or about 19.5 percent, from baseline in walking ability. A statistically significant treatment benefitof 65.4 meters (p <0.017) was observed compared with the placebo/delayed-treatment cohort (n=4), which initiated treatment at Week 25 following 24 weeksof placebo. This cohort, after experiencing a substantial decline of 68.4 meters from baseline to Week 36, demonstrated a decline of 73 meters in walkingability from Week 36 through Week 168, the period from which meaningful levels of dystrophin were likely produced. These analyses were based on themaximum 6MWT score when the test was performed on two consecutive days. Respiratory muscle function from baseline through Week 168 in the Intent-to-Treat population (n=12), as measured by maximum inspiratory and expiratory pressure (MIP and MEP), continued to show a 11.1 percent mean increase inMIP and a 14.7 percent mean increase in MEP. Analyses of MIP percent predicted (MIP adjusted for weight) and MEP percent predicted (MEP adjusted forage) demonstrated a mean change from 91.7 percent at baseline to 89.5 percent at Week 168 in MIP percent predicted, and a mean change from 79.3 percentat baseline to 74.3 percent at Week 168 in MEP percent predicted. In addition, there was a mean increase in FVC, a measure of lung volume, of 11.6 percent.FVC percent predicted (FVC adjusted for age and height) was maintained above a mean of 90 percent at Week 168, with 101.3 percent at Baseline and 91.9percent at Week 168. Through 168 weeks, -55-Table of Contentseteplirsen was well tolerated and there were no reported clinically significant treatment-related adverse events and no treatment-related serious adverseevents. In addition, there were no treatment-related hospitalizations or discontinuations.Summary and Timeline of Marburg Product Candidate Data DisclosuresNon-human primates infected with Marburg virus and treated with our precursor product candidate, AVI-6003, achieved 100% survival and primatesinfected with Ebola virus and treated with AVI-6002 achieved 80% survival, in each case compared to universal lethality in both control groups. In additionto survival, primates treated with AVI-6002 and AVI-6003 have demonstrated decreases in levels of viremia, in harmful inflammatory indicators and in virusinduced liver damage. Additional data have also demonstrated that the surviving animals were resistant to viral infection after subsequent injection with thevirus.During the 2012 fiscal year, we completed Phase I single ascending-dose studies in healthy adult volunteers with its drug candidates for the treatmentof Ebola 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 (“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 of60 healthy 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, foursubjects received the indicated dose of the therapeutic and one subject received placebo. Final, unblinded safety and pharmacokinetic results for all subjectswere completed in 2012.In July 2012, we announced that AVI-7288, one of the two components that make up AVI-6003, demonstrated up to 100% survival in a non-humanprimate study exploring the drug’s effect when the initiation of treatment is delayed to various time points post-infection. This study showed a high degree ofsurvival between 83% and 100% in each of four post-exposure cohorts that received daily treatments with AVI-7288 beginning 1-, 24-, 48-, or 96-hours afterinfection, 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 and placebo-controlled study has been overseen by an independent DSMB,which reviewed the safety and clinical laboratory data after each dose cohort prior to enrolling the next higher dose cohort. The final cohort completeddosing in the first quarter of 2014. In February 2014, we announced positive safety results from a Phase I multiple ascending dose study of AVI-7288 inhealthy volunteers. An independent DSMB reviewed the safety profile and recommended proceeding with further development of AVI-7288 at doses up to16 mg/kg. Subject to approval under the existing contract with the Joint Project Manager Transformational Medical Technologies program (“JMP-MCS”)(renamed Medical Countermeasure Systems in 2013) of the DoD, further development of AVI-7288 is planned pursuant to FDA’s Animal Efficacy Rule.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, 2014, we had completed all development activities of our contracts with the DoD. -56-Table of ContentsThe following table summarizes the revenue from each of our contracts with the U.S. and E.U. governments for the each of the periods indicated: For the Year EndedDecember 31 2014 2013 2012 (in thousands) July 2010 Agreement (Ebola and Marburg Intravenous Administration) $6,816 $9,064 $36,557 June 2010 Agreement (H1N1/Influenza) — 427 — August 2012 Agreement (Intramuscular Administration) — 2,791 673 European Union SKIP-NMD Agreement (DMD) 1,432 1,263 — Children’s National Medical Center Agreement (DMD) 659 674 — Carolinas Medical Center Agreement (DMD) 850 — — Other Agreements — — 99 Total $9,757 $14,219 $37,329 July 2010 Agreement (Ebola and Marburg Intravenous Administration)In July 2010, we were awarded the DoD contract managed by its JPM-MCS program for the advanced development of our hemorrhagic fever virustherapeutic candidates, AVI-6002 and AVI-6003, against Ebola and Marburg viruses, respectively. In February 2012, we announced that we receivedpermission from the FDA to proceed with a single oligomer from AVI-7288, one of the two components that make up AVI-6003, as the lead product candidateagainst the Marburg virus infection. In August 2012, we received a stop-work order related to the Ebola virus portion of the contract and, in October 2012,the DoD terminated the Ebola portion of the contract for the convenience of the government due to government funding constraints.The Marburg portion of the contract was structured into four segments and had an aggregate remaining period of performance spanning approximatelyfour years if the DoD exercised its options for all segments. Activities under the first segment began in July 2010 and included preclinical studies and Phase Istudies in healthy volunteers. In February 2014, we announced positive safety results from the Phase I multiple ascending dose study of AVI-7288. Theremaining Marburg portion of the contract expired in July 2014. For the years ended December 31, 2014, 2013 and 2012, we recognized $6.8 million, $9.1million and $36.6 million, respectively, as revenue under this agreement. The majority of the revenue under this contract has been recognized as ofDecember 31, 2014 and only revenue for contract finalization, if any, is expected in the future.June 2010 Agreement (H1N1/Influenza)In June 2010, we entered into an agreement with the Defense Threat Reduction Agency (“DTRA”) to advance the development of AVI-7100 as amedical countermeasure against the pandemic H1N1 influenza virus in cooperation with the Transformational Medical Technologies (“TMT”) program ofthe DoD. The period of performance for this agreement ended in June 2011. We recognized $0.4 million associated with this agreement for the year endedDecember 31, 2013, which was the result of an indirect rate adjustment.August 2012 Agreement (Intramuscular Administration)In August 2012, we were awarded a contract from the JPM-MCS program. The contract was for approximately $3.9 million to evaluate the feasibility ofan intramuscular route of administration using AVI-7288, candidate for treatment of the Marburg virus. The period of performance for this contract concludedin the third quarter of 2013. Accordingly, no revenue was recognized since the conclusion of the contract. For the years ended December 31, 2013 and 2012,we recognized $2.8 million and $0.7 million, respectively, as revenue under this agreement. -57-Table of ContentsEuropean Union SKIP-NMD Agreement (DMD)In November 2012, we entered into an agreement for a collaborative research project partially funded by the E.U. Health Innovation. The agreementprovides for approximately $2.5 million for research in certain development and study related activities for a DMD therapeutic. For the years endedDecember 31, 2014 and 2013, we recognized $1.4 million and $1.3 million, respectively, as revenue under this agreement. The majority of the revenue underthis contract has been recognized as of December 31, 2014 and only revenue for contract finalization, if any, is expected in the future.Children’s National Medical Center Agreement (DMD)In July 2013, we entered into an agreement totaling $1.3 million to provide drug product to Children’s National Medical Center (“CNMC”) to conductresearch related to our DMD program. For each of the years ended December 31, 2014 and 2013, we recognized $0.7 million as revenue under the agreement.The period of performance for this contract concluded in March 2014 and no revenue under this contract is expected in the future.Carolinas Medical Center Agreement (DMD)We entered into a collaboration agreement with Carolinas Medical Center (“CMC”) to co-develop one of our DMD programs. Under the agreement,CMC was obligated to reimburse certain preclinical costs incurred by us. All preclinical work was completed and we recognized revenue of $0.9 million forthe year ended December 31, 2014.Key Financial MetricsRevenueGovernment Research Contract and Grant Revenue. In the periods presented in this report, substantially all of our revenues were derived from researchand development contracts with and grants from the U.S. government. As of December 31, 2014, we had completed all development activities of our contractswith the U.S. government. We recognize revenue from U.S. government research contracts and grants during the period in which the related expenses areincurred and present such revenues and related expenses on a gross basis in the consolidated financial statements. Our government contracts are subject togovernment audits, which may result in catch-up adjustments.We defer recognition of non-refundable up-front 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 otherelements of the arrangement. In addition, if we have continuing involvement through research and development services that are required because of ourknow-how or because the services can only be performed by us, such up-front fees are deferred and recognized over the period of continuing involvement. Asof December 31, 2014, we had deferred revenue of $3.3 million, which primarily represents up-front fees which we will recognize as revenue upon settlementof certain obligation contingencies.ExpensesResearch and Development. Research and development expenses consist of costs associated with research activities as well as costs associated with ourproduct development efforts, conducting preclinical studies, clinical trials and manufacturing activities.Direct research and development expenses associated with our programs include clinical trial site costs, clinical manufacturing costs, costs incurred forconsultants and other external services, such as data management and statistical analysis support and materials and supplies used in support of clinicalprograms. Indirect costs of our clinical programs include salaries, stock-based compensation and allocation of our facility costs. -58-Table of ContentsFuture research and development expenses may increase as our internal projects, such as eteplirsen for DMD, enter later stage clinical development. Wehave initiated the confirmatory trial for eteplirsen and other product candidates are currently in various stages of development. Product candidates thatappear promising at early stages of development may not reach the market for a variety of reasons. Similarly, any of our product candidates may be found tobe ineffective during clinical trials, may take longer to complete clinical trials than anticipated, may fail to receive necessary regulatory approvals, or mayprove 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 or completion costs ofcurrent or future clinical stages of any of our product candidates. Similarly, we cannot determine when, if, or to what extent we may generate revenue from thecommercialization of any product candidate. The time frame for development of any product candidate, associated development costs and the probability ofregulatory and commercial success vary widely.General and Administrative. General and administrative expenses consist principally of salaries, benefits, stock-based compensation and related costsfor personnel in our executive, finance, legal, information technology, business development, human resource and other general and administrativefunctions. Other general and administrative expenses include allocation of our facility costs and professional fees for legal, consulting and accountingservices.Interest Income and Other, Net. Interest income and other, net, primarily consists of interest income on our cash, cash equivalents and investments,interest expense and rental income. Our cash equivalents and investments consist of money market funds, commercial paper, government and governmentagency bonds, corporate bonds, money market funds and certificates of deposit. Interest expense includes interest paid on the promissory note we obtained inrelation to the acquisition of our Andover facility as well as our mortgage loan related to the Corvallis property, the substantial portion of which we leased toan unrelated third party in November 2011. Rental income is from subleasing excess space in some of our facilities.Loss on Change in Warrant Valuation. Warrants issued in connection with our January and August 2009 financings were classified as liabilities asopposed to equity due to their settlement terms. These warrants were non-cash liabilities and we were not required to expend any cash to settle theseliabilities. The fair value of these warrants was recorded on our consolidated balance sheets at the date of issuance and the warrants were marked to market ateach financial reporting period, with changes in the fair value recorded as “Loss on change in warrant valuation” in our consolidated statements of operationsand comprehensive loss. The fair value of the warrants is determined using the Black-Scholes-Merton option-pricing model, which requires the use ofsignificant judgment and estimates related to the inputs used in the model and can result in significant swings in the fair value primarily due to changes inour stock price. As of December 31, 2014, there were no outstanding warrants as all warrants issued in January and August 2009 were exercised or expired.For more information, please read Note 9, Warrants to 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 (“U.S. 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 -59-Table of Contentsestimates and judgments. To the extent there are material differences between these estimates and actual results, our consolidated financial statements will beaffected. Although we believe that our judgments and estimates are appropriate, actual results may differ 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; • income tax; and • accounting for and valuation of liability classified warrants.Revenue RecognitionWe have historically generated revenue from our U.S. government research contracts and other grants. During the periods presented, substantially all ofour revenue was generated from U.S. government research contracts and grants, which are generally cost plus contracts providing for reimbursed costs whichinclude overhead and general and administrative costs and a target fee. We recognize revenue from U.S. government research contracts during the period inwhich the related expenses are incurred and present such revenues and related expenses on a gross basis in the consolidated financial statements. Ourgovernment contracts are subject to government audits, which may result in catch-up adjustments.Research and Development ExpensesAll research and development expenses, including amounts funded through research and development collaborations, are expensed as incurred.Research and development expenses are comprised of costs incurred in performing research and development activities, including salary and benefits, stock-based compensation expense, laboratory supplies and other direct expenses, contractual services including clinical trial and pharmaceutical developmentcosts, expenses associated with the supply investment in our drug candidates and infrastructure costs including facilities costs and depreciation.We defer and capitalize non-refundable advance payments for goods or services that will be used or rendered for future research and developmentactivities pursuant to an executory contractual arrangement and recognized as an expense as the related goods are delivered or the related services areperformed. If we do not expect the goods to be delivered or services to be rendered, the advance payment capitalized will be charged as an expense.When third-party service providers’ billing terms do not coincide with our period-end, we are required to make estimates of our obligations to thosethird parties, including clinical trial and pharmaceutical development costs, contractual services costs and costs for supply of our drug candidates, incurred ina given 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.Stock Compensation ExpenseTo determine stock-based compensation expense, we apply the provisions of Financial Accounting Standards Board (“FASB”), Accounting StandardsCodification (“ASC”), Topic 718, Share-Based Payments. We use the Black-Scholes-Merton option-pricing model to determine the fair value of stock-basedawards on the date of grant. The Black-Scholes-Merton option-pricing model requires the use of subjective and complex assumptions which include theaward’s expected term and the price volatility of the underlying stock. We -60-Table of Contentsrecognize the fair value of the portion of the awards expected to vest as expense over the requisite vesting periods on a straight-line basis for the entire award.Stock awards granted to employees vest over a four-year period and have a ten-year term. Forfeitures are estimated at the time of grant and revised, ifnecessary, in subsequent periods if actual forfeitures differ from those estimates.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. Please read Note 13, Stock-Based Compensation to the consolidated financial statementsincluded elsewhere in this Annual Report on Form 10-K for a further discussion of stock-based compensation.Income TaxWe follow 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 respectivetax bases and operating loss and tax credit carryforwards. It is our intention to reinvest the earnings of our non-U.S. subsidiaries in those operations and not torepatriate the earnings to the U.S. Accordingly, we do not provide for deferred taxes on the excess of the financial reporting over the tax basis in itsinvestments in foreign subsidiaries as they are considered permanent in duration. To date, we have not had any earnings in our 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 likelythan not that the net deferred tax asset will not be realized. We recognize the effect of income tax positions only if those positions are more likely than not tobe sustained upon an examination. Please read Note 16, Income Tax to the consolidated financial statements included elsewhere in this Annual Report onForm 10-K for a further discussion of income tax.Warrant LiabilityThe 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 operations and comprehensive loss. The fair value of the warrants is determined using theBlack-Scholes-Merton option-pricing model, which requires the use of significant judgment and estimates related to the inputs used in the model. As ofDecember 31, 2014, all warrants were exercised or expired. Please read Note 9, Warrants to the consolidated financial statements included elsewhere in thisAnnual Report on Form 10-K for a further discussion of warrants. -61-Table of ContentsResults of Operations for the years ended December 31, 2014, 2013 and 2012The following table sets forth selected consolidated statements of operations data for each of the periods indicated: For the Year Ended December 31, % Change 2014 2013 2012 2014 vs. 2013 2013 vs. 2012 (in thousands, except per share amounts) Revenue $9,757 $14,219 $37,329 (31)% (62)% Operating expenses: Research and development 94,231 72,909 52,402 29% 39% General and administrative 49,315 31,594 14,630 56% 116% Total operating expenses 143,546 104,503 67,032 37% 56% Operating loss (133,789) (90,284) (29,703) 48% 204% Other income (loss): Interest income and other, net 779 326 354 139% (8)% Loss on change in warrant valuation (2,779) (22,027) (91,938) (87)% (76)% Net loss $(135,789) $(111,985) $(121,287) 21% (8)% Net loss per share—basic and diluted $(3.39) $(3.31) $(5.14) 2% (36)% RevenueRevenue for 2014 decreased by $4.5 million, or 31%, compared to 2013. The decrease was due to a decrease of $2.8 million in the August 2012Agreement which was concluded in the third quarter of 2013, $2.2 million in revenue associated with the Marburg portion of the July 2010 Agreement whichexpired in July 2014 and $0.4 million in the June 2010 Agreement. These decreases were partially offset by an increase of $0.9 million in the CMCAgreement and $0.2 million in the E.U. SKIP-NMD Agreement.Revenue 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 the July 2010 Agreement. The Ebola portion of the contract was terminated for convenience by the U.S. government due to lack of funding in the thirdquarter of 2012. Accordingly, there was no such revenue in 2013. These decreases in 2013 revenues were partially offset by revenue from the August 2012Agreement of $2.8 million in 2013 as compared to $0.7 million in 2012. Additionally, there were revenues from the E.U. SKIP Agreement and the CNMCAgreement of $1.3 million and $0.7 million, respectively, which did not have any revenue associated with them in 2012.Research and Development ExpensesResearch and development expenses for 2014 increased by $21.3 million, or 29%, compared to 2013. The increase primarily includes $10.8 million inpersonnel costs which include $4.4 million increase in stock-based compensation expense, $3.9 million in clinical and pre-clinical expenses, $3.1 million inprofessional services, $3.0 million in facility-related expenses and $1.6 million in general research and drug discovery efforts. The increase was partiallyoffset by a decrease of $2.3 million in manufacturing expenses.Research and development expenses for 2013 increased by $20.5 million, or 39%, compared to 2012. The increase was primarily due to a $31.3million increase 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. -62-Table of ContentsGeneral and Administrative ExpensesGeneral and administrative expenses for 2014 increased by $17.7 million, or 56%, compared to 2013. The increase in general and administrativeexpenses is primarily due to increases of $7.9 million in professional services, $6.1 million in personnel costs including $4.8 million stock-basedcompensation expenses and facility-related expenses of $3.1 million.General 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.Interest Income and Other, NetInterest income and other, net for 2014 increased by 0.5 million, or 139%. The increase was primarily driven by interest income from short-terminvestments.Interest income and other, net, for 2013 remained consistent compared to 2012.Loss on Change in Warrant ValuationLoss on change in warrant valuation in 2014 decreased by $19.2 million, or 87% compared to 2013. Loss on change in warrant valuation in 2013decreased by $69.9 million, or 76% compared to 2012. For both periods, the decrease was primarily attributable to the change in our stock price and decreasein the number of outstanding warrants. Please read Note 9, Warrants of the consolidated financial statements included elsewhere in this Annual Report onForm 10-K.Net LossNet loss for 2014 increased by $23.8 million, or 21%, compared to 2013. The increase in net loss was primarily due to increases of $21.3 million inresearch and development expenses and $17.7 million in general and administrative expenses due to corporate growth as well as a decrease of $4.5 million inrevenue. This was partially offset by a decrease of $19.2 million in loss on change of warrant valuation.The 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. -63-Table of ContentsLiquidity and Capital ResourcesThe following table summarizes our financial condition for each of the periods indicated: For the Year Ended December 31, % Change 2014 2013 2012 2014 vs. 2013 2013 vs. 2012 (in thousands) Financial assets: Cash and cash equivalents $73,551 $256,965 $187,661 (71)% 37% Short-term investments 136,793 — — NA NA Restricted cash and investments 782 7,897 — (90)% NA Total cash, cash equivalents and investments $211,126 $264,862 $187,661 (20)% 41% Borrowings: Long-term debt $1,574 $1,668 $1,757 (6)% (5)% Notes payable 4,754 — — NA NA Total borrowings $6,328 $1,668 $1,757 279% (5)% Working capital: Current assets $247,796 $270,806 $193,908 (8)% 40% Current liabilities 36,867 35,966 78,886 3% (54)% Total working capital $210,929 $234,840 $115,022 (10)% 104% Our principal sources of liquidity for the periods presented are the sale of equity securities and revenue from our government contracts and other grants.Our principal uses of cash are research and development expenses, general and administrative expenses, capital expenditures and other working capitalrequirements.Our primary source of revenue has historically been from development of product candidates pursuant to government contracts and other grants. U.S.government funding is subject to the government’s appropriations process and the government has the right to terminate such contracts for convenience. Asof December 31, 2014, we have completed all development activities under the agreements with the DoD. We are currently exploring possibilities forfunding, collaboration and other avenues to support further development of these Ebola, Marburg and Influenza product candidates; however, if we do notsucceed in these efforts, we will likely curtail their further development. Currently, we do not generate any revenue from the commercial sale of our productcandidates.Our future expenditures and capital requirements may be substantial and will depend on many factors, including but not limited to the following: • the timing and costs of building out our manufacturing capabilities; • the timing of advanced payments related to our future inventory commitments; • the timing and costs associated with our clinical trials and preclinical studies; • the timing and costs associated with commercialization of eteplirsen should marketing approval ever be granted; and • the costs of filing, prosecuting, defending and enforcing patent claims and our other intellectual property rights.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 provide -64-Table of Contentsassurances that financing will be available when and as needed or that, if available, the financings will be on favorable or acceptable terms. If we are unableto obtain additional financing when and if we require, this 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.Cash FlowsThe following table summarizes our cash flow activity for each of the periods indicated: For the Year Ended December 31, 2014 2013 2012 (in thousands) Cash provided by (used in): Operating activities $(128,539) $(64,695) $(29,694) Investing activities (159,030) (11,672) (1,145)Financing activities 104,155 145,671 178,596 (Decrease) increase in cash and cash equivalents $(183,414) $69,304 $147,757 Operating Activities.The increase in the amount of cash used in operating activities of $63.8 million for 2014 compared to 2013 was primarily due to an increase inoperating loss of $43.5 million driven by lower government contract revenue and higher research and development and general and administrative expensesdue to corporate growth and $34.4 million from unfavorable changes in operating assets and liabilities primarily driven by advanced payments related to ourfuture inventory commitments. This was partially offset by an increase of $13.6 million in non-cash adjustments to net loss.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 inoperating loss of $60.6 million driven by lower government contract revenue and higher research and development costs and higher general andadministrative costs, partially offset by an increase of $8.0 million in non-cash adjustments to net loss in 2013 as compared to 2012 as well as $17.6 millionfrom favorable changes in operating assets and liabilities.Investing Activities.The increase in the amount of cash used in investing activities of $147.4 million for 2014 compared to 2013 was primarily due to the purchase ofavailable-for-sale securities of $274.4 million and an increase of $23.1 million in capital expenditures partially due to the acquisition of the Andover facility.The increase was partially offset by maturity of available-for-sale securities of $134.9 million and restricted investments of $7.3 million which werepurchased in 2013.The increase in the amount of cash used in investing activities of $10.5 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.Financing Activities.Cash inflows from financing activities in 2014 decreased by $41.5 million compared to 2013. In April 2014, we sold approximately 2.7 million sharesof common stock at an offering price of $38.00 per share. After -65-Table of Contentsdeducting the underwriting discounts and offering related transaction costs, we received aggregate net proceeds of approximately $94.5 million, $30.6million lower than prior year equity financings. Additionally, there were decreases of $10.8 million from warrant exercises and $1.7 million from optionexercises. These were partially offset by $1.0 million from the employee stock purchase program.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 $18.6 million in net proceeds from warrant exercises and $2.5 millionfrom stock option exercises during 2013 for which we issued approximately 2.6 million shares of additional common stock.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.Contractual 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 asof December 31, 2014: Payments Due by Period Total Less Than 1Year 1-3Years 3-5Years More Than 5Years (in thousands) Long-term debt(1) $2,079 $171 $343 $343 $1,222 Notes payable(1) 5,019 2,516 2,503 — — Operating leases 29,163 4,382 9,341 9,812 5,628 Purchase obligations (2) 140,325 56,232 64,128 19,965 — Total $176,586 $63,301 $76,315 $30,120 $6,850 Interest is included.Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding or subject to cancellation fees and thatspecify all significant terms. Purchase obligations relate primarily to our DMD development program.We are obligated to make up to $35.8 million of future development and commercial milestone payments associated with some of our collaborationand license agreements.Recent Accounting PronouncementsPlease read Note 2, Summary of Significant Accounting Policies and Recent Accounting Pronouncements to the consolidated financial statementsincluded elsewhere in this Annual Report on Form 10-K.Item 7A. Quantitative and Qualitative Disclosures About Market Risk.Our current investment policy is to maintain a diversified investment portfolio consisting of money market investments, commercial paper,government and government agency bonds and high-grade corporate bonds with maturities of twenty-four months or less. Our cash is deposited in andinvested through highly rated financial institutions in North America. As of December 31, 2014, we had $211.1 million of cash, cash equivalents andinvestments, comprised of $73.6 million of cash and cash equivalents, $136.8 million short-term investments and -66-(1)(2)(3)Table of Contents$0.8 million of restricted cash and investments. 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 cash equivalents and $7.9 million of restricted investments. The fair value of cash equivalents and short-term investments issubject to change as a result of potential changes in market interest rates. The potential change in fair value for interest rate sensitive instruments has beenassessed on a hypothetical 10 basis point adverse movement across all maturities. For each of the years ended December 31, 2014 and 2013, we estimate thatsuch hypothetical adverse 10 basis point movement would result in a hypothetical loss in fair value of less than $0.1 million to our interest rate sensitiveinstruments.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.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A. Controls and Procedures.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 are effective to ensure that information required to be disclosed by us in the reports we fileor submit under the Exchange Act (1) is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (2) isaccumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timelydecisions 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 conceivedand operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations inall control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our companyhave been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur becauseof simple 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.Internal Control over Financial ReportingManagement’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 isdefined in 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 andthe preparation 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; -67-Table of Contents • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of ourmanagement and directors; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that couldhave a material effect on our financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as ofDecember 31, 2014. In making this assessment, management used the criteria in Internal Control—Integrated Framework (1992) (“the 1992 framework”)issued by the Committee of Sponsoring Organizations of the Treadway Commission. In May 2013, COSO issued an updated Internal Control-IntegratedFramework (“the 2013 framework”). Management continued to apply the 1992 framework in its 2014 assessment of internal controls and expects to adopt the2013 framework during fiscal year 2015.Based on this assessment, management has concluded that, as of December 31, 2014, our internal control over financial reporting was effective. Theeffectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by KPMG LLP, an independent registered publicaccounting firm, as stated in their report which appears in this Annual Report on Form 10-K.Changes in Internal Control over Financial ReportingThere have not been any changes in our internal control over financial reporting as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Actduring the quarter ended December 31, 2014 that our certifying officers concluded materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting. -68-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 internal control over financial reporting as of December 31, 2014, based on criteriaestablished in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Sarepta Therapeutics, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over FinancialReporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our 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 financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.In our opinion, Sarepta Therapeutics, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2014, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations ofthe Treadway Commission (COSO).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 as of December 31, 2014 and 2013, and the related consolidated statements of operations andcomprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2014, and our report datedFebruary 26, 2015 expressed an unqualified opinion on those consolidated financial statements.(signed) KPMG LLPCambridge, MassachusettsFebruary 26, 2015 -69-Table of ContentsItem 9B. Other Information.None. -70-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 2015 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 proxystatement for our 2015 annual meeting of stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K and is incorporated herein by reference. Item 12.Security Ownership 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 proxystatement for our 2015 annual meeting of stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by thisAnnual Report 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 proxystatement for our 2015 annual meeting of stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by thisAnnual Report 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 proxystatement for our 2015 annual meeting of stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K and is incorporated herein by reference. -71-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-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations and Comprehensive Loss F-4 Consolidated Statements of Stockholders’ Equity 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 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., a Delaware corporation, and Sarepta Therapeutics, Inc., an Oregoncorporation. 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 Amended and Restated Bylaws. 8-K 001-14895 3.1 9/25/14 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 -72-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 datedApril 19, 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-K 001-14895 10.1 6/16/11 -73-Table of ContentsExhibitNumber Description Incorporated by Reference to Filings Indicated Form File No. Exhibit FilingDate ProvidedHerewith10.13† Form of Stock Option Award Agreement under the Amended and Restated2011 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 and Restated2011 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 Equity IncentivePlan. 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 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 andbetween the Company and Michael A. Jacobsen. 10-Q 001-14895 10.3 5/9/13 10.24† Offer Letter dated October 23, 2013 by and between Sarepta Therapeutics, Inc.and Sandesh Mahatme. 10-K 001-14895 10.24 3/3/14 10.25† Offer Letter dated October 23, 2012 by and between Sarepta Therapeutics, Inc.and David Tyronne Howton. 10-K 001-14895 10.25 3/3/14 10.26† Executive Inducement Stock Option Agreement between Arthur Krieg andSarepta Therapeutics, Inc. 10-K 001-14895 10.26 3/3/14 10.27† Sarepta Therapeutics, Inc. 2014 Employment Commencement Incentive Plan. 10-K 001-14895 10.27 3/3/14 10.28 Form of Stock Option Award Agreement under 2014 EmploymentCommencement Incentive Plan 10-K 001-14895 10.28 3/3/14 10.29* Collaboration and License Agreement between Isis Pharmaceuticals andErcole Biotech, Inc. dated May 16, 2003. 10-K 001-14895 10.78 3/16/10 -74-Table of ContentsExhibitNumber Description Incorporated by Reference to Filings Indicated Form File No. Exhibit FilingDate ProvidedHerewith10.30* Amended and Restated Exclusive License Agreement by and among TheUniversity of Western Australia, Sarepta Therapeutics, Inc. Sarepta InternationalCV dated April 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 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 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’s JointProject 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 -75-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-3450Monte Villa 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-3450Monte Villa 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 -76-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 10.56 Purchase and Sale Agreement dated May 22, 2014 between Sarepta Therapeutics,Inc. and Eisai Inc. 10-Q 001-14895 10.1 8/7/14 10.57 Offer Letter dated January 6, 2014 by and between Sarepta Therapeutics, Inc. andArthur Krieg, M.D. 10-Q 001-14895 10.1 5/8/14 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,Christopher Garabedian, pursuant to Section 302 of the Sarbanes-Oxley Act of2002. 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,Christopher Garabedian, pursuant to Section 906 of the Sarbanes-Oxley Act of2002. 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. -77-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: February 26, 2015 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 Garabedian andSandesh 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 and lawfulattorney-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 saidattorneys-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 February 26, 2015: 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 AccountingOfficer)/s/ John C. HodgmanJohn C. Hodgman Interim Chairman of the Board/s/ M. Kathleen BehrensM. Kathleen Behrens, Ph.D. Director/s/ Anthony ChaseAnthony Chase Director/s/ William GoolsbeeWilliam Goolsbee Director/s/ Gil PriceGil Price, M.D. Director/s/ Hans WigzellHans Wigzell, M.D., Ph.D. Director -78-Table of ContentsSAREPTA THERAPEUTICS, INC.CONSOLIDATED FINANCIAL STATEMENTS PageNumber Report of KPMG LLP, Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations and Comprehensive Loss F-4 Consolidated Statements of Stockholders’ Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 F-1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 as of December 31, 2014 and 2013, andthe related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year periodended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audits.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 as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the three-yearperiod ended December 31, 2014, 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.and subsidiaries’ internal control over financial reporting as of December 31, 2014, 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 February 26, 2015 expressed anunqualified opinion on the effectiveness of the Company’s internal control over financial reporting.(signed) KPMG LLPCambridge, MassachusettsFebruary 26, 2015 F-2Table of ContentsSarepta Therapeutics, Inc.Consolidated Balance Sheets(in thousands, except share data) As ofDecember 31,2014 As ofDecember 31,2013 Assets Current Assets: Cash and cash equivalents $73,551 $256,965 Short-term investments 136,793 — Accounts receivable 2,416 3,530 Restricted investments — 7,250 Other current assets 35,036 3,061 Total Current Assets 247,796 270,806 Restricted cash and investments 782 647 Property and equipment, net 38,501 15,049 Patent costs, net of accumulated amortization of $2,081 and $1,622 as of December 31, 2014 and 2013, respectively 5,891 5,042 Other assets 2,063 25 Total Assets $295,033 $291,569 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable $12,408 $8,080 Accrued expenses 17,366 14,601 Current portion of long-term debt 98 92 Current portion of notes payable 2,492 — Warrant liability — 9,006 Deferred revenue 3,318 3,299 Other liabilities 1,185 888 Total Current Liabilities 36,867 35,966 Long-term debt 1,476 1,576 Notes payable 2,262 — Deferred rent 6,775 6,835 Total Liabilities 47,380 44,377 Commitments and contingencies (Note 18) 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; 41,311,512 and 37,751,920 issued andoutstanding as of December 31, 2014 and 2013, respectively 4 4 Additional paid-in capital 926,769 790,424 Accumulated other comprehensive loss (95) — Accumulated deficit (679,025) (543,236)Total Stockholders’ Equity 247,653 247,192 Total Liabilities and Stockholders’ Equity $295,033 $291,569 See accompanying notes to consolidated financial statements. F-3Table of ContentsSarepta Therapeutics, Inc.Consolidated Statements of Operations and Comprehensive Loss(in thousands, except per share data) For the Year Ended December 31, 2014 2013 2012 Revenue from research contracts and other grants $9,757 $14,219 $37,329 Operating expenses: Research and development 94,231 72,909 52,402 General and administrative 49,315 31,594 14,630 Total operating expenses 143,546 104,503 67,032 Operating loss (133,789) (90,284) (29,703)Other income (loss): Interest income and other, net 779 326 354 Loss on change in warrant valuation (2,779) (22,027) (91,938)Total other loss (2,000) (21,701) (91,584)Net loss $(135,789) $(111,985) $(121,287)Other comprehensive loss: Unrealized loss on short-term securities available-for-sale (95) — — Total other comprehensive loss (95) — — Comprehensive loss $(135,884) $(111,985) $(121,287)Net loss per share—basic and diluted $(3.39) $(3.31) $(5.14)Weighted average number of common stock outstanding for computing basic and diluted net loss per share 40,026 33,850 23,602 See accompanying notes to consolidated financial statements. F-4Table of ContentsSarepta Therapeutics, Inc.Consolidated Statements of Stockholders’ Equity(in thousands) Common Stock AdditionalPaid-In Capital AccumulatedOtherComprehensiveLoss AccumulatedDeficit TotalStockholders’Equity Shares Amount 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 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 Vest of restricted stock units 31 — — — — — Shares withheld for taxes (7) — (226) — — (226) Grant of restricted stock awards 6 — — — — — Issuance of common stock for cash, net of offering costs 3,441 1 125,103 — — 125,104 Stock-based compensation — — 11,127 — — 11,127 Net loss — — — — (111,985) (111,985) BALANCE AT DECEMBER 31, 2013 37,752 4 790,424 — $(543,236) $247,192 Exercise of options for common stock 86 — 980 — — 980 Exercise of warrants for common stock 766 — 19,536 — — 19,536 Vest of restricted stock units 7 — — — — — Shares withheld for taxes (1) — (34) — — (34) Grant of restricted stock awards 6 — — — — — Issuance of common stock for cash, net of offering costs 2,650 — 94,503 — — 94,503 Issuance of common stock under employee stock purchaseplan 46 — 1,015 — — 1,015 Stock-based compensation — — 20,345 — — 20,345 Unrealized loss from available-for-sale securities — — — (95) — (95) Net loss — — — — (135,789) (135,789) BALANCE AT DECEMBER 31, 2014 41,312 $4 $926,769 $(95) $(679,025) $247,653 See accompanying notes to consolidated financial statements. F-5Table of ContentsSarepta Therapeutics, Inc.Consolidated Statements of Cash Flows(in thousands) For the Year Ended December 31 2014 2013 2012 Cash flows from operating activities: Net loss $(135,789) $(111,985) $(121,287)Adjustments to reconcile net loss to net cash flows used in operating activities: Depreciation and amortization 3,690 1,277 1,525 Amortization of premium on available-for-sale securities 2,432 — — Loss on abandonment of patents and disposal of property and equipment 128 590 357 Stock-based compensation 20,345 11,127 3,078 Loss on change in warrant valuation 2,779 22,027 91,938 Non-cash interest expense 12 — — Changes in operating assets and liabilities, net: Net decrease (increase) in accounts receivable 1,114 1,183 (1,080) Net (increase) decrease in other assets (34,013) 1,618 (2,507) Net increase (decrease) in accounts payable, accrued expenses and other liabilities 10,763 9,468 (1,718)Net cash used in operating activities (128,539) (64,695) (29,694) Cash flows from investing activities: Purchase of restricted investments — (7,897) — Purchase of property and equipment (25,444) (2,370) (108) Patent costs (1,381) (1,405) (1,037)Purchase of available-for-sale securities (274,368) — — Maturity of available-for-sale securities 134,913 — — Release and maturity of restricted investments 7,250 — — Net cash used in investing activities (159,030) (11,672) (1,145) Cash flows from financing activities: Proceeds from exercise of options and warrants and the sale of common stock, net of offering costs 104,249 145,986 178,681 Repayments of long-term debt (94) (89) (85) Other financing activities, net — (226) — Net cash provided by financing activities 104,155 145,671 178,596 (Decrease) increase in cash and cash equivalents (183,414) 69,304 147,757 Cash and cash equivalents: Beginning of period 256,965 187,661 39,904 End of period $73,551 $256,965 $187,661 Supplemental disclosure of cash flow information: Cash paid during the year for interest $77 $144 $86 Supplemental schedule of noncash investing activities and financing activities: Issuance of common stock in satisfaction of warrants and other liabilities $11,785 $78,214 $32,191 Issuance of notes payable in relation to the purchase of certain real and personal property located inAndover, Massachusetts $4,613 $— $— Capitalized interest $137 $— $— Tenant improvements paid by landlord $153 $6,214 $— Property and equipment included in accrued expenses $277 $3,964 $— Patent costs included in accrued expenses $270 $195 $— See accompanying notes to consolidated financial statements. F-6Table of ContentsSarepta Therapeutics, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. ORGANIZATION AND NATURE OF BUSINESSSarepta Therapeutics, Inc. and its wholly-owned subsidiaries (“Sarepta” or the “Company”) is a biopharmaceutical company focused on the discoveryand development of unique RNA-targeted therapeutics for the treatment of rare, infectious and other diseases. Applying its proprietary, highly-differentiatedand innovative platform technologies, the Company is able to target a broad range of diseases and disorders through distinct RNA-targeted mechanisms ofaction. The Company is primarily focused on rapidly advancing the development of its potentially disease-modifying Duchenne muscular dystrophy(“DMD”) drug candidates, including its lead DMD product candidate, eteplirsen, designed to skip exon 51. The Company is also developing therapeuticsusing its technology for the treatment of drug resistant bacteria and infectious, rare and other human diseases.The Company has not generated any revenue from product sales to date and there can be no assurance that revenue from product sales will be achieved.Even if it does achieve revenue from product sales, the Company is likely to continue to incur operating losses in the near term.As of December 31, 2014, the Company had approximately $211.1 million of cash, cash equivalents and investments, consisting of $73.6 million ofcash and cash equivalents, $136.8 million of short-term investments and $0.8 million of restricted cash and investments. The Company believes that itsbalance of cash, cash equivalents and investments is sufficient to fund its current operational plan for the next twelve months. Without funding from the U.S.government, the Company would likely curtail certain infectious disease research and development efforts, though it may pursue additional cash resourcesthrough public or private financings, seek additional government contracts and establish collaborations with or license its technology to other companies.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTSBasis of PresentationThe accompanying consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in theUnited States (“U.S. GAAP”), reflect the accounts of Sarepta Therapeutics, Inc. and its wholly-owned subsidiaries. All intercompany transactions between andamong its consolidated subsidiaries have been eliminated. Management has determined that the Company operates in one segment: the development ofpharmaceutical products on its own behalf or in collaboration with others.Estimates and UncertaintiesThe preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets, liabilities, equity, revenue, expenses and the disclosure of contingent assets and liabilities. Actual results could differfrom those estimates. Significant items subject to such estimates and assumptions include the valuation of stock-based awards and liability classifiedwarrants, research and development expenses, income tax and revenue recognition.ReclassificationsThe Company has revised the presentation as well as the caption of certain current liabilities within the consolidated balance sheets to conform to thecurrent period presentation. “Accrued liabilities” of $9.6 million as of December 31, 2013 is reclassified from “accounts payable” to “accrued liabilities”.“Accrued employee compensation” of $5.0 million as of December 31, 2013 is also included within “accrued liabilities”. The reclassification had no impacton total current liabilities or total liabilities. F-7Table of ContentsAdditionally, the Company has revised the presentation as well as the caption of certain cash flows from operating activities within the consolidatedstatements of cash flows to conform to the current period presentation. “Net decrease in other assets” of $1.6 million for the year ended December 31, 2013 isbroken out from “Net increase in accounts receivable and other assets “ and presented gross on the consolidated statements of cash flows. This revision hadno impact on net cash used in operating activities or change in cash and cash equivalents.Fair Value MeasurementsThe Company has certain financial assets and liabilities that are recorded at fair value which have been classified as Level 1, 2 or 3 within the fair valuehierarchy as described in the accounting standards for fair value measurements: • 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.The fair value of most of the Company’s financial assets is categorized as Level 2 within the fair value hierarchy. These financial assets have beeninitially valued at the transaction price and subsequently valued, at the end of each reporting period, through income-based approaches utilizing marketobservable data. For additional information related to fair value measurements, please read Note 4, Fair Value Measurements to the consolidated financialstatements.Cash and Cash EquivalentsOnly investments that are highly liquid and readily convertible to cash and have original maturities of three months or less are considered cashequivalents. As of December 31, 2014 and 2013, cash equivalents were comprised of money market funds.Available-For-Sale Debt SecuritiesAvailable-for-sale debt securities are recorded at fair market value and unrealized gains and losses are included in accumulated other comprehensiveloss in stockholder’s equity. Realized gains and losses are reported in interest income and other, net, on a specific identification basis.Accounts ReceivableThe Company’s accounts receivable primarily arise from government research contracts and other grants. They are generally stated at invoiced amountand do not bear interest. Because the accounts receivable are primarily from government agencies and historically no amounts have been written off, anallowance for doubtful accounts receivable is not considered necessary. The balance for unbilled receivables for both years ended December 31, 2014 and2013 was $2.4 million, all of which is subject to government audit and will not be collected until the completion of the audit.Property and EquipmentProperty and equipment are initially recorded at cost, including the acquisition cost and all costs necessarily incurred to bring the asset to the locationand working condition necessary for its intended use. The cost of normal, recurring, or periodic repairs and maintenance activities related to property andequipment are expensed F-8Table of Contentsas incurred. The cost for planned major maintenance activities, including the related acquisition or construction of assets, is capitalized if the repair willresult in future economic benefits. Interest costs incurred during the construction period of major capital projects are capitalized until the asset is ready for itsintended use, at which point the interest costs are amortized as depreciation expense over the life of the underlying asset.The Company generally depreciates the cost of its property and equipment using the straight-line method over the estimated useful lives of therespective assets, which are summarized as follows: Asset Category Useful livesLab equipment 5 yearsOffice equipment 5 yearsSoftware and computer equipment 5 yearsLeasehold improvements Lesser of the useful life or the term of the respective leaseLand Not depreciatedBuilding 30 yearsConstruction in Progress Not depreciated until put into servicePatent CostsPatent costs consist primarily of external legal costs, filing fees incurred to file patent applications and renewal fees on proprietary technologydeveloped or 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 a patent 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 the shorter of the estimated economic lives or the initial term of the patents, generally 20 years. Patent amortization expense was $0.5 million,$0.4 million and $0.6 million for the years ended December 31, 2014, 2013 and 2012, respectively. The Company also expensed the remaining net bookvalue of previously capitalized patents that were later abandoned of $0.1 million, $0.5 million and $0.4 million in 2014, 2013 and 2012, respectively, whichwere included in research and development expenses on the consolidated statements of operations and comprehensive loss.The following table summarizes the estimated future amortization for patent costs for the next five years: As ofDecember 31,2014(in thousands) 2015 $479 2016 479 2017 464 2018 456 2019 450 Total $2,328 Impairment of Long-Lived AssetsLong-lived assets held and used by the Company and intangible assets with definite lives are reviewed for impairment whenever events orcircumstances indicate that the carrying amount of assets may not be recoverable. The Company evaluates recoverability of assets to be held and used bycomparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the asset. If such assets are considered to be impaired, theimpairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Such reviews assessthe fair value of the assets based upon estimates of future cash flows that the assets are expected to generate. F-9Table of ContentsRevenue RecognitionAll of the Company’s revenue is generated from government research contracts and other grants. The Company’s contracts with the U.S. governmentare cost plus contracts providing for reimbursed costs which include overhead and general and administrative costs and a target fee. The Company recognizesrevenue from government research contracts during the period in which the related expenses are incurred and presents such revenues and related expenses ona gross basis in the consolidated financial statements. The Company’s government contracts are subject to government audits, which may result in catch-upadjustments. For additional information related to revenue, please read Note 12, Government Contracts to the consolidated financial statements.The Company defers recognition of non-refundable up-front fees if it has continuing performance obligations when the technology, right, product orservice conveyed in conjunction with the non-refundable fee has no utility to the licensee that is separate and independent of its performance under the otherelements of the arrangement. In addition, if the Company has continuing involvement through research and development services that are required becauseof its know-how or because the services can only be performed by it, such up-front fees are deferred and recognized over the period of continuinginvolvement. As of December 31, 2014, the Company had deferred revenue of $3.3 million, which primarily represents up-front fees which it will recognizeas revenue upon settlement of certain obligation contingencies.Research and DevelopmentResearch and development expenses consist of costs associated with research activities as well as those with the Company’s product developmentefforts, conducting preclinical studies, clinical trials and manufacturing activities. Research and development expenses are expensed as incurred. Paymentsmade for research and development services prior to the services being rendered are recorded as prepaid assets on the Company’s consolidated balance sheetsand are expensed as the services are provided.Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities pursuant to anexecutory contractual arrangement will be deferred and capitalized, and recognized as an expense as the related goods are delivered or the related services areperformed. If the Company does not expect the goods to be delivered or services to be rendered, the advance payment capitalized will be charged to expense.Direct research and development expenses associated with the Company’s programs include clinical trial site costs, clinical manufacturing costs, costsincurred for consultants and other external services, such as data management and statistical analysis support and materials and supplies used in support ofclinical programs. Indirect costs of the Company’s clinical programs include salaries, stock-based compensation and an allocation of our facility costs.When third-party service providers’ billing terms do not coincide with the Company’s period-end, the Company is required to make estimates of itsobligations 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-Based CompensationThe Company’s stock-based compensation programs include stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), stockappreciation rights (“SARs”) and employee stock purchase program (“ESPP”). The Company accounts for stock-based compensation using the fair valuemethod. F-10Table of ContentsThe fair values of stock options and SARs are estimated on the date of grant using the Black-Scholes-Merton option-pricing model. The fair values ofRSAs and RSUs are based on the fair market value of the Company’s common stock on the date of the grant. The fair value of stock awards, withconsideration given to estimated forfeitures, is recognized as stock-based compensation expense on a straight-line basis over the vesting period of the grants.For stock awards with performance-vesting conditions, the Company does not recognize compensation expense until it is probable that the performance-vesting condition will be achieved.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 purchase period. The fair valuesof stock purchase rights are estimated using the Black-Scholes-Merton option-pricing model. The fair value of the look-back provision plus the 15%discount is recognized on a graded-vesting basis as stock-based compensation expense over the purchase period.For additional information related to stock-based compensation, please read Note 13, Stock-Based Compensation to the consolidated financialstatements.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 respectivetax bases 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 U.S. Accordingly, the Company does not provide for deferred taxes on the excess of the financial reportingover the tax basis in its investments in foreign subsidiaries as they are considered permanent in duration. To date, the Company has not had any earnings inits 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 likelythan not 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 likelythan not of being sustained upon an examination.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.During 2014, 2013 and 2012, the Company recognized rent expense and occupancy costs of $4.4 million, $3.4 million and $2.6 million, respectively.Commitments and ContingenciesThe Company records liabilities for legal and other contingencies when information available to the Company indicates that it is probable that aliability has been incurred and the amount of loss can be reasonably estimated. Legal costs in connection with legal and other contingencies are expensed ascosts are incurred.Subsequent EventsSubsequent events have been evaluated up through the date that these consolidated financial statements were filed and no material subsequent eventswere identified.Recent Accounting PronouncementsIn August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15 which requires anentity’s management to evaluate whether there are conditions or events, F-11Table of Contentsconsidered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that thefinancial statements are issued or available to be issued. Substantial doubt about an entity’s ability to continue as a going concern exists when relevantconditions and events, considered in the aggregate, indicate that it is probable that the entity will not be able to meet its obligations as they become duewithin one year after the date that the financial statements are issued or available to be issued. If conditions or events raise substantial doubt about an entity’sability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration of management’s plans to mitigate those relevantconditions or events, the entity is required to disclose (1) principal conditions or events that raise substantial doubt about the entity’s ability to continue as agoing concern, (2) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, and(3) management’s plans that alleviate substantial doubt about the entity’s ability to continue as a going concern. However, if conditions or events raisesubstantial doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of management’s plans,an entity should include a statement in the footnote indicating that there is substantial doubt about the entity’s ability to continue as a going concern withinone year after the date that the financial statements are issued or available to be issued. ASU No. 2014-15 is effective for the annual period ending afterDecember 15, 2016, with early adoption permitted. The Company has not yet adopted this standard.In June 2014, the FASB issued ASU No. 2014-12 which requires that companies that issue stock-based awards treat a performance target that affectsvesting and that could be achieved after the requisite service period as a performance condition. ASU No. 2014-12 is effective for fiscal years beginning afterDecember 15, 2015, with early adoption permitted. The Company elected to early adopt this ASU but does not expect the adoption of this guidance to have amaterial effect on its consolidated financial statements as the performance targets of the Company’s stock-based awards with performance conditions must beachieved prior to the end of the requisite service period.In June 2014, the FASB issued ASU No. 2014-10, which eliminates the concept of a development stage entity (“DSE”) in its entirety from U.S.GAAP. Under existing guidance, DSEs are required to report incremental information, including inception-to-date financial information, in their financialstatements. A DSE is an entity devoting substantially all of its efforts to establishing a new business and for which either planned principal operations havenot yet commenced or have commenced but there have been no significant revenues generated from that business. Entities classified as DSEs will no longerbe subject to these incremental reporting requirements after adopting ASU No. 2014-10. ASU No. 2014-10 is effective for fiscal years beginning afterDecember 15, 2014, with early adoption permitted. Retrospective application is required for the elimination of incremental DSE disclosures. Prior to theissuance of ASU No. 2014-10, the Company had met the definition of a DSE since its inception. The Company elected to early adopt this ASU and, therefore,eliminated the incremental disclosures previously required of DSEs.In May 2014, the FASB issued ASU No. 2014-09, which amends the guidance for accounting for revenue from contracts with customers. This ASUsupersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and creates a new Topic 606,Revenue from Contracts with Customers. Under the new guidance, a company is required to recognize revenue when it transfers goods or renders services tocustomers at an amount that it expects to be entitled to in exchange for these goods or services. This guidance is effective for fiscal years beginning afterDecember 15, 2016, with early adoption not permitted. Two adoption methods are permitted: retrospectively to all prior reporting periods presented, withcertain practical expedients permitted; or retrospectively with the cumulative effect of initially adopting the ASU recognized at the date of initialapplication. The Company has not yet determined which adoption method it will utilize or the effect that the adoption of this guidance will have on itsconsolidated financial statements. F-12Table of Contents3. SIGNIFICANT AGREEMENTSUniversity of Western AustraliaIn April 2013, the Company and the University of Western Australia (“UWA”) entered into an agreement under which an existing exclusive licenseagreement between the Company and UWA was amended and restated (“the Amended and Restated UWA License Agreement”). The Amended and RestatedUWA License Agreement grants the Company specific rights to the treatment of DMD by inducing the skipping of certain exons. The Company’s leadclinical candidate, eteplirsen, falls under the scope of the license granted under the Amended and Restated UWA License Agreement. Any future drugcandidates developed for the treatment of DMD by exon skipping may or may not fall under the scope of the Amended and Restated UWA LicenseAgreement.Under the Amended and Restated UWA License Agreement, the Company is required to meet certain performance diligence obligations related todevelopment and commercialization of products developed under the license. The Company believes that it is currently in compliance with theseobligations. In 2013, the Company made an initial upfront payment to UWA of $1.1 million upon execution of the Amended and Restated UWA LicenseAgreement. The Company may be required to make additional payments to UWA of up to $6 million in aggregate based on successful achievement of certainregulatory and commercial milestones relating to eteplirsen and up to five additional product candidates and may also be required to pay royalties of single-digit percentages on net sales of products covered by issued patents licensed from UWA during the term of the Amended and Restated UWA LicenseAgreement. As of December 31, 2014, the Company is not under any current obligation to make royalty payments to UWA until achievement of the firstcommercial sale.Charley’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 research grant of approximately $2.5 million and, in May 2009, the grant authorization was increased to a total of $5.0million. Pursuant to the related sponsored research agreement, the grant was provided to support the development of product candidates related to exon 50skipping which utilize the Company’s proprietary technologies. The grant requires the Company to make mid-single-digit percentage royalty payments onnet sales of any such products that are successfully commercialized up to the total amount received under the grant.As of December 31, 2014, 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. To date, the Company has recognized less than $0.1 million asrevenue and did not recognize any revenue for the years ended December 31, 2014, 2013 or 2012. The Company does not expect to receive any incrementalfunding under the grant and has deferred $3.3 million of previous receipts which are anticipated to be recognized as revenue upon resolution of outstandingperformance obligations.Isis—Ercole AgreementIn May 2003, Ercole Biotechnology, Inc. (“Ercole”) and Isis Pharmaceuticals, Inc. (“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 valued at approximately $8.4 million and the assumption of approximately $1.8 million inliabilities of Ercole. The Company also issued warrants to purchase its common stock (also classified as equity), which were valued at $0.4 million, inexchange for certain outstanding warrants issued by Ercole. In connection with the March 2008 acquisition, the Company assumed Ercole’s obligationsunder the Isis agreement. This agreement contains several cross-licenses between the parties granting each party certain exclusive and nonexclusive rightsunder a selected set of the other parties’ patents and patent applications for the research, development, and commercialization of antisense therapeutics usingRNA splicing with respect to certain gene targets. F-13Table of ContentsSubject to the satisfaction of certain milestones triggering the obligation to make any such payments, the Company may be obligated to makemilestone payments to Isis of up to $23.4 million in the aggregate for each product developed under a licensed patent under this agreement. As ofDecember 31, 2014, the Company has not made, 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 this agreement is from a fraction of a percent to mid-single-digit percentages. The Company believes that its DMD and infectious disease programswill not fall under the scope of this agreement and therefore will not be subject to milestone or royalty obligations under its provisions.Subject to the satisfaction of certain milestones triggering the obligation to make any such payments, Isis may be obligated to make milestonepayments to the Company of up to $21.1 million in the aggregate for each product developed under a licensed patent under this agreement. As ofDecember 31, 2014, Isis has not made, and is not under any current obligation to make, any such milestone payments, as the conditions triggering any suchmilestone payment obligations have not been satisfied. The percentage royalty payments required to be made by Isis under the terms of this agreement is afraction of a percent.As to any product commercialized under the agreement, the agreement will terminate on the expiration date of the last to expire licensed patentcovering such product. The last to expire Sarepta-owned patent covered under this agreement expired on September 9, 2014. The last Isis-owned patentcovered under this agreement expires on 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 portionof the assets for the benefit of creditors by the other party with certain exceptions.4. FAIR VALUE MEASUREMENTSThe tables below present information about the Company’s financial assets and liabilities that are measured and carried at fair value and indicate thelevel within the fair value hierarchy of the valuation techniques it utilizes to determine such fair value: Fair Value Measurement as of December 31, 2014 Total Level 1 Level 2 Level 3 (in thousands) Money market funds $47,740 $47,740 $— $— Commercial paper 2,997 — 2,997 — Government and government agency bonds 75,250 — 75,250 — Corporate bonds 58,546 — 58,546 — Certificates of deposit 647 647 — — Total assets $185,180 $48,387 $136,793 $— Fair Value Measurement as of December 31, 2013 Total Level 1 Level 2 Level 3 (in thousands) Money market funds $185,000 $185,000 $— $— Certificates of deposit 7,897 7,897 — — Total assets $192,897 $192,897 $— $— F-14Table of Contents Fair Value Measurement as of December 31, 2014 Total Level 1 Level 2 Level 3 (in thousands) Warrants $— $— $— $— Total liabilities $— $— $— $— 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 The Company’s assets with fair value categorized as Level 1 within the fair value hierarchy include money market funds and certificates of deposit.Money market funds are publicly traded mutual funds and are presented as cash equivalents on the consolidated balance sheets as of December 31, 2014.The Company’s assets with fair value categorized as Level 2 within the fair value hierarchy consist of commercial paper, government and governmentagency bonds and corporate bonds. These assets have been initially valued at the transaction price and subsequently valued, at the end of each reportingperiod, through income-based approaches utilizing market observable data.The Company’s liabilities with fair value categorized as Level 3 within the fair value hierarchy consist of warrants issued in January and August 2009.The fair value of these liabilities is determined using the Black-Scholes-Merton option-pricing model, which requires the use of significant judgment andestimates for the inputs in the model. As of December 31, 2014, all outstanding warrants issued in January and August 2009 had been exercised or forfeited.The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payableapproximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts for long-term debt and notespayable approximate fair value based on market activity for other debt instruments with similar characteristics and comparable risk.5. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTSIt is the Company’s policy to mitigate credit risk in its financial assets by maintaining a well-diversified portfolio that limits the amount of exposure asto maturity and investment type. The following tables summarize the Company’s cash, cash equivalents and short-term investments for each of the periodsindicated: As of December 31, 2014 AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses FairMarketValue (in thousands) Cash and money market funds $73,551 $— $— $73,551 Commercial paper 2,997 — — 2,997 Government and government agency bonds 75,289 — (39) 75,250 Corporate bonds 58,602 — (56) 58,546 Total $210,439 $— $(95) $210,344 As reported: Cash and cash equivalents 73,551 — — 73,551 Short-term investments 136,888 — (95) 136,793 Total $210,439 $— $(95) $210,344 F-15Table of Contents As of December 31, 2013 AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses FairMarketValue (in thousands) Cash and money market funds $256,965 $— $— $256,965 Total $256,965 $— $— $256,965 As reported: Cash and cash equivalents $256,965 $— $— $256,965 Total $256,965 $— $— $256,965 6. OTHER CURRENT ASSETSThe following table summarizes the Company’s other current assets for each of the periods indicated: As ofDecember 31,2014 As ofDecember 31,2013 (in thousands) Manufacturing-related deposits $30,668 $— Prepaids 2,797 2,423 Other 1,571 638 Total other current assets $35,036 $3,061 7. PROPERTY AND EQUIPMENTProperty and equipment are recorded at historical cost, net of accumulated depreciation. The following table summarizes components of property andequipment, net for each of the periods indicated: As of December 31, 2014 2013 (in thousands) Land $4,158 $— Building 12,617 1,856 Software and computer equipment 4,415 225 Lab equipment 11,772 7,728 Office equipment 2,713 1,207 Leasehold improvements 21,640 10,058 Construction in progress 1,082 11,303 Property and equipment, gross 58,397 32,377 Less accumulated depreciation (19,896) (17,328)Property and equipment, net $38,501 $15,049 For the years ended December 31, 2014, 2013 and 2012, depreciation expenses totaled $3.2 million, $0.8 million and $1.0 million, respectively.Andover, Massachusetts FacilityOn May 22, 2014, the Company entered into a Purchase and Sales Agreement with Eisai, Inc. to acquire certain real and personal property located inAndover, Massachusetts. The aggregate purchase price, including F-16Table of Contentscertain fees and taxes was approximately $15.1 million, of which approximately $10.1 million was paid at closing and the remaining $5.0 million will bepaid in two installments by July 15, 2015 and January 15, 2016. On July 15, 2014, the closing of the purchase of the real and personal property wascompleted. In connection with this transaction, as of December 31, 2014, the Company recorded $4.2 million as land and $10.8 million as building on theconsolidated balance sheets.8. ACCRUED EXPENSESThe following table summarizes the Company’s accrued expenses for each of the periods indicated: As ofDecember 31,2014 As ofDecember 31,2013 (in thousands) Accrued contract manufacturing costs $3,271 $1,414 Accrued facility-related costs 300 2,843 Accrued contract research costs 3,782 2,785 Accrued employee compensation costs 6,170 5,048 Accrued professional fees 3,403 1,235 Other 440 1,276 Total accrued expenses $17,366 $14,601 9. WARRANTSThe Company has periodically issued warrants in connection with certain common stock offerings. The warrants issued in January and August 2009were classified as liabilities as opposed to equity due to their settlement terms which required settlement in registered shares. The outstanding warrantsclassified as liabilities were recorded on the consolidated balance sheets and adjusted to fair value at each financial reporting period, with changes in the fairvalue being recorded as “Loss on change in warrant valuation” in the consolidated statements of operations and comprehensive loss. Fair value wasdetermined using the Black-Scholes-Merton option-pricing model, which requires the use of significant judgment and estimates for the inputs used in themodel. As of December 31, 2014, there were no outstanding warrants as all warrants issued in January and August 2009 have been exercised or have expired.The following table summarizes the reconciliation of the change in value of the Company’s liability classified warrants for each of the periodsindicated: For the Year Ended December 31, 2014 2013 2012 (in thousands) Balance at beginning of the period $9,006 $65,193 $5,446 Increase in value of warrants 2,779 22,027 91,938 Reclassification to stockholders’ equity upon exercise of warrants (11,785) (78,214) (32,191) Balance at end of the period $— $9,006 $65,193 F-17Table of ContentsThe following table summarizes the Company’s warrant activity for each of the periods indicated: For the Year Ended December 31, 2014 2013 2012 Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Warrants outstanding at beginning of the period 791,508 $10.05 3,127,618 $8.48 4,867,477 $9.54 Exercised (765,915) 10.12 (2,336,110) 7.96 (1,739,859) 11.81 Canceled or expired (25,593) 7.92 — — — — — $— 791,508 $10.05 3,127,618 $8.48 10. INDEBTEDNESSNotes payableIn connection with the acquisition of the Andover, Massachusetts facility, the Company issued a promissory note with a principal amount of $5.0million. The promissory note with interest on the outstanding balance at the lowest short-term applicable federal rate per annum will be paid in twoinstallments on July 15, 2015 and January 15, 2016. As a result, the Company recorded $2.5 million as current portion of notes payable and $2.3 million asnotes payable on the consolidated balance sheets as of December 31, 2014.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, 2014, these loans had unpaid principal balances of $1.0 million and $0.6 million, for a total indebtedness of $1.6million. For each the three years ended December 31, 2014, 2013 and 2012, the Company incurred interest expense on these loans of approximately $0.1million.The following table summarizes the total payments under the Company’s debt arrangements: Long-termDebt (1) NotesPayable (1) Total (in thousands) 2015 $171 $2,515 $2,686 2016 171 2,504 2,675 2017 171 — 171 2018 171 — 171 2019 171 — 171 Thereafter 1,224 — 1,224 Total Payments $2,079 $5,019 $7,098 (1)Interest is included11. EQUITY FINANCINGIn September and October 2012, the Company sold 2.0 million shares of its common stock through an At-the-Market (“ATM”) offering (“2012 ATM”)which generated net proceeds of $36.2 million. In December 2012, the Company sold 4.9 million shares of its common stock for $25.25 per share in anoffering registered under the Securities Act. The offering generated net proceeds of $118.1 million. F-18Table of ContentsIn January 2013, the Company sold approximately 87,000 shares of common stock through the 2012 ATM offering. The sales in January 2013generated $2.1 million in net proceeds and fully exhausted the sales of stock available under the 2012 ATM sales agreement.In July 2013, the Company entered into an ATM offering (“2013 ATM”) allowing the Company to sell, at its option, up to an aggregate of $125.0million of shares of common stock at market prices. Through September 30, 2013, the Company sold approximately 3.4 million shares under the 2013 ATM,generating $123.0 million in net proceeds and completed the sales of common stock available under the arrangement.In April 2014, the Company sold approximately 2.7 million shares of common stock at an offering price of $38.00 per share. The Company receivedaggregate net proceeds of approximately $94.5 million, after deducting the underwriting discounts and offering related transaction costs.12. 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 on a gross basis in the consolidated statement of operations and comprehensive loss. Inthe periods presented, substantially all of the revenue the Company generated was derived from research contracts and grants from the U.S. government. As ofDecember 31, 2014, the Company had completed all development activities of its contracts with the Department of Defense (“DoD”).The following table sets forth the revenue from each of the Company’s contracts with the U.S. government and other revenue for each of the periodsindicated: For the Year EndedDecember 31 2014 2013 2012 (in thousands) July 2010 Agreement (Ebola and Marburg Intravenous Administration) $6,816 $9,064 $36,557 June 2010 Agreement (H1N1/Influenza) — 427 — August 2012 Agreement (Intramuscular administration) — 2,791 673 European Union SKIP-NMD Agreement (DMD) 1,432 1,263 — Children’s National Medical Center Agreement (DMD) 659 674 — Carolinas Medical Center Agreement (DMD) 850 — — Other Agreements — — 99 Total $9,757 $14,219 $37,329 July 2010 Agreement (Ebola and Marburg Intravenous Administration)In July 2010, the Company was awarded the DoD contract managed by its Joint Project Manager Medical Countermeasure Systems (“JPM-MCS”)program for the advanced development of its hemorrhagic fever virus therapeutic candidates, AVI-6002 and AVI-6003, against Ebola and Marburg viruses,respectively. In February 2012, the Company announced that it received permission from the U.S. Food and Drug Administration (“FDA”) to proceed with asingle oligomer from AVI-7288, one of the two components that make up AVI-6003, as the lead product candidate against Marburg virus infection. In August2012, the Company received a stop-work order related to the Ebola virus portion of the contract and, in October 2012, the DoD terminated the Ebola portionof the contract for the convenience of the government due to government funding constraints.The Marburg portion of the contract was structured into four segments and had an aggregate remaining period of performance spanning approximatelyfour years if the DoD exercised its options for all segments. Activities under the first segment began in July 2010 and included preclinical studies and Phase Istudies in F-19Table of Contentshealthy volunteers. In February 2014, the Company announced positive safety results from the Phase I multiple ascending dose study of AVI-7288. In July2014, the Marburg portion of the agreement expired. For the years ended December 31, 2014, 2013 and 2012, the Company recognized $6.8 million, $9.1million and $36.6 million, respectively, as revenue under this agreement. The majority of the revenue under this contract has been recognized as ofDecember 31, 2014 and only revenue for contract finalization, if any, is expected in the future.June 2010 Agreement (H1N1/Influenza)In June 2010, the Company entered into an agreement with the Defense Threat Reduction Agency (“DTRA”) to advance the development of AVI-7100as a medical countermeasure against the pandemic H1N1 influenza virus in cooperation with the Transformational Medical Technologies program (“TMT”)of the DoD. The period of performance for this agreement ended in June 2011. The Company recognized $0.4 million associated with this agreement for theyear ended December 31, 2013, which was the result of an indirect rate adjustment.August 2012 Agreement (Intramuscular administration)In August 2012, the Company was awarded a contract from the JPM-MCS program. The contract was for approximately $3.9 million to evaluate thefeasibility of an intramuscular route of administration using AVI-7288, the Company’s candidate for treatment of the Marburg virus. The period ofperformance for this contract concluded in the third quarter of 2013. Accordingly, no revenue was recognized since the conclusion of the contract. For theyears ended December 31, 2013 and 2012, the Company recognized $2.8 million and $0.7 million, respectively, as revenue under this agreement.European Union SKIP-NMD Agreement (DMD)In November 2012, the Company entered into an agreement for a collaborative research project partially funded by the E.U. Health Innovation. Theagreement provides for approximately $2.5 million for research in certain development and study related activities for a DMD therapeutic. For the yearsended December 31, 2014 and 2013, the Company recognized $1.4 million and $1.3 million, respectively, as revenue under this agreement. The majority ofthe revenue under this contract has been recognized as of December 31, 2014 and only revenue for contract finalization, if any, is expected in the future.Children’s National Medical Center Agreement (DMD)In July 2013, the Company entered into an agreement totaling $1.3 million to provide drug product to Children’s National Medical Center to conductresearch related to the Company’s DMD program. During each of the years ended December 31, 2014 and 2013, the Company recognized $0.7 million asrevenue under the agreement.Carolinas Medical Center Agreement (DMD)The Company entered into a collaboration agreement with Carolinas Medical Center (“CMC”) to co-develop one of the Company’s DMD programs.Under the agreement, CMC was obligated to reimburse certain preclinical costs incurred by the Company. All preclinical work was completed and theCompany recognized revenue of $0.9 million for the twelve months ended December 31, 2014.13. STOCK-BASED COMPENSATIONIn June 2011, the Company’s stockholders approved the 2011 Equity Incentive Plan (“2011 Plan”). The 2011 Plan, which authorized 13 million sharesof common stock to be issued, allows for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performanceshares and performance units. As of December 31, 2014, 1.8 million shares of common stock remain available for future grant. F-20Table of ContentsIn June 2013, the Company’s stockholders approved the 2013 Employee Stock Purchase Plan (“ESPP”) with 250,000 shares of common stockavailable to be issued. As of December 31, 2014, 203,710 shares of common stock remain available for future grant.In September 2014, the Company’s stockholders approved the 2014 Employment Commencement Incentive Plan (the “2014 Plan”) with 640,000shares of common stock available to be issued. As of December 31, 2014, 640,000 shares of common stock remain available for future grant.Stock OptionsIn general, stock options have a ten year term and 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, subject to the terms of the applicable plan under which they were granted.The fair values of stock options granted during the periods presented were measured on the date of grant using the Black-Scholes-Merton option-pricing model, with the following assumptions: For the Year Ended December 31, 2014 2013 2012 Risk-free interest rate (1) 1.4 – 1.7% 0.7 – 1.7% 0.6 – 1.1% Expected dividend yield (2) — — — Expected lives (3) 4.7 – 4.9 years 4.8 – 5.0 years 4.8 – 5.3 years Expected volatility (4) 93.0 – 103.0% 80.0 – 90.7% 79.7 – 108.6% (1)The risk-free interest rate is estimated using an average of Treasury bill interest rates over a historical period commensurate with the expected term ofthe option that correlates to the prevailing interest rates at the time of grant.(2)The expected dividend yield is zero as the Company has not paid any dividends to date and does not expect to pay dividends in the future.(3)The expected lives are estimated using historical exercise behavior.(4)The expected volatility is estimated using a blend of calculated volatility of the Company’s common stock over a historical period and impliedvolatility in exchange-traded options of the Company’s common stock.The amounts estimated according to the Black-Scholes-Merton option-pricing model may not be indicative of the actual values realized upon theexercise of these options by the holders.Additionally, the Company is required to estimate potential forfeiture of stock grants and adjust stock-based compensation cost recorded accordingly.The estimate of forfeitures is adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates.Changes in estimated forfeitures are recognized through a cumulative catch-up in the period of change and impact the amount of stock compensationexpense to be recognized in future periods. F-21Table of ContentsThe following tables summarize the Company’s stock option activity for each of the periods indicated: For the Year Ended December 31, 2014 2013 2012 Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Grants outstanding at beginning of the period 4,190,367 $23.46 2,522,522 $11.76 2,417,659 $11.18 Granted 1,694,560 25.67 2,283,719 34.18 1,269,470 12.92 Exercised (86,007) 11.40 (241,056) 11.31 (371,353) 10.18 Canceled or expired (582,717) 22.79 (371,818) 16.83 (793,254) 12.59 Grants outstanding at end of the period 5,216,203 $24.45 4,190,367 $23.46 2,522,522 $11.76 Grants exercisable at end of the period 2,019,514 $18.69 1,051,329 $11.91 615,394 $12.71 Grants vested and expected to vest at end of the period 4,462,100 $23.27 3,467,069 $21.50 2,343,086 $11.73 The weighted-average fair value per share of stock options granted during the years ended December 31, 2014, 2013 and 2012 was $18.59, $22.86 and$9.54, respectively. AggregateIntrinsicValue(in thousands) WeightedAverageRemainingContractualLife (Years) Options outstanding at December 31, 2014 $7,794 8.04 Options exercisable at December 31, 2014 $5,973 7.04 Options vested and expected to vest at December 31, 2014 $7,671 7.94 The following table summarizes the Company’s stock options vested and exercised for each of the periods indicated: For the Year Ended December 31, 2014 2013 2012 (in thousands) Aggregate grant date fair value of stock options vested $17,672 $4,872 $3,749 Aggregate intrinsic value of stock options exercised $1,497 $5,444 $4,964 Stock Options with Service- and Performance-based ConditionsIn June 2013, the Company granted to executives approximately 0.4 million stock options with service- and performance-based conditions. Vesting isachieved based upon various regulatory filings including new drug application (“NDA”) for eteplirsen and investigational new drug (“IND”) submissions forother drug candidates and continuing service over a four-year period. Through the submission of two IND applications during 2014, 30% of performanceawards were triggered to be eligible to vest subject to the remaining service conditions of the awards. For the year ended December 31, 2014, the Companyhas recognized approximately $1.2 million in stock-based compensation expense related to the options with performance-based criteria.As of December 31, 2014, the total stock-based compensation expense related to non-vested awards with only service-vesting conditions not yetrecognized is approximately $40.9 million and those with service- and performance-based conditions approximates $9.1 million. F-22Table of ContentsRestricted Stock AwardsThe Company grants RSAs to members of its board of directors. The following table summarizes the Company’s RSA activity for each of the periodsindicated: For the Year Ended December 31, 2014 2013 2012 Shares WeightedAverageGrant DateFair Value Shares WeightedAverageGrant DateFair Value Shares WeightedAverageGrant DateFair Value Grants outstanding at beginning of the period 6,000 $34.92 4,998 $10.08 5,000 $8.46 Granted — — 6,000 34.92 4,998 10.08 Vested — — (4,998) 10.08 (5,000) 8.46 Canceled or expired — — — — — — Grants outstanding at end of the period 6,000 $34.92 6,000 $34.92 4,998 $10.08 Restricted Stock UnitsThe Company granted RSUs to employees in 2012. The following table summarizes the Company’s RSU activity for each of the periods indicated: For the Year Ended December 31, 2014 2013 2012 Shares WeightedAverageGrant DateFair Value Shares WeightedAverageGrant DateFair Value Shares WeightedAverageGrant DateFair Value Grants outstanding at beginning of the period 6,507 $5.40 38,260 $6.32 — $— Granted — — — — 39,877 6.28 Vested (6,507) 5.40 (31,379) 6.52 — — Canceled or expired — — (374) 5.40 (1,617) 5.40 Grants outstanding at end of the period — $— 6,507 $5.40 38,260 $6.32 Stock Appreciation RightsThe Company issues SARs to employees on the same terms as options granted to employees. The grant date fair value of the SARs is determined usingthe same valuation assumptions as for stock options described above. Stock-based compensation expense is recognized on a straight-line basis over thevesting 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. F-23Table of ContentsThe following table summarizes the Company’s SAR activity for each of the periods indicated: For the Year Ended December 31, 2014 2013 2012 Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Grants outstanding at beginning of the period 170,000 $18.18 170,000 $18.18 — $— Granted — — — — 170,000 18.18 Grants outstanding at end of the period 170,000 $18.18 170,000 $18.18 170,000 $18.18 Grants exercisable at end of the period 92,916 $17.80 50,416 $17.48 — $— Grants vested and expected to vest at end of the period 170,000 $18.18 170,000 $18.18 170,000 $18.18 AggregateIntrinsicValue(in thousands) WeightedAverageRemainingContractualLife (Years) SARs outstanding at December 31, 2014 $307 7.76 SARs exercisable at December 31, 2014 $179 7.76 SARs vested and expected to vest at December 31, 2014 $307 7.76 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 purchase period. The 24-monthaward period will end on August 31, 2016. For the year ended December 31, 2014, 46,290 shares of the Company’s common stock were purchased for totalproceeds of approximately $1.0 million.Stock-based Compensation ExpenseFor the years ended December 31, 2014, 2013 and 2012, total stock-based compensation expense was $20.3 million, $11.1 million and $3.1 million,respectively. The following table summarizes stock-based compensation expense by function included within the consolidated statements of operations andcomprehensive loss: For the Year EndedDecember 31, 2014 2013 2012 (in thousands) Research and development $8,269 $3,888 $1,173 General and administrative 12,076 7,239 1,905 Total $20,345 $11,127 $3,078 F-24Table of ContentsThe following table summarizes stock-based compensation expense by grant type included within the consolidated statements of operations andcomprehensive loss: For the Year Ended December 31, 2014 2013 2012 (in thousands) Stock options $18,388 $9,632 $2,867 Restricted stock awards 204 149 38 Restricted stock units 1 269 63 Stock appreciation rights 587 593 110 Employee stock purchase plan 1,165 484 — Total $20,345 $11,127 $3,078 14. 401 (K) PLANThe Company sponsors a 401 (k) Plan (“the Plan”) which is a defined contribution plan. It is available to all employees who are age 21 or older.Participants may make voluntary contributions and the Company makes matching contributions according to the Plan’s matching formula. All matchingcontributions fully vest after one year of service. The expense related to the Plan primarily consists of the Company’s matching contributions.Expense related to the Plan totaled $0.6 million, $0.4 million and $0.3 million for the years ended December 31, 2014, 2013 and 2012, respectively.15. RESTRUCTURINGIn December 2011, the Company restructured its operations by reducing its workforce by 35 employees. In November 2012, the Company notified 21Bothell, Washington based employees that they would be terminated as part of the corporate headquarters relocation to Cambridge, Massachusetts.Terminated employees were given various incentives to remain through a transition period which was completed in 2013. During 2013, the transition periodwas extended for an employee through the second quarter of 2014. As of June 30, 2014, the program was completed.The following table summarizes changes in the liability and the balance at year end related to these restructuring plans for each of the periodsindicated. For the Year EndedDecember 31, 2014 2013 2012 (in thousands) Balance at beginning of the period $44 $185 $828 Restructuring charge 14 764 185 Payments (58) (905) (828) Balance at ending of the period $— $44 $185 F-25Table of ContentsThe following table summarizes restructuring expense by function for each of the periods indicated. For the Year EndedDecember 31, 2014 2013 2012 (in thousands) Research and development $14 $414 $69 General and administrative — 350 116 Total $14 $764 $185 16. INCOME TAXESAs of December 31, 2014, the Company had federal and state net operating loss carryforwards of $324.0 million and $220.9 million, respectively,available to reduce future taxable income, which expire between 2015 and 2034. Utilization of these net operating losses could be limited under Section 382of the Internal Revenue Code and similar state laws based on ownership changes and the value of the Company’s stock. Additionally, the Company has$25.3 million and $5.0 million of federal and state research and development credits, respectively, available to offset future taxable income. These federaland state research and development credits begin to expire between 2018 and 2034 and between 2015 and 2029, respectively. Approximately $13.0 millionof the Company’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 accumulated deficit result from timing differences related todepreciation, amortization, treatment of research and development costs, limitations on the length of time that net operating losses may be carried forward,and differences in the recognition of stock-based compensation.The Company had gross deferred tax assets of $165.8 million and $133.6 million at December 31, 2014 and 2013, respectively, primarily from U.S.federal and state net operating loss carryforwards, U.S. federal and state research and development credit carryforwards, stock-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 assetwill not be realized.An analysis of the deferred tax assets (liabilities) is as follows: As of December 31, 2014 2013 (in thousands) Net operating loss carryforwards $115,699 $94,170 Difference in depreciation and amortization 2,800 2,492 Research and development tax credits 29,127 23,599 Stock-based compensation 13,637 9,036 Deferred rent 2,864 2,849 Deferred revenue 1,213 1,219 Other 413 208 Gross deferred tax assets 165,753 133,573 Valuation allowance (165,753) (133,573) Net deferred tax asset $— $— The net change in the valuation allowance for deferred tax assets was an increase of $32.2 million and $19.4 million for the years ended December 31,2014 and 2013, respectively, mainly due to the increase in the net operating loss carryforwards, stock-based compensation and research and development taxcredits. F-26Table of ContentsThe reconciliation between the Company’s effective tax rate and the income tax rate is as follows: For the Year EndedDecember 31, 2014 2013 2012 Federal income tax rate 34.0% 34.0% 34.0%Research and development tax credits 2.4 1.4 (0.6)Valuation allowance (21.6) (12.4) (7.5)Permanent Differences (2.4) (8.8) (25.9)Foreign rate differential (12.4) (14.2) — Effective tax rate — % — % — %Permanent differences affecting the Company’s effective tax rate include loss on changes in warrant valuation and losses in a foreign jurisdiction. OnDecember 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. For the years ended December 31, 2014 and 2013, Sarepta International C.V. incurred $48.5 million and $46.7 million of costs in connection with theresearch and development activities.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, 2014 or December 31, 2013, and has not recognized interest and/or penalties in the statement ofoperations for years ended December 31, 2014, 2013 or 2012. The Company has not recognized any liability for unrecognized tax benefits.17. NET LOSS PER SHAREBasic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding. Diluted net loss pershare is computed by dividing net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding.Given that the Company recorded a net loss for each of the periods presented, there is no difference between basic and diluted net loss per share since theeffect of common stock equivalents would be anti-dilutive and are, therefore, excluded from the diluted net loss per share calculation. For the Year Ended December 31, 2014 2013 2012 (in thousands, except for per share amounts) Net loss $(135,789) $(111,985) $(121,287) Weighted-average number of shares of common stock and common stock equivalents outstanding: Weighted-average number of common stock outstanding for computing basic net loss per share 40,026 33,850 23,602 Dilutive effect of outstanding warrants and stock awards after application of the treasury stock method* — — — Weighted-average number of common stock outstanding for computing diluted net loss per share 40,026 33,850 23,602 Net loss per share—basic and diluted $(3.39) $(3.31) $(5.14) *Warrants, stock options, restricted stock units and stock appreciation rights to purchase approximately 5,386,203, 5,158,382 and 5,858,000 shares ofcommon stock as of December 31, 2014, 2013 and 2012, respectively, were excluded from the net loss per share calculation as their effect would havebeen anti-dilutive. F-27Table of Contents18. COMMITMENTS AND CONTINGENCIESLease ObligationsIn June 2013, the Company entered into a lease agreement (“Cambridge lease”) for its headquarters located in Cambridge, Massachusetts. As ofDecember 31, 2014, the Company had entered into five amendments to the Cambridge lease, increasing its total rental space for its headquarters to 77,390square feet. The Cambridge lease and its amendments will expire in January 2021. The agreement calls for a security deposit in the form of a letter of credittotaling $0.6 million. The Company purchased a certificate of deposit (“CD”) to meet the requirement and it was recorded as a long-term restrictedinvestment in the consolidated balance sheets as of December 31, 2014.In June 2014, the Company entered into an agreement to sublease from an unrelated third party 10,939 square feet of office space. The sublease willexpire in February 2021.In January 2014, the Company entered into an agreement to sublease 15,077 square feet of office space to an unrelated third party. The sublease willexpire in July 2015.The Company also leases laboratory and office space in Corvallis, Oregon which will expire in December 2020.The following table summarizes the aggregate non-cancelable future minimum payments under the Company’s leases: As ofDecember 31,2014(in thousands) 2015 $4,382 2016 4,612 2017 4,729 2018 4,846 2019 4,966 Thereafter 5,628 Total minimum lease payments $29,163 Royalty ObligationsThe Company is also obligated to pay royalties upon the net sales of its DMD products. The royalty rates are in the low to mid-single-digit percentagesfor both inside and outside the United States. For example, under the agreement with Charley’s Fund, Inc. signed in October 2007, the Company is obligatedto pay a mid-single-digit percentage royalty on the net sales of any product developed pursuant to the agreement with Charley’s Fund up to a maximum of$3.4 million. In May 2003, the Company entered into a collaboration and license agreement with Ercole and Isis (“Isis-Ercole”). The range of percentage ofroyalty payments under this agreement, should such payments ever be made, is from a fraction of a percent to mid-single-digit percentages.Milestone ObligationsThe Company has license agreements for which it is obligated to pay development and commercial milestones as a product candidate proceeds fromthe submission of an IND application through approval for commercial sale. There were no significant milestone payments under these agreements for theyears ended December 31, 2014, 2013 or 2012. F-28Table of ContentsUnder the collaboration and license agreement with Isis-Ercole, the Company may be obligated to make up to $26.8 million in milestone payments. Asof December 31, 2014, the Company had not made any payments under this agreement and is not under any current obligation to make any such milestonepayments, as the conditions triggering any such milestone payment obligations have not been satisfied. Subject to the satisfaction of certain milestonestriggering the obligation to make any such payments, Isis may be obligated to make milestone payments to the Company of up to $21.1 million in theaggregate for each product developed under a licensed patent under this agreement. As of December 31, 2014, Isis has not made and is not under any currentobligation to make any such milestone payments, as the conditions triggering any such milestone payment obligations have not been satisfied.In April 2013, the Company and UWA entered into an agreement under which an existing exclusive license agreement between the Company andUWA was amended and restated. Under the terms of this agreement, UWA granted the Company an exclusive license to certain UWA intellectual propertyrights in exchange for up to $7.1 million in up-front, development and commercial milestone payments. For the years ended December 31, 2014 and 2013,the Company recorded $0 and $1.0 million, respectively, relating to certain up-front payments required under the agreement as research and developmentexpense in the consolidated statements of operations and comprehensive loss.In March 2014, the Company entered into a patent assignment agreement with a group of scientists (collectively, “Assignors”). Under the terms of theagreement, the Assignors transferred to the Company all rights, title and interest in certain patent rights as well as technical information related to the patents.The Company may be obligated to make up to $2.7 million in development and commercial milestone payments. For the year ended December 31, 2014, theCompany recorded $0.3 million relating to an up-front payment as research and development expense in the consolidated statement of operations andcomprehensive loss.LitigationIn the normal course of business, the Company may from time to time be named as a party to various legal claims, actions and complaints, includingmatters involving securities, employment, intellectual property, effects from the use of therapeutics utilizing its technology, or others. For example, purportedclass action complaints were filed against the Company and certain of its officers in the U.S. District Court for the District of Massachusetts on January 27,2014 and January 29, 2014. The complaints were consolidated into a single action (Corban v. Sarepta, et. al., No. 14-cv-10201) by order of the court onJune 23, 2014, and plaintiffs were afforded 28 days to file a consolidated amended complaint. The plaintiffs’ consolidated amended complaint, filed onJuly 21, 2014, seeks to bring claims on behalf of themselves and persons or entities that purchased or acquired securities of the Company between July 10,2013 and November 11, 2013. The consolidated amended complaint alleges that Sarepta and certain of its officers violated the federal securities laws inconnection with disclosures related to eteplirsen, the Company’s lead therapeutic candidate for DMD, and seeks damages in an unspecified amount. Pursuantto the court’s June 23, 2014 order, Sarepta filed a motion to dismiss the consolidated amended complaint on August 18, 2014, which remains pending. Inaddition, another complaint was filed in the U.S. District Court for the District of Massachusetts on December 3, 2014 by William Kader, Individually and onBehalf of All Others Similarly Situated v. Sarepta Therapeutics Inc., Chris Garabedian, and Sandy Mahatme, 1:14-cv-14318, asserting violations ofSection 10(b) of the Exchange Act and SEC Rule 10b-5 against the Company, and Chris Garabedian and Sandy Mahatme. The plaintiff in this case allegesthat the defendants made material misrepresentations or omissions during the putative class period of April 21, 2014 through October 27, 2014, regarding thesufficiency of the Company’s data for submission of an new drug application for eteplirsen and the likelihood of the FDA accepting a new drug applicationbased on that data. Plaintiff seeks compensatory damages and fees. The Company received service of the complaint on January 5, 2015. Sarepta will move todismiss the complaint. Additionally, on September 23, 2014, a derivative suit was filed against the Company’s Board of Directors with the Court of Chanceryof the State of Delaware (Terry McDonald, derivatively on behalf of Sarepta Therapeutics, Inc., et. al vs. Goolsbee et. al., No. 10157). The claims allege,among other things, that (i) the Company’s non-employee directors paid themselves excessive compensation fees for 2013, (ii) that the F-29Table of Contentscompensation for the Company’s CEO was also excessive and such fees were the basis for the CEO not objecting to or stopping the excessive fees for thenon-employee directors and (iii) that the disclosure in the 2013 proxy statement was deficient. The relief sought, among others, are disgorgement andrescindment of excessive or unfair payments and equity grants to the CEO and directors, unspecified damages plus interest, a class action declaration for thesuit, declaring approval of the Company’s Amended and Restated 2011 Equity Plan at the 2013 meeting ineffective and a revote for approved amendments,correction of misleading disclosures and plaintiff’s attorney fees. Given the relatively early stages of the proceedings in the Corban and Kader suits, at thistime, no assessment can be made as to the likely outcome of these claims or whether the outcomes would have a material impact on the Company. We do notbelieve that disposition of the McDonald suit should have a material financial impact on the Company. Purchase CommitmentsThe Company has entered into long-term contractual arrangements from time to time for the provision of goods and services. The following tablepresents non-cancelable contractual obligations arising from these arrangements: As ofDecember 31, 2014(in thousands) 2015 $56,232 2016 40,188 2017 23,940 2018 14,260 2019 5,705 Total purchase commitments $140,325 In February 2013, the Company issued two letters of credit totaling $7.3 million to a contract manufacturer in connection with certain manufacturingagreements. The obligations secured by the letters of credit are fulfilled upon payment for certain minimum volume commitments and constructionmilestones. To meet the requirement of the letters of credit, the Company purchased $7.3 million in CDs. As of December 31, 2014, both CDs were releasedand matured.19. FINANCIAL INFORMATION BY QUARTER (UNAUDITED) 2014 for Quarter Ended December 31 September 30 June 30 March 31 (in thousands) Revenue from research contracts and other grants $27 $1,059 $2,583 $6,088 Operating expenses: Research and development 30,832 21,852 20,641 20,906 General and administrative 13,917 12,882 12,213 10,303 Total operating expenses 44,749 34,734 32,854 31,209 Operating loss (44,722) (33,675) (30,271) (25,121) Other income (loss): Interest income and other, net 306 193 181 99 Gain (loss) on change in warrant valuation — 4,256 (3,784) (3,251) Total other income (loss) 306 4,449 (3,603) (3,152) Net loss $(44,416) $(29,226) $(33,874) $(28,273) Net loss per share—basic and diluted $(1.08) $(0.71) $(0.85) $(0.75) Shares used in per share calculations—basic and diluted 41,304 41,066 39,862 37,821 F-30Table of Contents 2013 for Quarter Ended December 31 September 30 June 30 March 31 (in thousands) Revenue from research contracts and other grants $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 Total operating expenses 35,475 29,101 20,038 19,889 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) Total other income (loss) 24,029 (17,097) (1,964) (26,669) 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 F-31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. 333-199037, 333-192287, 333-172823, 333-175031, 333-101826, 333-49996, 333-49994 and 333-34047) on Form S-8 of Sarepta Therapeutics, Inc., and subsidiaries of our reports datedFebruary 26, 2015, with respect to the consolidated balance sheets of Sarepta Therapeutics, Inc., and subsidiaries as of December 31, 2014 and 2013, and therelated consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three-year periodended December 31, 2014, and the effectiveness of internal control over financial reporting as of December 31, 2014, which reports appear in theDecember 31, 2014 annual report on Form 10-K of Sarepta Therapeutics, Inc., and subsidiaries.(signed) KPMG LLPCambridge, MassachusettsFebruary 26, 2015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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of 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 recentfiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, 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 reasonablylikely to 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 controlover financial reporting. February 26, 2015/s/ Christopher GarabedianChristopher GarabedianPresident 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of 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 recentfiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, 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 reasonablylikely to 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 controlover financial reporting. February 26, 2015/s/ Sandesh MahatmeSandesh MahatmeSenior 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, that theAnnual Report of Sarepta Therapeutics, Inc. on Form 10-K for the fiscal year ended December 31, 2014, 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. February 26, 2015/s/ Christopher GarabedianChristopher 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, 2014, 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. February 26, 2015/s/ Sandesh MahatmeSandesh 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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