UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
Or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-14895
Sarepta Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
215 First Street
Suite 415
Cambridge, MA
(Address of principal executive offices)
93-0797222
(I.R.S. Employer
Identification Number)
02142
(Zip Code)
Registrant’s telephone number, including area code: (617) 274-4000
Securities registered pursuant to Section 12(b) of the Act:
Tile of Each Class
Common Stock, $0.0001 par value
Name of Exchange on Which Registered
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 ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be
contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Emerging growth company
☐
Accelerated filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 29, 2018 (the
last business day of the registrant’s most recently completed second fiscal quarter) based on the closing price of $132.18 as reported on the Nasdaq Global Select
Market was approximately $8,769,647,061.
The number of outstanding shares of the registrant’s common stock as of the close of business on February 22, 2019 was 71,292,129.
The registrant has incorporated by reference into Part III of this Annual Report on Form 10-K, portions of its definitive Proxy Statement for its 2018 annual 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.
DOCUMENTS INCORPORATED BY REFERENCE
Sarepta Therapeutics, Inc.
FORM 10-K INDEX
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
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Forward-Looking Information
This Annual Report on Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
section in Item 7, and other materials accompanying this Annual Report on Form 10-K contain forward-looking statements or incorporate by reference
forward-looking statements. Statements that are not purely historical are forward-looking statements. Forward-looking statements 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. These statements address expectations, projections of future
results of operations or financial condition, or other “forward-looking” information. These statements relate to our future plans, objectives, expectations,
intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements include, but are not limited to:
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our belief that our proprietary technology platforms and collaborations can be used to develop novel pharmaceutical products to treat a broad
range of diseases and address key currently unmet medical needs;
our intention to leverage our technology platforms, organizational capabilities, collaborations and resources to lead the field of precision
genetic medicines, including the treatment of rare, neuromuscular and other diseases, with a diversified portfolio of product candidates;
our intention to focus on building our gene therapy engine, advancing the development of and potentially commercialize additional exon-
skipping product candidates, investing in our next-generation precision medicine, ensuring appropriate capitalization and nurturing our
culture;
our expectations regarding the continued growth of our business operations due, in part, to the commercialization of EXONDYS 51;
our technologies and programs, including those with strategic partners, and their respective potential benefits, including our PMO based
compounds’ potential to be designed to create more, less, or none of certain proteins, or produce analogues of endogenous proteins; the
potential of our PPMO to be tailored to reach other organs beyond muscle and result in enhanced delivery into the cell with less frequent
dosing than PMOs; the benefits of the unique design of the AAVrh74 vector, the MHCK7 promoter and the transgene, our belief that GALGT2
modifies the dystrophin associated protein complex and up-regulates utrophin to protect muscle from damage in the absence of dystrophin; and
the potential of micro-dystrophin and GALGT2 to treat all or nearly all DMD patients regardless of mutation;
our belief that our partnerships with manufacturers will provide us access to additional commercial manufacturing capacity for our micro-
dystrophin DMD gene therapy program, as well as a manufacturing platform for future gene therapy programs, and our belief that our current
network of manufacturing partners are able to fulfil the requirements of our commercial plan;
our plan to continue building out our network for commercial distribution in jurisdictions in which eteplirsen is approved;
estimated timelines and milestones for 2019 and beyond, including an expected FDA action date of August 19, 2019 for golodirsen, the
expectation to complete the open-label portion of our golodirsen trial (4053-101) in 2019, filing an NDA to the FDA for casimersen in 2019,
completing a first-in-human, single ascending dose trial for SRP-5051, conducting a confirmatory trial for our micro-dystrophin gene therapy
program using commercial supply of SRP-9001 by the end of 2019 and commencing dosing in the clinical trial to test NT-3 gene therapy in
2019 for CMT type 1A;
our belief that the delivery of NT-3 may have applicability to other subtypes of CMT in addition to other neuropathies and muscle-wasting
diseases;
the timely completion and satisfactory outcome of our post-marketing requirements and commitments, including verification of a clinical
benefit for EXONDYS 51 in confirmatory trials;
our plan to seek follow up EMA scientific advice in 2019 to explore a potential approach for EMA approval of eteplirsen;
our ability to further secure long term supply of EXONDYS 51 and our product candidates to satisfy our planned commercial, managed access
programs, named patient programs and clinical needs;
our belief that our current network of manufacturing partners is able to produce raw materials and active pharmaceutical ingredients in the
quantities that we require, and are capable of continuing to expand capacity as needed;
the impact of regulations and regulatory decisions by the FDA and other regulatory agencies on our business, as well as the development of
our product candidates and our financial and contractual obligations;
the possible impact of any competing products on the commercial success of EXONDYS 51 and our product candidates and our ability to
compete against such products;
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our ability to enter into research, development or commercialization alliances with universities, hospitals, independent research centers, non-
profit organizations, pharmaceutical and biotechnology companies and other entities for specific molecular targets or selected disease
indications and our ability to selectively pursue opportunities to access certain intellectual property rights that complement our internal
portfolio through license agreements or other arrangements;
our expectations regarding the potential benefits of the partnership, licensing and/or collaboration arrangements and other strategic
arrangements and transactions we have entered into or may enter into in the future;
the extent of protection that our patents provide and our pending patent applications may provide, if patents issue from such applications, to
our technologies and programs, and our ability to obtain and maintain patent protection for our 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 and
programs;
our belief that our owned and licensed patents and patent applications provide us with a competitive advantage;
our belief that our current facilities in Cambridge, Andover and Burlington, Massachusetts and Dublin and Columbus, Ohio are suitable and
will provide sufficient capacity to meet the projected needs of our business for the next 12 months;
our estimates regarding how long our currently available cash and cash equivalents will be sufficient to finance our operations and business
plans and statements about our future capital needs;
our estimates regarding future revenues, research and development expenses, other expenses, capital requirements and payments to third
parties;
our expectations relating to potential funding from government and other sources for the development of some of our product candidates;
our ability to comply with applicable environmental laws and regulations; and
our beliefs and expectations regarding milestone, royalty or other payments that could be due to third parties under existing agreements.
We undertake no obligation to update any of the forward-looking statements contained in this Annual Report on Form 10-K after the date of this
report, except as required by law. We caution readers not to place undue reliance on forward-looking statements. Our actual results could differ materially
from those discussed in this Annual Report on Form 10-K. The forward-looking statements contained in this Annual Report on Form 10-K, and other written
and oral forward-looking statements made by us from time to time, are subject to risks and uncertainties that could cause actual results to differ materially
from those anticipated in the forward-looking statements, including the risks, uncertainties and assumptions identified under the heading “Risk Factors” in
this Annual Report on Form 10-K.
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Item 1. Business.
Overview
PART I
We are a commercial-stage biopharmaceutical company focused on helping patients through the discovery and development of unique RNA-
targeted therapeutics, gene therapy and other genetic therapeutic modalities for the treatment of rare diseases. Applying our proprietary, highly-differentiated
and innovative technologies, and through collaborations with our strategic partners, we are developing potential therapeutic candidates for a broad range of
diseases and disorders, including Duchenne muscular dystrophy (“DMD”), Limb-girdle muscular dystrophies (“LGMDs”), Mucopolysaccharidosis type IIIA
(“MPS IIIA”) and Pompe.
Our first commercial product in the U.S., EXONDYS 51® (eteplirsen) Injection (“EXONDYS 51”), was granted accelerated approval by the FDA
on September 19, 2016. EXONDYS 51 is indicated for the treatment of DMD in patients who have a confirmed mutation of the DMD gene that is amenable
to exon 51 skipping. EXONDYS 51 uses our phosphorodiamidate morpholino oligomer (“PMO”) chemistry and exon-skipping technology to skip exon 51 of
the dystrophin gene. Exon skipping is intended to promote the production of an internally truncated but functional dystrophin protein.
The original PMO structure and variations of this structure that are so-called PMO-based (collectively “PMO-based”) are central to our proprietary
chemistry platform. PMO technologies can be used to selectively up-regulate or down-regulate the production of a target protein through pre-mRNA splice
alteration. Thus, PMO-based compounds have the potential to be designed to create more, less, or none of certain proteins, or produce analogues of
endogenous proteins. This technology can be used to correct disease-causing genetic errors by inducing the targeted expression of novel proteins.
In addition to our commercial-stage product, we have PMO-based product candidates in clinical development designed to treat those patients with
DMD who have genetic mutations amenable to skipping exon 53 of the Duchenne gene (SRP-4053) and exon 45 of the Duchenne gene (SRP-4045)
(golodirsen and casimersen, respectively). In December 2018, we completed the submission of our rolling New Drug Application (“NDA”) to the U.S. Food
and Drug Administration (“FDA”) seeking accelerated approval for golodirsen. The FDA accepted the NDA and granted priority review status for golodirsen
with a targeted regulatory action date of August 19, 2019. The FDA also indicated that it does not intend to conduct an advisory board for golodirsen. We are
currently conducting both a Phase 1/2 clinical trial and a Phase 3 placebo controlled confirmatory clinical trial (ESSENCE) studying casimersen. We
anticipate submitting an NDA to the FDA for casimersen in 2019 if we believe that the results of an interim dystrophin analysis in the ESSENCE trial are
positive. We also have other product candidates in discovery and preclinical development that are designed to skip other exons.
The PMO chemistry platform is highly adaptable, and we have developed next-generation PMO-based chemistries for advancing RNA-targeted
therapeutics. These next-generation chemistries are specifically designed to enhance tissue targeting, intracellular delivery, target selectivity and drug potency.
One of these novel technologies is based on cell-penetrating peptide-conjugated PMO (“PPMO”). The PPMO features covalent attachment of a cell-
penetrating peptide to a PMO with the goal of enhanced delivery into the cell. Our most advanced PPMO product candidate is SRP-5051, which is designed
to treat DMD in patients with genetic mutations amenable to exon 51 skipping. We are currently conducting a first-in-human, single ascending dose, Phase 1
clinical trial for this product candidate, which we expect to complete in 2019.
As part of our multifaceted approach to DMD, we are also exploring gene therapy technologies to treat DMD. In collaboration with Nationwide
Children’s Hospital (“Nationwide”), we are testing a product candidate, SRP-9001, that aims to express a smaller but still functional version of dystrophin
(“micro-dystrophin”). We use a unique adeno-associated virus (“AAV”) vector called AAVrh74 to transport the transgene – the genetic material that will
make the protein of interest – to the target cells. Micro-dystrophin is used because naturally-occurring dystrophin is too large to fit in an AAV. On October 3,
2018, Nationwide presented positive results from a Phase 1/2a clinical trial testing SRP-9001 in four individuals with DMD enrolled in the trial. In the fourth
quarter of 2018, we commenced a placebo-controlled trial with the goal to establish the functional benefits of micro-dystrophin expressions. We plan to
conduct a confirmatory trial using commercial supply of SRP-9001 by the end of 2019, pending regulatory feedback.
In 2018, through a number of strategic collaboration and licensing arrangements, we expanded our pipeline to include programs that aim to treat a
broad range of rare diseases in addition to DMD, such as LGMDs, Charcot-Marie-Tooth (“CMT”), MPS IIIA and Pompe disease. One of our strategic
partners, Myonexus Therapeutics, Inc. (“Myonexus”) develops gene therapy programs for various forms of LGMDs. The most advanced of Myonexus’
product candidates, MYO-101, is designed to transfer a gene that codes for and restores beta-sarcoglycan protein with the goal of restoring the dystrophin
associated protein complex. MYO-101 utilizes the same vector and promoter used in the development of SRP-9001. Myonexus commenced a Phase 1/2a trial
of MYO-101 in the fourth quarter of 2018, and on February 27, 2019, we announced positive two-month data from the first three-patient cohort dosed in the
MYO-101 trial.
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Our pipeline includes 25 programs at various stages of pre-clinical and clinical development, reflecting our aspiration to apply our multifaceted
approach and expertise in precision genetic medicine to make a profound difference in the lives of patients suffering from rare diseases.
Objectives and Business Strategy
We believe that our proprietary technology platforms and collaborations can be used to develop novel pharmaceutical products to treat a broad
range of diseases and address key currently-unmet medical needs. We intend to leverage our technology platforms, organizational capabilities, collaborations
and resources to lead the field of precision genetic medicines, including the treatment of rare, neuromuscular and other diseases, with a diversified portfolio of
product candidates. In pursuit of this objective, we intend to focus on the following activities:
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building our gene therapy engine, including developing gene therapy product candidates, operationalizing our manufacturing strategy and
establishing our commercial foundation in preparation for potential regulatory approvals;
advancing the development of additional exon-skipping product candidates (e.g., golodirsen and casimersen), launching potential approved
products and supporting marketed products;
investing in next-generation precision medicine through internal research, strategic partnerships, collaborations and other potential
opportunities;
ensuring we have the appropriate capitalization to fund our business objectives and strategies, including by raising additional capital through
licensing, collaborations and offerings of equity and / or debt; and
nurturing our culture, which is based on bias to action, a self-starter mentality, smart and appropriate risk-taking and high ethics.
Core Therapeutic Areas
DMD: We primarily focus on rapidly advancing the development of our potentially disease-modifying pipeline of exon-skipping, gene therapy and
gene editing product candidates targeting DMD. DMD is a rare x-linked recessive genetic disorder affecting children (primarily males) that is characterized
by progressive muscle deterioration and weakness. It is the most common type of muscular dystrophy. DMD is caused by an absence of dystrophin, a protein
that protects muscle cells. The absence of dystrophin in muscle cells leads to significant cell damage and ultimately causes muscle cell death and fibrotic
replacement. In the absence of dystrophin protein, affected individuals generally experience the following symptoms, although disease severity and life
expectancy vary:
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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 seven;
total loss of ambulation in the pre-teenage or early teenage years;
progressive loss of upper extremity function during mid- to late-teens; and
respiratory and/or cardiac failure, resulting in death before the age of 30.
LGMDs are autosomal recessive, monogenic, rare neuromuscular diseases caused by missense and deletion mutations. These diseases affect males
and females equally. Some types of LGMDs affect skeletal muscle and cardiac muscle. More severe forms of LGMDs mimic DMD. LGMDs as a class affect
an estimated range of approximately 1 in every 14,500 to 1 in every 123,000 individuals. Currently, there are no available treatment options for LGMDs.
MPS IIIA is a rare inherited neurodegenerative lysosomal storage disorder characterized by intractable behavioral problems and developmental
regression resulting in early death. It is caused by mutations in the SGSH gene, which encodes an enzyme called Heparan-N-sulfamidase necessary for
heparan sulfate (“HS”) recycling in cells. The disrupted lysosomal degradation and resulting storage of HS and glycolipids such as gangliosides leads to
severe neurodegeneration. MPS IIIA affects approximately 1 in 100,000 individuals and is inherited in an autosomal recessive pattern. There are currently no
treatment options for patients.
CMT is a group of hereditary, degenerative nerve diseases that are caused by mutations in genes that produce proteins involved in the structure and
function of either the peripheral nerve axon or the myelin sheath. CMT can cause degeneration of motor skills, resulting in muscle weakness, and limiting
patients’ ability to walk or use their hands, and in some cases, can cause degeneration of sensory nerves, resulting in a reduced ability to feel heat, cold, and
pain. CMT affects approximately 1 in every 2,500
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individuals, while CMT type 1A, which is most often caused by an extra copy of the PMP22 gene, affects approximately 50,000 patients in the U.S. Most
patients are diagnosed at infancy, while other patients develop symptoms at adolescence. Currently, there are no available treatment options.
Pompe disease is caused by mutation in the gene that codes for the enzyme acid alpha-glucosidase (“GAA”), which is responsible for metabolizing
glycogen in lysosomes. The disease causes buildup of glycogen in the body's cells, which in certain organs and tissues, especially muscles, impairs ability to
function normally. Pompe disease is progressive and often debilitating, disables the heart and skeletal muscles with muscle weakness worsening over time. It
affects both sexes equally and is often fatal. Pompe disease affects an estimated 1 in approximately every 40,000 individuals.
Our Commercial Product
EXONDYS 51, our first commercial product, approved by the FDA on September 19, 2016, is indicated for the treatment of DMD in patients who
have a confirmed mutation of the DMD gene that is amenable to exon 51 skipping EXONDYS 51 uses our PMO chemistry and exon-skipping technology to
skip exon 51 of the dystrophin gene. PMO-based compounds are synthetic compounds that bind to complementary sequences of RNA by standard Watson-
Crick nucleobase pairing. The two key structural differences between PMO-based compounds and naturally occurring RNA are that the PMO nucleobases are
bound to synthetic morpholino rings instead of ribose rings, and the morpholino rings are linked by phosphorodiamidate groups instead of phosphodiester
groups. Replacement of the negatively charged phosphodiester in RNA with the uncharged phosphorodiamidate group in PMO eliminates linkage ionization
at physiological pH. Due to these modifications, PMO-based compounds are resistant to degradation by plasma and intracellular enzymes. Unlike the RNA-
targeted technologies such as siRNAs and DNA gapmers, PMO-based compounds operate by steric blockade rather than by cellular enzymatic degradation to
achieve their biological effects. Thus, PMOs use a fundamentally different mechanism from other RNA-targeted technologies.
We are in the process of assessing and conducting various EXONDYS 51 clinical trials, including studies that are required to comply with
regulatory NDA and studies we need to conduct to comply with our post-marketing FDA requirements/commitments to verify and describe the clinical
benefit of EXONDYS 51.
EXONDYS 51 targets the most frequent series of mutations that cause DMD. Approximately 13% of DMD patients are amenable to exon 51
skipping. For the years ended December 31, 2018, 2017, and 2016, the Company recorded net revenue of $301.0 million, $154.6 million, and $5.4 million,
respectively, related to the sale of EXONDYS 51.
Our Pipeline
Golodirsen (SRP-4053) uses our PMO chemistry and exon-skipping technology to skip exon 53 of the DMD gene. Golodirsen is designed to bind
to exon 53 of dystrophin pre-mRNA, resulting in exclusion, or “skipping”, of this exon during mRNA processing in patients with genetic mutations that are
amenable to exon 53 skipping. We are enrolling and dosing patients in ESSENCE (4045-301), our Phase 3 placebo controlled confirmatory trial in patients
who have a confirmed mutation of the DMD gene that is amenable to exon 45 or 53 skipping using casimersen and golodirsen, respectively. Golodirsen is
also being evaluated in a Phase 1/2 trial having two parts. Part I of the Phase 1/2 trial has been completed, and Part II, an open-label portion of the trial, is
expected to be completed in 2019 (Study 4053-101). In September 2017, we announced positive results of an analysis that included biopsies of the bicep
muscle at baseline and on-treatment at the Part II, Week 48 time point. The 4053-101 interim trial results demonstrated statistical significance on all primary
and secondary biological endpoints. In December 2018, we completed the submission of our rolling NDA to the FDA seeking accelerated approval for
golodirsen. The FDA accepted the NDA and granted priority review status for golodirsen with a targeted regulatory action date of August 19, 2019. The FDA
also indicated that it does not intend to conduct an advisory board for golodirsen.
Casimersen (SRP-4045) uses our PMO chemistry and exon-skipping technology to skip exon 45 of the DMD gene. Casimersen is designed to bind
to exon 45 of dystrophin pre-mRNA, resulting in exclusion, or “skipping”, of this exon during mRNA processing in patients with genetic mutations that are
amenable to exon 45 skipping. We are enrolling and dosing patients in ESSENCE, further described above. We have completed a dose titration portion (Phase
1) and the open-label portion (Phase 2) of a Sarepta sponsored Phase 1/2 the trial clinical trial studying casimersen (4045-101). We anticipate submitting an
NDA to the FDA for casimersen in 2019 if we believe the results of an interim dystrophin analysis in the ESSENCE study are positive.
SRP-5051 uses our next-generation chemistry platform, PPMO, and our exon-skipping technology to skip exon 51 of the dystrophin gene. The
PPMO technology features covalent attachment of a cell-penetrating peptide to a PMO with the goal of enhanced delivery into the cell. In pre-clinical
research, our proprietary class of PPMO compounds demonstrated an increase in dystrophin production and a more durable response compared to PMO. In
addition, PPMO treatment in non-human primates results in high levels of exon-skipping in skeletal, cardiac and smooth muscle tissues. Pre-clinical trials
also indicate that PPMOs may require less frequent dosing than PMOs, and that PPMOs could potentially be tailored to reach other organs beyond muscle.
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In the fourth quarter of 2017, we received clearance from the FDA and commenced a first-in-human, single ascending dose, trial for the treatment
of DMD using SRP-5051 in patients who are amenable to exon 51 skipping. We expect to complete this trial in 2019.
SRP-9001 (micro-dystrophin gene therapy program), in collaboration with Nationwide, aims to express micro-dystrophin – a smaller but still
functional version of dystrophin. A unique, engineered micro-dystrophin is used because naturally-occurring dystrophin is too large to fit in an AAV vector.
SRP-9001 developed in collaboration with Nationwide employs the AAVrh74 vector, which is designed to be systemically and robustly delivered to skeletal,
diaphragm and cardiac muscle without promiscuously crossing the blood brain barrier, which we believe makes it a strong candidate to treat peripheral
neuromuscular diseases. An MHCK7 promoter was chosen for its ability to robustly express in the heart, which is critically important for patients with DMD,
who typically die from pulmonary or cardiac complications. Lastly, the transgene was designed to maintain spectrin-like repeats 2 and 3, which has been
reported to be critical to maintaining muscle force.
In the fourth quarter of 2017, an investigational new drug (“IND”) application for the micro-dystrophin gene therapy program, in collaboration
with Nationwide, was cleared by the FDA, and a Phase 1/2a clinical trial in individuals with DMD was initiated. On October 3, 2018, Nationwide presented
what we believe to be positive updated results from the Phase 1/2a clinical trial in four individuals with DMD enrolled in the trial. In the fourth quarter of
2018, we commenced a placebo-controlled trial with the goal to establish the functional benefits of micro-dystrophin expressions. We plan to conduct a
confirmatory trial using commercial supply of SRP-9001 by the end of 2019, pending regulatory feedback.
MYO-101. We are collaborating with Myonexus to develop gene therapy programs for various types of LGMDs. All the Myonexus programs use
the AAVrh.74 vector, the same vector used in the micro-dystrophin gene therapy program, to transfect a restorative gene. The most advanced of Myonexus’
product candidates, MYO-101, aims to treat LGMD2E, also known as beta-sarcoglycanopathy, a severe and debilitating form of LGMD characterized by
progressive muscle fiber loss, inflammation and muscle fiber replacement with fat and fibrotic tissue. MYO-101 is designed to transfect a gene that codes for
and restores beta-sarcoglycan protein with the goal of restoring the dystroglycan complex. MYO-101 has generated positive pre-clinical safety and efficacy
data utilizing the AAVrh.74 vector. Myonexus commenced a Phase 1/2a trial of MYO-101 in the fourth quarter of 2018, and on February 27, 2019, we
announced positive two-month data from the first three-patient cohort dosed in the MYO-101 trial.
GALGT2. An additional gene therapy program for DMD and other muscular dystrophies, also in collaboration with Nationwide, aims to express
the enzyme GALGT2 from an AAV vector. We believe that GALGT2 modifies the dystrophin associated protein complex (DAPC) and up-regulates utrophin
(a protein significantly homologous to dystrophin) to protect muscle from damage in the absence of dystrophin. We believe that the micro-dystrophin and
GALGT2 technologies have the potential to treat all or nearly all DMD patients regardless of mutation.
In the fourth quarter of 2017, an IND application for GALGT2 was cleared by the FDA, and a Phase 1/2a clinical trial testing GALGT2 for the
treatment of DMD was initiated.
LYS-SAF 302. We are collaborating with Lysogene S.A. (“Lysogene”) to develop a gene therapy, LYS-SAF302, to treat MPS IIIA. LYS-SAF302 is
an AAV-mediated gene therapy, the goal of which is to replace the faulty N-sulfoglucosamine sulfohydrolase (“SGSH”) gene with a healthy copy of the gene.
LYS-SAF302 employs the AAVrh10 virus, chosen for its ability to target the central nervous system (“CNS”). Proof-of-concept was established in MPS IIIA
pre-clinical models demonstrating strong expression, broad distribution, and the ability of the compound to correct lysosomal storage defects by producing
the missing enzyme. Safety data from an IND-enabling toxicity and a biodistribution Good Laboratory Practice (“GLP”) trial showed that, at any dose level
evaluated, LYS-SAF302 was not associated with unexpected mortality, change in clinical signs, body weight, behavior or macroscopic findings in the brain.
The first patient has been dosed in AAVance, a global Phase 2/3 clinical trial of LYS-SAF302, aiming at evaluating the effectiveness of a one-time
delivery of a AAVrh10 virus carrying the N-SGSH gene.
Neutrophin 3 (CMT Type 1A). A gene therapy program in collaboration with Nationwide that aims to express neurotrophin 3 (“NT-3”) encoding the
NTF3 gene to treat CMT neuropathies, including CMT type 1A. We believe that the delivery of NT-3 may have applicability to other sub-types of CMT in
addition to other neuropathies and muscle-wasting diseases. Pre-clinical research has shown the ability of the NT-3 gene construct to regenerate
nerves. Further pre-clinical research is under way to explore its potential. A clinical trial to test NT-3 gene therapy is planned to commence dosing in 2019
for CMT type 1A, pending regulatory feedback. We believe that the delivery of NT-3 may have applicability to other sub-types of CMT in addition to other
muscle-wasting diseases.
Programs in Collaboration with Lacerta. Our collaboration with Lacerta Therapeutics, Inc. (“Lacerta”) utilizes proprietary AAV capsid variants
and a scalable vector manufacturing platform to develop treatments for central nervous system and lysosomal storage diseases. The lead candidate, still in
discovery phase, is a gene therapy approach with a novel AAV variant for the treatment of Pompe disease.
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CRSPR/Cas9. We are exploring, in collaboration with Duke University, the gene-editing technology CRSPR/Cas9 that aims to restore dystrophin
expression by removing or “excising” exons directly from the dystrophin gene to correct out-of-frame mutations. CRSPR/Cas9 technology can also
potentially be used to fix stop codon mutations in the dystrophin gene so that dystrophin can be translated to a function protein. This program is in the
discovery phase.
The chart below summarizes the status of our more advanced programs, including those with our strategic partners:
Manufacturing, Supply and Distribution
We have developed proprietary state-of-the-art Chemistry, Manufacturing and Controls (“CMC”) and manufacturing capabilities that allow
synthesis and purification of our product candidates to support both clinical development as well as commercialization. Our current main focus in
manufacturing is to continue scaling up production of our PMO-based therapies and optimizing manufacturing for PPMO and gene therapy-based product
candidates. We have entered into certain manufacturing and supply arrangements with third-party suppliers which will in part utilize these capabilities to
support production of certain of our product candidates and their components. In 2017, we opened a facility in Andover, Massachusetts, which significantly
enhances our research and development manufacturing capabilities. However, we currently do not have internal large scale Good Manufacturing Practices
(“GMP”) manufacturing capabilities to produce our product and product candidates for commercial and/or clinical use. For our current and future
manufacturing needs, we have entered into supply agreements with specialized contract manufacturing organizations (each a “CMO”) to produce custom raw
materials, the active pharmaceutical Ingredients (“APIs”) and finished goods for our product candidates. All of our CMO partners have extensive technical
expertise, GMP experience and experience manufacturing our specific technology.
For our commercial DMD program, we have commenced work with our existing manufacturers to increase product capacity from mid-scale to
large-scale. While 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 for EXONDYS 51, based on our diligence to date, we believe our current network of manufacturing partners are able to fulfill these requirements, and
are capable of continuing to expand capacity as needed. Additionally, we have, and will continue to evaluate further relationships with additional suppliers to
increase overall capacity as well as further reduce risks associated with reliance on a limited number of suppliers for manufacturing.
EXONDYS 51 is distributed in the U.S. through a limited network of home infusion specialty pharmacy providers that deliver the medication to
patients and a specialty distributor that distributes EXONDYS 51 to hospitals and hospital outpatient clinics. With respect to the pre-commercial distribution
of eteplirsen to patients outside of the U.S., we have contracted with third party distributors and service providers to distribute eteplirsen in certain countries
on a named patient basis and through our ex-U.S. early
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access programs (“EAP”). We plan to continue building out our network for commercial distribution in jurisdictions in which eteplirsen is approved.
Our gene therapy manufacturing capabilities have been greatly enhanced through partnerships with Brammer Bio LLC (“Brammer”), Paragon
Bioservices, Inc. (“Paragon”) and Aldevron LLC (“Aldevron”). We have adopted a hybrid manufacturing strategy in which we are building internal
manufacturing expertise relative to all aspects of AAV-based manufacturing, including gene therapy and gene editing supply, while closely partnering with
first-in-class manufacturing partners to expedite development and commercialization of our gene therapy programs. The partnership with Brammer will
support our clinical and commercial manufacturing capacity for our micro-dystrophin DMD gene therapy programs and LGMD programs, while also acting
as a manufacturing platform for potential future gene therapy programs. The collaboration integrates process development, clinical production and testing,
and commercial manufacturing. Our partnership with Paragon will provide us access to additional commercial manufacturing capacity for our micro-
dystrophin DMD gene therapy program, as well as a manufacturing platform for future gene therapy programs, such as LGMD. Aldevron will provide GMP-
grade plasmid for our micro-dystrophin DMD gene therapy program and LGMD programs, as well as plasmid source material for future gene therapy
programs, such as CMT, MPS IIIA, Pompe and other CNS diseases.
Manufacturers and suppliers of product candidates are subject to the FDA’s current GMP (“cGMP”) requirements and other rules and regulations
prescribed by foreign regulatory authorities. We depend on our third-party partners for continued compliance with cGMP requirements and applicable foreign
standards.
Material Agreements
We believe that our RNA-targeted and gene therapy technologies could be broadly applicable for the potential development of pharmaceutical
products in many therapeutic areas. To further exploit our core technologies, we have and may continue to enter into research, development or
commercialization alliances with universities, hospitals, independent research centers, non-profit organizations, pharmaceutical and biotechnology companies
and other entities for specific molecular targets or selected disease indications. We may also selectively pursue opportunities to access certain intellectual
property rights that complement our internal portfolio through license agreements or other arrangements.
Myonexus
On May 3, 2018, we purchased from Myonexus, a privately-held Delaware corporation, a warrant to purchase common stock of Myonexus (the
“Warrant”), which, in combination with amendments to the Myonexus certificate of incorporation, provides us with an exclusive option (the “Option”) to
acquire Myonexus. In consideration for the Warrant, we made an up-front payment of $60.0 million to Myonexus. On February 26, 2019, we delivered to
Myonexus an exercise notice (the “Exercise Notice”) stating our intention to exercise the Option.
Prior to the delivery of the Exercise Notice, on February 26, 2019, we entered into a letter agreement (the “Letter Agreement”) with Myonexus to
amend certain terms of the Warrant to (i) reduce the payment price we would be required to make at the closing of the Option exercise from $200.0 million to
$165.0 million, subject to certain adjustments (the “Warrant Exercise Price”), and (ii) terminate our obligation to pay any development milestone payments
that have yet to be earned under the Warrant and pay Myonexus shareholders an additional amount in recognition of amounts Myonexus expended toward the
achievement of those milestones, agreed for this purpose to be $6.0 million, to be paid upon exercise of the Option. Our obligation to make contingent
payments to the Myonexus’ former shareholders following the exercise of the Option upon achievement of a threshold amount of net sales of Myonexus
products and the receipt and subsequent sale of a priority review voucher with respect to a Myonexus product will remain unchanged.
We retain the right to terminate the Warrant at any time prior to the closing of the Option exercise, which is expected to occur at the end of our first
fiscal quarter ending March 31, 2019, subject to the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
BioMarin
License Agreement
On July 17, 2017, Sarepta Therapeutics, Inc. and Sarepta International C.V. (collectively, “Sarepta”) and BioMarin Leiden Holding BV, BioMarin
Nederlands BV and BioMarin Technologies BV (collectively, “BioMarin”) executed a License Agreement (the “License Agreement”), pursuant to which
BioMarin granted Sarepta a royalty-bearing, worldwide license under patent rights (“Licensed Patents”) and know-how (“Licensed Know-How”) controlled
by BioMarin with respect to BioMarin’s DMD program, which are potentially necessary or useful for the treatment of DMD, to practice and exploit the
Licensed Patents and Licensed Know-How in all fields of use and for all purposes, including to develop and commercialize antisense oligonucleotide
products that target one or more exons of the dystrophin gene to induce exon skipping, including eteplirsen (collectively, the “Products”).
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The license granted by BioMarin to Sarepta under the terms of the License Agreement is exclusive, even as to BioMarin, with respect to the
Licensed Patents, and is non-exclusive with respect to Licensed Know-How. Under the License Agreement, BioMarin has the option to convert the exclusive
license under the Licensed Patents into a co-exclusive license (co-exclusive with BioMarin) (“BioMarin Co-Exclusive Option”).
Under the terms of the License Agreement, Sarepta is required to pay BioMarin an up-front payment of $15.0 million, and BioMarin will be
eligible to receive up to $20.0 million from Sarepta per dystrophin gene exon (other than exon 51) targeted by one or more Products in specified regulatory
milestones, as well as an additional $10.0 million milestone, payable following the regulatory approval of eteplirsen by the European Medicines Agency in
the EU (“EMA”). BioMarin will also be eligible to receive $15.0 million from Sarepta upon the achievement of $650 million in sales, as well as royalties
segmented by specified geographic markets, in some jurisdictions dependent on the existence of a patent, ranging from four (4) to eight (8) percentages of net
sales on a product-by-product and country-by-country basis.
Milestones and royalties are payable with respect to eteplirsen (an exon 51 skipping Product), casimersen (an exon 45 skipping Product),
golodirsen (an exon 53 skipping Product) and other Products. For eteplirsen, casimersen and golodirsen, the royalty term will expire upon the end of 2023 in
the U.S., upon September 30, 2024 in the European Union (“EU”) and no later than September 30, 2024 in other countries provided certain conditions are
met. For Products other than exon 45 skipping Products, exon 51 skipping Products and exon 53 skipping Products, the royalty term will end on a country-by
country basis upon expiration of granted Licensed Patents covering the applicable Product. The royalties for all Products are subject to reduction upon
BioMarin’s exercise of the BioMarin Co-Exclusive Option. All royalties are subject to further potential reductions, including for generic competition and,
under specified conditions, for a specified portion of payments that Sarepta may become required to pay under third-party license agreements, subject to a
maximum royalty reduction.
Unless earlier terminated, the License Agreement will expire upon the expiration of the last-to-expire royalty term. Either party may terminate the
License Agreement in the event of the other party’s uncured material breach. BioMarin may also terminate the License Agreement on a Licensed Patent-by-
Licensed Patent basis under specified circumstances relating to patent challenges by Sarepta.
Settlement Agreement
On July 17, 2017, Sarepta and The University of Western Australia on the one hand, and the BioMarin Parties and Academisch Ziekenhuis Leiden
(“AZL”) on the other hand (collectively, the “Settlement Parties”), executed a Settlement Agreement pursuant to which all legal actions in the U.S. and
certain legal actions in Europe (the “Actions”) would be stopped or withdrawn as between the Settlement Parties. Specifically, the terms of the Settlement
Agreement require that existing efforts pursuing ongoing litigation and opposition proceedings would be stopped as between the Settlement Parties, and the
Settlement Parties would cooperate to withdraw the Actions before the European Patent Office (except for actions involving third parties), the U.S. Patent and
Trademark Office, the U.S. Court of Appeals for the Federal Circuit and the High Court of Justice of England and Wales, except for the cross-appeal of the
Interlocutory Decision of the Opposition Division dated April 15, 2013 of the European Patent Office of EP 1619249B1 (“EP ‘249 Appeal”) in which Sarepta
will withdraw its appeal and BioMarin/AZL will continue with its appeal with Sarepta having oversight of the continued appeal by BioMarin/AZL.
Additionally, under the terms of the Settlement Agreement, the Settlement Parties agree to release each other and the customers, end-users, agents,
suppliers, distributors, resellers, contractors, consultants, services and partners of Sarepta or BioMarin (as applicable) from claims and damages related to (i)
the patent rights controlled by the releasing party that are involved in the Actions, (ii) with respect to Sarepta and UWA, its patent rights related to the patent
rights involved in the Actions, and (iii) with respect to BioMarin and AZL, all of the Licensed Patents and Licensed Know-How.
Under the terms of the Settlement Agreement, Sarepta made an upfront payment of $20.0 million to BioMarin.
University of Western Australia
In April 2013, we entered into an agreement with University of Western Australia (“UWA”) under which an existing exclusive license agreement
between the two parties was amended and restated (the “Amended and Restated UWA License Agreement”). The Amended and Restated UWA License
Agreement grants us specific rights to the treatment of DMD by inducing the skipping of certain exons. EXONDYS 51, golodirsen and casimersen fall under
the scope of the license agreement. Under the Amended and Restated UWA License Agreement, we may be required to make payments of up to $6.0 million
in aggregate to UWA based on the successful achievement of certain development and regulatory milestones relating to EXONDYS 51 and up to five
additional product candidates. As of the date of this Annual Report, $2.0 million of the $6.0 million development and regulatory milestone payments has been
made. We may also be obligated to make payments to UWA of up to $20.0 million upon the achievement of certain sales milestones. Additionally, we may be
required to pay a low-single-digit percentage royalty on net sales of
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products covered by issued patents licensed from UWA during the term of the Amended and Restated UWA License Agreement. However, we have the
option to purchase future royalties up-front. Under this option, prior to the First Amendment (defined below), we could be required to make a one-time
royalty payment of $30.0 million to UWA.
In June 2016, we entered into the first amendment to the Amended and Restated UWA License Agreement (the “First Amendment”) with UWA.
Under the First Amendment, we made an up-front payment of $7.0 million to UWA upon execution of the First Amendment. Under the terms of the First
Amendment, UWA has waived rights to certain royalties and amended the timing of certain other royalty payments under the Amended and Restated UWA
License Agreement, including lowering the one-time royalty payment that is due by us upon exercise of the option to purchase future royalties up-front. Upon
exercise of the option to purchase future royalties up-front, we will be obligated to make a $23.0 million payment to UWA. Additionally, we would still be
obligated to make up to $20.0 million in payments to UWA upon achievement of certain sales milestones.
Currently, the latest date on which an issued patent covered by our agreement with UWA expires is November 2030 (excluding any patent term
extension, supplemental protection certificate or pediatric extensions that may be available); however, patents granted from pending patent applications could
result in a later expiration date.
Strategic Alliances
In connection with our multi-front battle against DMD and other rare neuromuscular diseases, we have entered into a number of partnering
opportunities. We believe these collaborations, taken along with our own programs, represent a comprehensive approach to treating these rare neuromuscular
diseases.
Nationwide Children’s Hospital
In December 2015, we entered into an exclusive license agreement with Nationwide to acquire exclusive rights to its GALGT2 gene therapy
program. This program explores the potential surrogate gene therapy approach to DMD. In the fourth quarter of 2017, the IND application for the GALGT2
gene therapy program was cleared by the FDA, and a Phase 1/2a clinical trial in individuals with DMD was initiated.
In addition, in December 2016, we entered into an exclusive option agreement with Nationwide to acquire exclusive rights to their micro-
dystrophin gene therapy program as well as a sponsored research agreement to conduct pre-IND research and conduct the first clinical trial with the lead
micro-dystrophin gene therapy. In October 2018, we exercised our exclusive license option and an option under the sponsored research agreement and entered
into an exclusive license agreement with Nationwide to acquire exclusive rights to their micro-dystrophin gene therapy program. On October 3, 2018,
Nationwide presented positive updated results from our Phase 1/2a clinical trial testing SRP-9001 in four individuals with DMD enrolled in the trial.
Furthermore, in October 2018, we entered into an exclusive option agreement with Nationwide to acquire exclusive rights to their NT-3 gene
therapy program for the treatment of certain CMT neuropathy subtypes, including CMT Type 1A. The option agreement contains pre-determined economic
terms for the exclusive license to be entered into upon us exercising our option. The clinical trial to test NT-3 gene therapy is planned to commence dosing in
2019 for CMT type 1A, pending regulatory feedback.
Lysogene
In October 2018, we entered into a license agreement with Lysogene, a gene therapy company focused on the treatment of orphan diseases of the
CNS, for the development of a gene therapy, LYS-SAF302, to treat MPS IIIA. Concomitantly, we also entered into an option with Lysogene to acquire an
exclusive license to an additional CNS-targeted gene therapy candidate. Lysogene is responsible for completion of the pivotal trial for LYS-SAF302. We have
exclusive commercial rights to LYS-SAF302 and exclusive option rights for the additional CNS-targeted gene therapy program in the United States and all
territories outside of Europe, and Lysogene will retain exclusive commercial rights to each program in Europe. We will be responsible for global
manufacturing of LYS-SAF302 and will supply Lysogene for its territory. If all milestones are met, we may be required to pay up to $130.8 million in
development and commercial milestones and tiered royalties upon commercialization.
Lacerta
In August 2018, we entered into a license and option agreement with Lacerta, a gene therapy company using a constellation of proprietary AAV
vector technologies to develop treatments for CNS-targeted and lysosomal storage diseases. Under this agreement, we have an exclusive license to Lacerta’s
gene therapy candidate for Pompe disease and exclusive options to obtain an exclusive license for two additional gene therapy candidates. Lacerta will
manage the majority of pre-clinical development for the Pompe candidate while we will lead clinical development and commercialization. We will owe
development and sales-based milestones to Lacerta and pay single-digit royalties on net sales.
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Duke University
In October 2017, we entered into a sponsored research and exclusive option agreement with Duke University, granting us an exclusive option to an
exclusive license to intellectual property and technology related to certain CRISPR/Cas9 technology developed in the laboratory of Charles A. Gersbach,
Ph.D. The underlying premise of Dr. Gersbach’s approach is to restore dystrophin expression by removing or “excising” exons from the dystrophin gene. This
includes a strategy to excise exons potentially enabling treatment for a majority of the DMD patient population.
Genethon
In May 2017, we entered into a gene therapy research collaboration and option agreement with Genethon to jointly develop micro-dystrophin gene
therapy products for the treatment of DMD. Under the terms of the collaboration, Genethon is responsible for the early development work, and we have the
option to co-develop Genethon’s micro-dystrophin program, which includes exclusive U.S. commercial rights.
Charley’s Fund Agreement
In October 2007, Charley’s Fund, Inc. (“Charley’s Fund”), a nonprofit organization that funds drug development and discovery initiatives specific
to DMD, 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.
Pursuant to the related sponsored research agreement, the grant was provided to support the development of product candidates related to exon 50 skipping
using our proprietary exon-skipping technologies. As of December 31, 2017, Charley’s Fund had made payments of approximately $3.4 million to us and no
payments have been made to us since this date. Revenue associated with this research and development arrangement is recognized based on the proportional
performance method. To date, we have recognized approximately $0.1 million as revenue. We have deferred $3.3 million of previous receipts, which are
anticipated to be recognized as revenue upon resolution of outstanding performance obligations.
Previously, we noted unexpected toxicology findings in the kidney as part of our series of pre-clinical trials for AVI-5038, our PMO-based
candidate designed 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 have conducted additional pre-clinical trials and have not alleviated the toxicity problem. Pursuant to the terms of our agreement with Charley’s Fund, the
receipt of additional funds is tied to the satisfaction of certain clinical milestones. Because of the toxicity issues with AVI-5038, satisfaction of the additional
milestones under the agreement is unlikely and we do not expect to receive any additional funds from Charley’s Fund.
Summit
On October 3, 2016, we entered into an exclusive Collaboration and License Agreement (the “Collaboration Agreement”) with (Oxford) Ltd.
(“Summit”), which grants us the exclusive right to commercialize products in Summit’s utrophin modulator pipeline in the EU, Switzerland, Norway, Iceland,
Turkey and the Commonwealth of Independent States. On June 27, 2018, Summit announced that it decided to discontinue the development of ezutromid
after reviewing the top-line results from its Phase 2 trial.
Patents and Proprietary Rights
Our success depends in part upon our ability to obtain and maintain exclusivity for our product, product candidates and platform technologies. We
typically rely on a combination of patent protection and regulatory exclusivity to maintain exclusivity for our product and product candidates, whereas
exclusivity for our platform technologies is generally based on patent protection and trade secret protection. In addition to patent protection, regulatory
exclusivity, and trade secret protection, we also protect our product, product candidates and platform technologies with copyrights, trademarks, and
contractual protections.
We actively seek patent protection for our product candidates and certain of our proprietary technologies by filing patent applications in the U.S.
and other countries as appropriate. These patent applications are directed to various inventions, including, but not limited to, active ingredients,
pharmaceutical formulations, methods of use, and manufacturing methods. In addition, we actively acquire exclusive rights to third party patents and patent
applications to protect our in-licensed product candidates and corresponding platform technologies.
We do not have patents or patent applications in every jurisdiction where there is a potential commercial market for our product candidates. For
each of our 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;
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•
•
•
•
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
a competitive advantage; however, if markets where we do not have patents or patent applications become commercially important, our business may be
adversely affected. A discussion of certain risks and uncertainties that may affect our patent position, regulatory exclusivities and other proprietary rights is
set forth in Item 1A. Risk Factors included in this report, and a discussion of legal proceedings related to the key patents protecting our product and product
candidates is set forth below in the footnotes that immediately below the tables in this section.
Certain of our product candidates are in therapeutic areas that have been the subject of many years of extensive research and development by
academic organizations and third parties who may control patents or other intellectual property that they might assert against us, should one or more of our
product candidates in these therapeutic areas succeed in obtaining regulatory approval and thereafter be commercialized. We continually evaluate the
intellectual property rights of others in these areas in order to determine whether a claim of infringement may be made by others against us. Should we
determine that a third party has intellectual property rights that could impact our ability to freely market a compound, we consider a number of factors in
determining how best to prepare for the commercialization of any such product candidate. In making this determination we consider, among other things, the
stage of development of our product candidate, the anticipated date of first regulatory approval, whether we believe the intellectual property rights of others
are valid, whether we believe we infringe the intellectual property rights of others, whether a license is available upon commercially reasonable terms,
whether we will seek to challenge the intellectual property rights of others, the term of the rights, and the likelihood of and liability resulting from an adverse
outcome should we be found to infringe the intellectual property rights of others.
Currently, U.S. patents, as well as most foreign patents, are generally effective for 20 years from the date the earliest regular application was filed.
In some countries, the patent term may be extended to recapture a portion of the term lost during regulatory review of the claimed therapeutic. For example,
in the U.S., under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, a patent that covers an
FDA-approved drug may be eligible for patent term extension (for up to 5 years, but not beyond a total of 14 years from the date of product approval) as
compensation for patent term lost during the FDA regulatory review process. In the U.S., only one patent may be extended for any product based on FDA
delay. In addition to patent term extension, patents in the U.S. may be granted additional term due to delays at the U.S. Patent and Trademark Office
(“USPTO”) during prosecution of a patent application. We actively strive to maximize the potential for patent protection for our product and product
candidates in accordance with the law.
Key Patents & Regulatory Exclusivities
Our product candidates and our technologies are primarily protected by composition of matter and use patents and patent applications. A summary
of granted composition of matter and/or use patents that we own or control in the U.S. and Europe, which cover our product and late-stage clinical product
candidates, is provided below. To the extent the product or product candidate indicated above the tables that immediately follow the name of such product is
covered by a patent that is licensed to Sarepta, we may owe milestones and/or royalties to the indicated licensor in connection with the development and/or
commercial sale of the product or product candidate.
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1
2
3
1
2
Eteplirsen
Patent Number
Country/Region*
Patent Type
Expiration Date**
U.S. 9,416,361
U.S. 7,960,5411
U.S. 8,486,9072
U.S. 9,018,368
U.S. 7,807,8161
U.S. 9,243,2453
U.S. 9,506,058
United States
United States
United States
United States
United States
United States
United States
Composition of Matter
Composition of Matter
Methods of Use
Composition of Matter
Composition of Matter
Methods of Use
Methods of Use
May 4, 2021
June 28, 2025
June 28, 2025
June 28, 2025
February 23, 2026
October 27, 2028
March 14, 2034
Owner/Licensor
(if not Sarepta)
Sarepta
UWA
UWA
UWA
UWA
BioMarin/AZL
Sarepta
Previously involved in U.S. Patent Interference No. 106,008. Judgment dated September 20, 2016 ordered cancellation of all claims of U.S.
Application No. 13/550,210 to BioMarin (AZL). Appeal by BioMarin (AZL) to the Court of Appeals for the Federal Circuit (Case No. 2017-1078)
voluntarily dismissed July 27, 2017. Reissue of U.S. 7,807,816 (U.S. Application No. 15/349,535) filed November 11, 2016.
Previously involved in U.S. Patent Interference No. 106,013. Judgment dated September 29, 2015 ordered cancellation of U.S. 8,486,907 to us
(UWA). Decision dated December 29, 2015 denied our Request for Rehearing. Appeal by us (UWA) to the Court of Appeals for the Federal Circuit
(Case Nos. 2016-1937, 2016-2086 (consolidated)) voluntarily dismissed July 27, 2017. Reissue of U.S. 8,486,907 (U.S. Application No. 15/655,646)
filed July 20, 2017.
Reissue application of U.S. 9,243,245 pending.
Patent Number
Country/Region*
Patent Type
Expiration Date**
EP 1 619 249 B11
EP 2 284 264 B1
EP 2 801 618 B1
EP 1 766 010 B1
EP 2 203 173 B12
Europe
Europe
Europe
Europe
Europe
Methods of Use
Composition of Matter &
Methods of Use
Composition of Matter &
Methods of Use
Composition of Matter &
Methods of Use
Methods of Use
September 21, 2021
September 21, 2021
Owner/Licensor
(if not Sarepta)
BioMarin/AZL
BioMarin/AZL
September 21, 2021
BioMarin/AZL
June 28, 2025
UWA
October 27, 2028
BioMarin/AZL
Involved in EPO Opposition. Cross-appeal of Interlocutory Decision dated April 15, 2013 is pending.
Involved in EPO Opposition proceedings initiated on September 22, 2016. EPO ordered revocation of patent on April 4, 2018. Appeal filed June 8,
2018 is pending.
The various types of regulatory exclusivity for which our product has been granted and our product candidates are anticipated to be eligible to
receive is generally discussed below, under ‘Government Regulation’ – ‘Data and Market Exclusivities’ and ‘Orphan Drug Designation and Exclusivity’. In
connection with its FDA approval on September 19, 2016, the FDA granted EXONDYS 51 (eteplirsen) New Chemical Entity (“NCE”) exclusivity until
September 19, 2021, and Orphan Drug Exclusivity until September 19, 2023.
Golodirsen
Patent Number
Country/Region*
Patent Type
Expiration Date**
U.S. 9,416,361
U.S. 8,455,6361
U.S. 9,024,007
U.S. 9,994,851
United States
United States
United States
United States
Composition of Matter
Composition of Matter &
Methods of Use
Composition of Matter
Composition of Matter
May 4, 2021
June 28, 2025
June 28, 2025
June 28, 2025
Owner/Licensor
(if not Sarepta)
Sarepta
UWA
UWA
UWA
1
Previously involved in U.S. Patent Interference No. 106,007. Judgment dated April 29, 2016 ordered cancellation of (i) all claims, except claim 77, of
U.S. Application No. 11/233,495 to BioMarin (AZL); and (ii) U.S. 8,455,636 to us (UWA). Appeal by BioMarin (AZL) to the Court of Appeals for
the Federal Circuit (Case No. 2016-2262) voluntarily dismissed July 27, 2017. Reissue of U.S. 8,455,636 (U.S. Application No. 15/645,842) filed July
10, 2017.
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Patent Number
Country/Region*
Patent Type
Expiration Date**
EP 1 619 249 B11
EP 2 602 322 B12
EP 2 206 781 B13
EP 2 970 964 B1
Europe
Europe
Europe
Europe
Methods of Use
Composition of Matter &
Methods of Use
Composition of Matter &
Methods of Use
Composition of Matter
September 21, 2021
September 21, 2021
June 28, 2025
March 14, 2034
Owner/Licensor
(if not Sarepta)
BioMarin/AZL
BioMarin/AZL
UWA
Sarepta
1
2
3
Involved in EPO Opposition. Cross-appeal of Interlocutory Decision dated April 15, 2013 is pending.
Involved in Opposition proceedings initiated on November 28, 2016.
Involved in Opposition proceedings initiated on August 25, 2016. EPO ordered revocation of patent on December 19, 2017. Appeal filed April 27,
2018 is pending.
Casimersen
Patent Number
Country/Region*
Patent Type
Expiration Date**
U.S. 9,416,361
U.S. 9,447,415
U.S. 8,524,880
U.S. 9,228,187
U.S. 9,758,783
United States
United States
United States
United States
United States
Composition of Matter
Composition of Matter
Composition of Matter &
Methods of Use
Composition of Matter
Methods of Use
May 4, 2021
June 28, 2025
April 2, 2026
November 12, 2030
November 12, 2030
UWA
UWA
Owner/Licensor
(if not Sarepta)
Sarepta
UWA
UWA
Patent Number
Country/Region*
Patent Type
Expiration Date**
EP 2 499 249 B1
Europe
Composition of Matter &
Methods of Use
November 12, 2030
Owner/Licensor
(if not Sarepta)
UWA
*
**
Granted patents in the United States and Europe (EP) are shown here. Additional patent protection in the U.S., Europe (EP) or other countries or
regions through pending or granted foreign counterparts may be available.
Stated expiration dates do not account for any patent term extension, supplemental protection certificate or pediatric extensions that may be available.
In addition to the foregoing composition of matter and method of use patents that protect eteplirsen, casimersen and golodirsen, we either solely
own or exclusively license from UWA, BioMarin or AZL patents and patent applications in the U.S. and in major foreign markets that provide additional
protection for eteplirsen, casimersen, and golodirsen, which cover the composition of matter, preparation and/or uses of the product and product candidates.
These patents, and patent applications, if granted, would expire through 2038, such expiration dates not accounting for any patent term extension, patent term
adjustment, supplemental protection certificate or pediatric extensions that may be available.
Platform Technologies
We separately own patents and patent applications in the U.S. and in major foreign markets that cover our proprietary PMO-based platform
technologies (e.g., PPMO, PMOplus®, PMO-X®). These patents, and patent applications, if granted, expire through 2038, such expiration dates not
accounting for any patent term extension, supplemental protection certificate or pediatric extensions that may be available.
Trademarks
Our trademarks are important to us and are generally filed to protect our corporate brand, our products and platform technologies. We typically file
trademark applications and pursue their registration in the U.S., Europe and other markets in which we anticipate using such trademarks. We are the owner of
multiple federal trademark registrations in the U.S. including, but not limited to, Sarepta®, Sarepta Therapeutics®, the Sarepta Therapeutics logo,
EXONDYS®, and EXONDYS 51®. In addition, we have multiple pending trademark applications in the U.S. and in major foreign markets. Trademark
protection varies in accordance with local law,
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and continues in some countries as long as the trademark is used and in other countries as long as the trademark is registered. Trademark registrations
generally are for fixed but renewable terms.
Government Regulation
The testing, manufacturing, labeling, advertising, promotion, distribution, exportation and marketing of our products are subject to extensive
regulation 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 its
implementing regulations, regulates pharmaceutical products. Failure to comply with applicable U.S. requirements may subject us to administrative or
judicial sanctions, such as FDA refusal to approve pending marketing applications, withdrawal of approval of approved products, warning letters, untitled
letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, civil penalties and/or criminal prosecution.
U.S. Drug Approval Process
To obtain FDA approval of a product candidate, we must, among other things, submit clinical data providing substantial evidence of safety and
efficacy of the product for its intended use, as well as detailed information on product composition, its manufacture and controls and proposed labeling. The
testing and collection of data and the preparation of necessary applications are expensive and time-consuming. The FDA may not act quickly or favorably in
reviewing these applications, and we may encounter significant difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us
from marketing our products.
The steps required before a drug may be approved for marketing in the U.S. generally include the following:
pre-clinical laboratory tests and animal toxicity testing;
submission of an IND for conducting human clinical testing to the FDA, which must become effective before human clinical trials commence;
adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug product for each indication, including
controlled studies or comparison of treated group from clinical trials to data from natural history data or studies;
submission of a complete and compliant marketing application containing chemistry, manufacturing and control information for the drug
substance and drug product, reports of nonclinical and clinical trials, product labeling and administrative information;
satisfactory completion of an FDA inspection of the commercial manufacturing facilities at which the drug substance and drug product are
made to assess compliance with cGMP;
satisfactory FDA audit of the clinical trial site(s) that generated the pivotal safety and efficacy data included in the marketing application and
also potentially the nonclinical trial site(s) in the form of pre-approval inspections; and
FDA review and approval of the marketing application.
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Pre-clinical trials may include laboratory evaluations of the product chemistry, pharmacology, toxicity and formulation, as well as animal studies to
assess the pharmacokinetics, metabolism, bio-distribution, elimination and toxicity of the product candidate. The conduct of the pre-clinical tests and
formulation of the compounds for testing must comply with federal regulations and requirements. The results of the pre-clinical trials, manufacturing
information, analytical data 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 may be initiated. The IND will become effective approximately 30 days after receipt by the FDA, unless the FDA raises concerns or
questions about the supportive data, or the study design, particularly regarding potential safety issues with conducting the clinical trial as described in the
protocol. In this situation, the trials are placed 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 qualified
principal 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 a
submission to the IND. Clinical trials must be conducted in accordance with the FDA’s Good Clinical Practice (“GCP”) requirements and federal and state
laws and regulations protecting study subjects. Further, each clinical trial must be reviewed and approved by the Institutional Review Board (“IRB”) at or
servicing each institution in which the clinical trial will be conducted. The IRB will consider, among other things, rationale for conducting the trial, clinical
trial design, participant informed consent, ethical factors, the safety and rights of human subjects and the possible liability of the institution. The FDA can
temporarily 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 accordance
with FDA requirements or presents an unacceptable risk to the clinical trial
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subjects. The IRB may also require the clinical trial at a particular site be halted, either temporarily or permanently, for failure to comply with GCP or the
IRB’s requirements, or may impose other conditions.
Clinical trials typically are conducted in three sequential drug development phases (Phases 1, 2 and 3) prior to approval, and a portion of these
phases may overlap. A fourth post-approval phase (Phase 4) may include additional clinical trials. A general description of clinical trials conducted in each
phase of development is provided below. However, the number of study subjects involved in each phase of drug development for rare diseases can be
significantly less than typically expected for more common diseases with larger patient populations:
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Phase 1. Phase 1 clinical trials involve the initial introduction of the drug into human subjects. These studies are usually designed to determine
the safety of single and multiple doses of the compound and determine any dose limiting toxicities or intolerance, as well as the metabolism and
pharmacokinetics of the drug in humans. Phase 1 studies usually involve less than 100 subjects and are conducted in healthy adult volunteers,
unless it is unethical to administer the study drug to healthy volunteers, in which case they are tested in patients.
Phase 2. Phase 2 clinical trials are usually conducted in a limited patient population to evaluate the safety and efficacy of the drug for a specific
indication to determine optimal dosage and to identify possible adverse effects and safety risks. Phase 2 studies usually involve patients with
the disease under investigation and may vary in size from several dozen to several hundred.
Phase 3. If an investigational drug is found to be potentially effective and to have an acceptable safety profile in early phase studies, larger
Phase 3 clinical trials are conducted to confirm clinical efficacy, dosage and safety in the intended patient population, which may involve
geographically dispersed clinical trial sites. Generally, two adequate and well-controlled Phase 3 clinical trials which establish the safety and
efficacy of the drug for a specific indication are required for approval of a marketing application. Phase 3 studies usually include several
hundred to several thousand patients for larger, non-orphan drug indications/diseases. However, clinical trials for rare or orphan diseases
generally have fewer patients due to their lower prevalence. For these orphan diseases, a company may also try to demonstrate efficacy and
safety by comparing treated patients in clinical trials to untreated patients participating in placebo-controlled clinical trials or to observational
natural history studies.
Phase 4. Phase 4 trials are clinical trials conducted after the FDA has approved a product for marketing. Typically there are two forms of Phase
4 trials: those that are conducted to fulfill mandatory conditions of product approval and those that are voluntarily conducted to gain additional
experience from the treatment of patients in the intended therapeutic indication. The mandatory studies are used to confirm clinical benefit 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 4 clinical trials could result in withdrawal of approval for products
approved under accelerated approval regulations.
A company seeking marketing approval for a new drug in the U.S. must submit the results of the pre-clinical and clinical trials to the FDA in the
form of a marketing application, together with, among other things, detailed information on the manufacture and composition of the product candidate and
proposed labeling, including payment of a user fee for FDA review of the application. The user fee is waived for an application for a product intended to treat
an Orphan Indication. The FDA assesses all submitted marketing applications for completeness before it accepts them for filing. In some cases, the FDA may
request additional information before accepting a marketing application for filing. Once the submission is accepted for filing, the FDA begins an in-depth
review of the marketing application. Applications receive either standard or priority review. Under the current goals mandated under the Prescription Drug
User Fee Act (the “PDUFA”), the FDA has ten months in which to complete its initial review of a standard marketing application and respond to the
applicant, and six months for a priority marketing application. The FDA does not always meet its PDUFA goal dates for standard or priority marketing
applications. The review process and the PDUFA goal date may be extended by three months if the FDA requests or the marketing application sponsor
otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the
PDUFA goal date. The FDA may refer an application to an advisory committee for review, evaluation and recommendation as to whether the application
should be approved. Though the FDA is not bound by such recommendations, it considers them carefully when making decisions. If the FDA’s evaluations of
the marketing application and the clinical and manufacturing procedures and facilities are favorable, the FDA may issue an approval letter. If the FDA finds
deficiencies in the marketing application, it may issue a complete response letter, which defines the conditions that must be met in order to secure final
approval of the marketing application. 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 a
complete response to the issues identified by the FDA. Resubmissions by the marketing application sponsor in response to a complete response letter trigger
new review periods of varying length (typically two to six months) based on the content of the resubmission. If the FDA’s evaluation of the marketing
application and the commercial manufacturing procedures and facilities is not favorable, the FDA may not approve the marketing application.
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A sponsor may also seek designation of its drug candidates under programs designed to accelerate the FDA’s review and potential approval of
marketing applications. For instance, a sponsor may seek FDA designation of a drug candidate as a “fast track product.” Fast track products are those
products intended for the treatment of a serious or life-threatening disease or condition and which demonstrate the potential to address unmet medical needs
for such disease or condition. If fast track designation is obtained, the FDA may initiate early and frequent communication and begin reviewing sections of a
marketing application before the application is complete. This “rolling review” is available if the applicant provides, and the FDA approves, a schedule for
the remaining information. Eteplirsen was granted fast track status in 2007.
The Food and Drug Administration Safety and Innovation Act (“FDASIA”) enacted and signed into law in 2012 amended the criteria for the fast
track and accelerated approval pathways and, as a result, the pathways now share many common eligibility criteria. FDASIA provides both the sponsor
companies and the FDA with greater flexibility and expedited regulatory mechanisms. The statute clarifies that a fast track product may be approved pursuant
to an accelerated approval (Subpart – H) or under the traditional approval process. In addition, FDASIA codified the accelerated approval pathway as separate
and apart from the 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
advantage over available therapies and demonstrates an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical
endpoint that can 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., an intermediate clinical endpoint). Approvals of this kind typically include requirements for appropriate post-approval Phase 4 clinical trials to
confirm clinical benefit. FDASIA retains this requirement and further requires those studies to verify and describe the predicted effect on irreversible
morbidity or mortality or other clinical benefit.
Additionally, FDASIA established a new, expedited regulatory mechanism referred to as breakthrough therapy designation. Breakthrough therapy
designation, fast track, and accelerated approval are not mutually exclusive and are meant to serve different purposes. The breakthrough therapy designation
is focused on expediting the development and review process and by itself does not create an alternate ground for product approval. A sponsor may seek FDA
designation 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 or
life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing
therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA issued
guidance entitled “Expedited Programs for Serious Conditions––Drugs and Biologics” in May 2014.
Finally, if a drug candidate demonstrates a significant benefit over existing therapy, it may be eligible for priority review, which means it will be
reviewed within a six-month timeframe from the date a complete marketing application is accepted for filing. A Regenerative Medicine Advanced Therapy
(“RMAT”) designation is also designed to accelerate approval for regenerative advanced therapies such as our gene therapy product candidates, but the exact
mechanisms have not yet been announced by FDA.
We cannot be sure that any of our drug candidates will qualify for any of these expedited development, review and approval programs, or that, if a
drug does qualify, that the product candidates will be approved, will be accepted as part of any such program or that the review time will be shorter than a
standard review.
Holders of an approved marketing application 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;
continue to have quality control and manufacturing procedures conform to cGMP after approval; and
conduct any post-marketing study designated as a required condition of the marketing application approval.
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The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing; this latter effort includes assessment of
compliance with cGMP. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain
cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved
marketing application, including withdrawal of the product from the market.
Foreign Regulatory Requirements
We are pursuing regulatory approval of eteplirsen in jurisdictions outside of the U.S. In November 2016, we submitted a marketing authorization
application (“MAA”) for eteplirsen to the EMA and the application was validated in December 2016. As we
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announced on June 1, 2018, the CHMP of the EMA adopted a negative opinion for eteplirsen. In September 2018, the CHMP of the EMA confirmed its
negative opinion for eteplirsen, and the European Commission adopted the CHMP opinion in December 2018. We plan to seek follow up EMA scientific
advice in 2019 to explore a potential approach for EMA approval of eteplirsen. We have initiated key activities in support of the potential launch of eteplirsen
in the EU, such as building out commercial infrastructure and scaling-up manufacturing. As of the date of this Annual Report, EXONDYS 51 has only been
approved for sale and marketing in the U.S. by the FDA and in Israel by the Israeli Ministry of Health.
Thus, in addition to regulations in the U.S., our business is subject to a variety of foreign regulations governing clinical trials and commercial sales
and distribution of our products. Irrespective of whether it is an FDA approved drug or an investigational drug, approvals by the comparable regulatory
authorities of foreign countries are required before we can commence clinical trials or marketing of the product in those countries. For example, in the EU,
the conduct of clinical trials is governed by the currently applicable Clinical Trials Directive 2001/20/EC concerning conduct of clinical trials in the EU and
the Directive 2005/28/EC laying down the principles and guidelines on GCP, a system for the approval of clinical trials that has been implemented through
national legislation in the member states in the EU. Under this system, a sponsor must obtain approval from the competent national authority of an EU
member state in which the clinical trial is to be conducted, or in multiple member states if the clinical trial is to be conducted in a number of countries.
Furthermore, the sponsor may only start a clinical trial at a specific study site after the competent ethics committee has issued a favorable opinion. The
Clinical Trials Application (“CTA”) must include the supporting information prescribed by Directive 2001/20/EC and Directive 2005/28/EC, corresponding
national laws of the member states, and as further detailed in the applicable guidance documents.
In April 2014, the EU adopted a new Clinical Trials Regulation (EU) No 536/2014 to replace the current Clinical Trials Directive. The new Clinical
Trials Regulation has come into force, but will come into application in all EU Member States in October 2018 without the need for any national
implementing legislation. The new regulation provides an overhaul of the system to ensure greater consistency in the approval of clinical trials with the
highest standards of patient safety in the EU. Specifically, the new legislation seeks to simplify and streamline approval. Under the new coordinated
procedure for the approval, the sponsor of a clinical trial is required to submit a single application to a reporting EU Member State. The reporting Member
State will consult and coordinate with all other Member States in which the clinical trial is planned to be conducted (concerned Member States). If the
application is rejected, it can be amended and resubmitted through a central EU Portal. If an approval is issued, the sponsor can start the clinical trial in all
concerned Member States. However, a concerned Member State can in certain cases declare an “opt-out” from the approval. In such a case, the clinical trial
cannot be conducted in those Member State(s). The Clinical Trials Regulation also aims to streamline and simplify the rules on safety reporting for clinical
trials.
In order to obtain marketing authorization for a medicinal product in the EU, applicants are required to submit an MAA to either the national
Competent Authorities or the EMA for the Centralized authorization procedures, using the ICH Common Technical Document (“CTD”). Applicants are
required to demonstrate the quality, safety and efficacy of the medicinal product in the application for marketing authorization. This includes the requirement
to conduct human clinical trials to generate the necessary clinical data. Submission of data in compliance with an agreed Pediatric Investigation Plan (“PIP”)
is essential for the validation or acceptance of an MAA for review. Medicinal products are authorized in the EU through one of several different procedures,
either by the national competent authorities of the EU Member States (through the decentralized, mutual recognition, or national procedures), or through the
centralized authorization procedure administered by the EMA. Regulation (EC) No 726/2004 of the European Parliament and of the Council lays down the
centralized procedure for the authorization of medicinal products, for which there is a single application, a single evaluation and a single approval allowing
direct access to the single market of the EU. Approval via the Centralized Procedure is a two-step process whereby the CHMP first adopts an “Opinion”
recommending grant of a marketing authorization following a review of the submitted data to inform an assessment of benefit/risk. The adopted Opinion can
be positive or negative. A positive CHMP opinion is followed by European Commission (“EC”) binding decision to grant a marketing authorization. The
marketing authorization is valid throughout the EU and is automatically recognized in three of the four European Free Trade Association states (Iceland,
Liechtenstein and Norway). These countries collectively belong to the European Economic Area. The timeframe for the evaluation of an MAA leading to the
CHMP opinion is 210 days (discounting procedural clock-stops) from receipt of a valid application for marketing authorization. This time period to complete
the scientific review is generally longer than the 210 days as “clock stops” are required to respond to additional written or oral information requested by the
EMA. Following a positive CHMP opinion, the EU Commission has 67 days to issue the EC Decision (i.e. the marketing authorization).
Article 3 of Regulation (EC) No 726/2004 defines the scope and eligibility of applications for evaluation under the centralized procedure through
which medicinal products must ("mandatory scope") or may ("optional scope" or "Generic/Hybrid") be authorized by the Community. The centralized
procedure is compulsory for certain medicinal products, including medicinal products derived from biotechnological processes, orphan medicinal products,
advanced therapy medicinal products and products indicated for the treatment of certain diseases including treatment of neurodegenerative diseases. It is
optional for new active substances and products that can demonstrate a significant therapeutic, scientific or technical innovation, where approval would be in
the interest of public health. Our portfolio of innovative orphan products for neurodegenerative diseases is subject to the mandatory centralized procedure.
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Accelerated evaluation may be granted in exceptional cases, following a justified request from the applicant, when a medicinal product is of a
major public health interest, particularly from the point of view of therapeutic innovation. CHMP determines what constitutes a major public interest on a
case by case basis. Justifications must include the major benefits expected and present the arguments to support the claim that the medicinal product
introduces new methods of therapy or improves on existing methods, thereby addressing, to a significant extent, the greater unmet needs for maintaining and
improving public health. During an accelerated assessment, the opinion of the CHMP is given, in principle, within 150 days. The EU Commission Decision is
then issued according to the timetable described above.
Innovative medicinal products authorized in the EU on the basis of a full stand-alone MAA consisting of pharmaceutical and pre-clinical testing
results and clinical trial data (as opposed to an application for a generic marketing authorization that relies on the results of pre-clinical and clinical trials
available in the marketing authorization dossier for another, previously approved, reference medicinal product) are treated as reference medicinal products
and accordingly entitled to eight years’ data exclusivity. During this period, applicants for approval of generics of these innovative products cannot reference
or rely upon data contained in the marketing authorization dossier submitted for the innovative medicinal product. Even if the generic product is approved, it
cannot be placed on the market until the full 10-year period of market protection has elapsed from the initial authorization of the reference medicinal product.
This period can be extended to a maximum of eleven years if, during the first eight years of those ten years, the MA holder for the innovative product obtains
an authorization for new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical
benefit in comparison with existing therapies or as the result of significant pre-clinical or clinical trials.
In the EU, orphan medicinal product designation is considered by the EMA for drugs intended to diagnose, prevent or treat a life-threatening or
very serious condition with a prevalence of no more than 5 in 10,000 people in the EU. In addition, the sponsor is required to demonstrate that there exists no
satisfactory method of diagnosis, prevention or treatment of the condition that has been authorized in the EU or if such method exists, the medicinal product is
of significant benefit to those affected by the condition as compared to approved methods. Medicinal products developed for treating serious and chronic
conditions would likely not be marketed without incentives due to low market return on the sponsor’s development investment. As such, they may also be
eligible for an EU orphan drug designation. Benefits of being granted orphan designation are significant, including up to ten years of market exclusivity.
During this ten-year period, the EMA may not accept a new marketing application for a similar medicinal product for the same therapeutic indication as the
approved orphan medicinal product. Pursuant to Regulation (EC) 1901/2006 on medicinal products for pediatric use, the 10-year orphan market exclusivity
can be extended to a maximum period of 12 years on the satisfactory completion of all the key elements of the agreed PIP. We have been granted orphan drug
designation for eteplirsen in the EU.
Similar to the U.S., marketing authorization holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by
the EMA and/or the national competent authorities of the EU Member States. This oversight applies both before and after the granting of manufacturing and
marketing authorizations. It includes compliance with EU GMP and GDP rules in relation to such activities as distribution, importing and exporting of
medicinal products, rules governing conduct of pharmacovigilance and requirements governing advertising, promotion and sale of medicinal products.
Failure to comply with the EU Member State laws implementing the EU Community Code on medicinal products, and EU rules governing the
promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices, with the EU Member
State laws that apply to the promotion of medicinal products, statutory health insurance, bribery and anti-corruption or with other applicable regulatory
requirements can result in enforcement action by the relevant EU Member State authorities. This may include any of the following: fines, imprisonment,
orders forfeiting products or prohibiting or suspending their supply to the market, orders to suspend, vary, or withdraw the marketing authorization or
requiring the manufacturer to issue public warnings, or to conduct a product recall.
The collection and use of personal health data and other personal information in the EU is governed by the provisions of the Data Protection
Directive as implemented into national laws by the EU Member States. This Directive imposes a number of strict obligations and restrictions on the ability to
collect, analyze and transfer patient data, including sensitive health data from clinical trials and adverse event reporting. There is, moreover, a growing trend
towards imposition of an obligation of public disclosure of clinical trial data in the EU, which adds to the complexity of obligations relating to the processing
of health data from clinical trials. Such public disclosure obligations are provided in the new EU Clinical Trials Regulation, EMA disclosure initiatives, and
voluntary commitments by industry. The Data Protection Directive also includes requirements relating to the consent of the individuals to whom the personal
data relates, the information provided to the individuals prior to processing their personal data or personal health data, notification of data processing
obligations to the competent national data protection authorities and the security and confidentiality of the personal data. The Data Protection Directive also
prohibits the transfer of personal data to countries outside of the EU Member States that are not considered by the EU to provide an adequate level of data
protection. These countries include the U.S. Failure to comply with the requirements of the Data Protection Directive and the related national data protection
laws of the EU Member States may result in fines and other administrative penalties. Data protection authorities from the different EU Member States may
interpret the EU Data Protection Directive and national laws differently, which adds to the complexity of processing personal data in the EU
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Guidance developed at both EU level and at national level in individual EU Member States concerning implementation and compliance practices are often
updated or otherwise revised.
In December 2015, a proposal for an EU General Data Protection Regulation, intended to replace the current EU Data Protection Directive, was
agreed between the European Parliament, the Council of the European Union and the European Commission. The EU General Data Protection Regulation,
which was officially adopted in April 2016 and will be applicable in May 2018, will introduce new data protection requirements in the EU, as well as
substantial fines for breaches of the data protection rules. The EU General Data Protection Regulation will increase our responsibility and liability in relation
to any personal data that we process, and we may be required to put in place additional mechanisms to ensure compliance with the new EU data protection
rules.
The approval process in other countries outside the U.S. and the EU varies from country to country, and the time may be longer or shorter than that
required for the FDA approval. In addition, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement for market
access vary greatly from country to country. In all cases, clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and
the ethical principles that have their origin in the Declaration of Helsinki.
Data and Market Exclusivities
In addition to patent exclusivities, the FDA and certain other foreign health authorities may grant data or market exclusivity for a newly approved
chemical entity or biologic, which runs in parallel to any patent protection. Regulatory data protection or exclusivity prevents a potential generic competitor
from relying on clinical trial data generated by the sponsor when establishing the safety and efficacy of its competing product. Market exclusivity prohibits
any marketing of the same drug for the same indication.
In the U.S., the FDA will generally grant a NCE that is the subject of a NDA with five years of regulatory data exclusivity, during which time a
competitor generally may not submit an application to the FDA based on a sponsor’s clinical data. For a newly approved biologic that is the subject of a
BLA, the FDA will generally grant 12 years of market exclusivity, during which time a competitor may not market the same drug for the same indication.
In addition, the FDA may provide six months of pediatric exclusivity to a sponsor of a marketing application, if the sponsor conducted a pediatric
study or studies of a product. This process is applied to products developed for adult use and is initiated by the FDA as a written request for pediatric studies
that applies to a sponsor’s product. If the sponsor conducts qualifying studies and the studies are accepted by the FDA, then an additional six months of
pediatric exclusivity will be added to previously granted exclusivity, such as orphan drug exclusivity and NCE exclusivity, as well as certain patent-based
exclusivities.
Orphan Drug Designation and Exclusivity
In the U.S., the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000
individuals 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 making
available 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. An orphan drug designation must be
requested before submitting an application for marketing approval. An orphan drug designation does not shorten the duration of the regulatory review and
approval process. The approval of an orphan designation request does not alter the regulatory requirements and process for obtaining marketing approval.
Safety and efficacy of a compound must be established through adequate and well-controlled studies. If a product which has an orphan drug designation
subsequently receives FDA approval for the indication for which it has such designation, the product is generally entitled to an orphan drug exclusivity
period, which means the FDA may not grant approval to any other application to market the same chemical entity for the same indication for a period of
seven years, except in limited circumstances, such as where an alternative product demonstrates clinical superiority to the product with orphan exclusivity. In
addition, holders of exclusivity for orphan drugs are expected to assure the availability of sufficient quantities of their orphan drugs to meet the needs of
patients. Failure to do so could result in the withdrawal of orphan exclusivity for the drug. Competitors may receive approval of different drugs or biologics
for the indications for which a prior approved orphan drug has exclusivity.
In Europe, the EMA may grant orphan status to product candidates thereby providing such product candidates with ten years of marketing
exclusivity, meaning that another application for marketing authorization of a later, similar medicinal product for the same therapeutic indication will
generally not be approved in Europe during that time period.
Expanded / Early Access
In certain countries, drug products approved in the U.S. or the EU can be accessed by patients before the drug has obtained marketing approval in
such country. There are various forms of this access including, but not limited to, the actual purchase of product by the purchaser, which is often times the
government for patients, on a named patient basis, and providing the product free of charge
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on a named patient basis for compassionate use. Each country has its own laws and regulations that apply to these forms of access and the extent and nature of
such laws and regulations vary by country. For example, in 2018, the so-called Right to Try Act became law in the United States. The law, among other
things, allows eligible patients to access certain investigational new drug products that have completed a Phase I clinical trial and that are undergoing
investigation for FDA approval without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is
no obligation for a pharmaceutical manufacturer to make its drug products available to such eligible patients as a result of the Right to Try Act.
We have initiated an EAP for eteplirsen in select countries in Europe, North America, South America and Asia where it currently has not been
approved. The EAP provides a mechanism through which physicians can prescribe eteplirsen, within their professional responsibility, to patients who meet
pre-specified medical and other criteria and can secure funding. We have commenced shipments through the EAP and continue to expand the EAP to include
more countries. In addition, we contracted with third party distributors and service providers to distribute eteplirsen in certain areas outside the U.S., such as
Brazil and certain countries in the Middle East, on a named patient basis.
Other Regulatory Requirements
In addition to regulations enforced by the FDA and foreign authorities relating to the clinical development and marketing of products, we are or
may become subject to regulation under the Occupational Safety and Health Act, the Toxic Substances Control Act, the Resource Conservation and Recovery
Act and other present and potential future foreign, federal, state and local laws and regulations. Although we believe that we are in material compliance with
applicable environmental laws that apply to us, we cannot predict whether new regulatory restrictions will be imposed by state or federal regulators and
agencies or whether existing laws and regulations will adversely affect us in the future.
Healthcare Fraud and Abuse Laws
We are subject to various federal, state and local laws targeting fraud and abuse in the healthcare industry, including anti-kickback and false claims
laws. Violations of fraud and abuse laws may be punishable by crime or civil sanctions, including fines and civil monetary penalties, and/or exclusion from
federal health care programs (including Medicare and Medicaid). Federal and state authorities are paying increased attention to enforcement of these laws
within the pharmaceutical industry, and private individuals have been active in alleging violations of the laws and bringing suits on behalf of the government
under the federal False Claims Act (“FCA”). Violations of international fraud and abuse laws could result in similar penalties, including exclusion from
participation in health programs outside the U.S. If we were subject to allegations concerning, or were convicted of violating, these laws, our business could
be harmed.
The federal Anti-Kickback Statute generally prohibits, among other things, a pharmaceutical manufacturer from directly or indirectly soliciting,
offering, receiving, or paying any remuneration in cash or in kind where one purpose is either to induce the referral of an individual for, or the purchase or
prescription of a particular drug that is payable by a federal health care program, including Medicare or Medicaid. A person or entity does not need to have
actual knowledge of the statute or a specific intent to violate the statute. Violations of the federal Anti-Kickback Statute can result in exclusion from
Medicare, Medicaid or other governmental programs as well as civil and criminal fines and penalties of up to $100,000 per violation and three times the
amount of the unlawful remuneration. A claim arising from a violation of the federal Anti-Kickback Statute also constitutes a false or fraudulent claim for
purposes of the FCA. A new federal anti-kickback statute enacted in 2018 prohibits certain payments related to referrals of patients to certain providers (such
as clinical laboratories) and applies to services reimbursed by private health plans as well as government health care programs.
Federal and state false claims laws generally prohibit anyone from knowingly and willfully, among other activities, presenting, or causing to be
presented for payment to third party payors (including Medicare and Medicaid) claims for drugs or services that are false or fraudulent (which may include
claims for services not provided as claimed or claims for medically unnecessary services). False or fraudulent claims for purposes of the FCA carry fines and
civil penalties for violations ranging from $11,181 to $22,363 for each false claim, plus up to three times the amount of damages sustained by the federal
government and, may provide the basis for exclusion from federally funded healthcare programs. There is also a criminal FCA statute by which individuals or
entities that submit false claims can face criminal penalties. In addition, under the federal Civil Monetary Penalty Law, the Department of Health and Human
Services Office of Inspector General has the authority to exclude from participation in federal health care programs or to impose civil penalties against any
person who, among other things, knowingly presents, or causes to be presented, certain false or otherwise improper claims. Our activities relating to the sale
and marketing of our products may be subject to scrutiny under these laws.
The majority of states also have anti-kickback, false claims, and similar fraud and abuse laws and although the specific provisions of these laws
vary, their scope is generally broad, and there may not be regulations, guidance or court decisions that apply
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the laws to particular industry practices. There is therefore a possibility that our practices might be challenged under the anti-kickback statutes or similar laws.
Laws and regulations have also been enacted by the federal government and various states to regulate the sales and marketing practices of
pharmaceutical manufacturers. The laws and regulations generally limit financial interactions between manufacturers and health care providers; require
pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated
by the U.S. federal government; and/or require disclosure to the government and/or public of financial interactions (so-called “sunshine laws”). State laws
may also require disclosure of pharmaceutical pricing information and marketing expenditures. Manufacturers must also submit information to the FDA on
the identity and quantity of drug samples requested and distributed by a manufacturer during each year. Many of these laws and regulations contain
ambiguous requirements or require administrative guidance for implementation. Given the lack of clarity in laws and their implementation, our activities
could be subject to the penalty provisions of the pertinent federal and state laws and regulations.
Pharmaceutical Pricing and Reimbursement
Our first commercial product in the U.S., EXONDYS 51, was granted accelerated approval by the FDA on September 19, 2016. We have an
ongoing dialogue with payors globally with the goal of obtaining broad coverage for EXONDYS 51. To date, payors’ policies on coverage for EXONDYS 51
have varied widely, including policies that allow broad coverage per the EXONDYS 51 prescribing information, policies that provide limited coverage, to
policies that have denied coverage. The majority of payors have policies that provide for case-by-case coverage or restricted coverage. Our revenue depends,
in part, upon the extent to which payors provide coverage for EXONDYS 51 and the amount that payors, including government authorities or programs,
private health insurers and other organizations, reimburse patients and healthcare providers for the cost of EXONDYS 51.
Third Party Reimbursement and Pricing in the U.S.
Commercial Insurance. Coverage and reimbursement of our EXONDYS 51 varies from commercial payor to commercial payor. Many commercial
payors, such as managed care plans, manage access to FDA approved products, and may use drug formularies and medical policies (which may include
specific coverage requirements such as prior authorization, re-authorization and achieving performance metrics under value-based contracts) to control
utilization. Exclusion from or restriction in coverage can reduce product usage.
Medicaid. Our product EXONDYS 51 is eligible to be reimbursed by Medicaid. Medicaid is a joint federal and state program that is administered
by the states for low income and disabled beneficiaries. Under the Medicaid Drug Rebate Program, participating manufacturers are required to pay a rebate
for each unit of product reimbursed under the state Medicaid programs. The amount of the rebate for each product is set by law and may be subject to an
additional discount if certain pricing increases more than inflation. State Medicaid programs and Medicaid managed care plans can seek additional
“supplemental” rebates from manufacturers in connections with favorable positioning on formularies.
Medicare. Medicare is a federal program that is administered by the federal government that covers individuals age 65 and over as well as those
with certain disabilities. Our product EXONDYS 51 is eligible for reimbursement under Medicare Part B. Medicare Part B generally covers drugs that must
be administered by physicians. Medicare Part B pays for such drugs under a payment methodology based on the average sales price (“ASP”) of the drugs.
Reimbursement levels and reimbursement methodologies have come under scrutiny and may be subject to change. The Centers for Medicare & Medicaid
Services (“CMS”) are also increasingly bundling drug reimbursement into procedure costs, which can severely decrease the reimbursement rates for some
manufacturers’ drugs.
Federal Purchasers. Drug products are subject to discounted pricing when purchased by federal agencies via the Federal Supply Schedule (“FSS”).
FSS participation is required for a drug product to be covered and reimbursed by certain federal agencies and for coverage under Medicaid, Medicare Part B
and the Public Health Service (“PHS”) 340B drug pricing program. FSS pricing is negotiated periodically with the Department of Veterans Affairs. FSS
pricing is intended not to exceed the price that a manufacturer charges its most-favored non-federal customer for its product. In addition, prices for drugs
purchased by the Veterans Administration, Department of Defense (including drugs purchased by military personnel and dependents through the TRICARE
retail pharmacy program), Coast Guard, and PHS are subject to a cap on pricing (known as the “federal ceiling price”) and may be subject to an additional
discount if pricing increases more than the rate of inflation.
PHS 340B Drug Pricing Program. To maintain coverage of drugs under the Medicaid Drug Rebate Program and Medicare Part B, manufacturers
are required to extend discounts to certain purchasers under the PHS 340B drug pricing program. Purchasers eligible for discounts include hospitals that serve
a disproportionate share of financially needy patients, community health clinics and other entities that receive health services grants from the PHS.
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Healthcare and Other Reform. In the U.S., federal and state governments continue to propose and pass legislation designed to reform delivery of,
or payment for, health care, which include initiatives to reduce the cost of healthcare. For example, in March 2010, the U.S. Congress enacted the Patient
Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, or the Healthcare Reform Act, which expanded health care
coverage through Medicaid expansion, implemented the “individual mandate” for health insurance coverage (by imposing a tax penalty on individuals who
did not obtain insurance) and changed the coverage and reimbursement of drug products under government healthcare programs. Under the Trump
administration, there have been ongoing efforts to modify or repeal all or certain provisions of the Healthcare Reform Act. Tax reform legislation was
enacted at the end of 2017 that includes provisions that will affect healthcare insurance coverage and payment, such as the elimination of the tax penalty for
individuals who do not maintain sufficient health insurance coverage beginning in 2019. In a May 2018 report, the Congressional Budget Office estimated
that, compared to 2018, the number of uninsured will increase by 3 million in 2019 and 6 million in 2028, in part due to the elimination of the individual
mandate. The Healthcare Reform Act has also been subject to judicial challenge. In December 2018, a federal district court judge, in a challenge brought by a
number of state attorneys general, found the Healthcare Reform Act unconstitutional in its entirety because once Congress repealed the “individual mandate”
provision, there was no longer a basis to rely on Congressional taxing authority to support enactment of the law. The court reasoned that the “individual
mandate” was not severable from the rest of the Healthcare Reform Act and found the entire Healthcare Reform Act was an unconstitutional exercise of
Congressional authority. Pending appeals, which could take some time, the Healthcare Reform Act is still operational in all respects.
There have been other reform initiatives under the Trump Administration. For example, in May 2018, President Trump and the Secretary of the
Department of Health and Human Services released a “blueprint” to lower prescription drug prices and out-of-pocket costs. Certain proposals in the blueprint,
and related drug pricing measures proposed since the blueprint, could cause significant operational and reimbursement changes for the pharmaceutical
industry. As another example, in October 2018, the Centers for Medicare & Medicaid Services solicited public comments on potential changes to payment for
certain Medicare Part B drugs, including reducing the Medicare payment amount for selected Medicare Part B drugs to more closely align with international
drug prices.
There have also been efforts by government officials or legislators to implement measures to regulate prices or payment for pharmaceutical
products, including legislation on drug importation. Recently, there has been considerable public and government scrutiny of pharmaceutical pricing and
proposals to address the perceived high cost of pharmaceuticals. There have also been recent state legislative efforts to address drug costs, which generally
have focused on increasing transparency around drug costs or limiting drug prices. Certain state legislation has been subject to legal challenges. Adoption of
new legislation regulating drug pricing at the federal or state level could further affect demand for, or pricing of, our products.
General legislative cost control measures may also affect reimbursement for our products. The Budget Control Act, as amended, resulted in the
imposition of 2% reductions in Medicare (but not Medicaid) payments to providers in 2013 and will remain in effect through 2027 unless additional
Congressional action is taken. Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that
may be implemented and/or any significant taxes or fees that may be imposed on us could have an adverse impact on our results of operations.
Third Party Reimbursement and Pricing outside the U.S.
We currently have no products approved for marketing outside the U.S., other than a marketing authorization for EXONDYS 51 in Israel. We may
need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our products. In the EU and certain other territories,
price controls and Health Technology Assessments for new, highly priced medicines are expected. Uncertainty exists about the pricing and reimbursement
status of newly approved products in the EU. Criteria such as cost-effectiveness, cost per quality-adjusted life year, budget impact, or others, in addition to the
clinical benefit, are often required to demonstrate added value or benefit of a drug and vary by country. Third party reimbursement limits may reduce the
demand for our products. The pace of the application process in some countries could also delay commercial product launches. Gaining acceptance of our
product pipeline and an economically viable reimbursement terms in the EU and other markets will require strong education and awareness efforts around
DMD as well as strong data supporting its effectiveness and cost-effectiveness.
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Competition
The pharmaceutical and biotechnology industries are intensely competitive, and any product candidate developed by us would likely compete with
existing drugs and therapies. There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies and
research organizations that compete with us in developing various approaches to the treatment of rare, neuromuscular and other diseases. Many of these
organizations have substantially greater financial, technical, manufacturing and marketing resources than we have. Several of them have developed or are
developing therapies that could be used for treatment of the same diseases that we are targeting. In addition, some of these competitors have significantly
greater commercial infrastructures than we have. Our ability to compete successfully will depend largely on:
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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 ability to have freedom to operate to commercialize our product candidates;
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 from
the U.S. government.
DMD Program Competition. Currently, other than EXONDYS 51, no disease-modifying product has been approved for the treatment of DMD in
the U.S. Other companies, however, have product candidates or other interests in development for the treatment of DMD.
Wave Life Sciences (“Wave”) announced the selection of its exon 51 skipping product candidate, suvodirsen (WVE-210201). In November 2017,
Wave announced the initiation of a global Phase 1 clinical trial for suvodirsen in DMD patients amenable to exon 51 skipping. In December 2018, Wave
announced results from a Phase 1 study of suvodirsen. In January 2019, Wave announced its planned phase 2/3 study of suvodirsen was selected for the FDA
pilot program for complex innovative trial designs (CID). Wave also announced the selection of its exon 53 skipping product candidate, WVE-N531.
Nippon Shinyaku Co. Ltd. (“Nippon”) has reported clinical data for its exon 53 skipping candidate, viltolarsen (NS-065/NCNP-01), from a Phase
1/2 study in Japan and a Phase 2 study in the U.S. Viltolarsen has been reported to have received an orphan drug designation in the U.S., was granted fast
track designation by FDA and received a “SAKIGAKE designation” in Japan from the Japanese Ministry of Health, Labor, and Welfare. Nippon has reported
in February 2019 that it has initiated a rolling NDA submission with the FDA with the intent to complete the submission by September 2019. Nippon’s
intention to submit its marketing authorization application with the Pharmaceuticals and Medical Devices Agency (“PMDA”) in Japan for viltolarsen by the
end of the Japanese fiscal year 2018 has also been reported.
Daiichi Sankyo (“Daiichi”) has reported a phase 1/2 clinical trial being underway in Japan for its exon 45 skipping candidate, DS-5141. In April
2018, Daiichi announced top-line results of the Phase 1/2 clinical trial in Japan of DS-5141 and that Daiichi will continue to develop DS-5141.
Solid Biosciences, LLC (“Solid”) has reported that its micro-dystrophin gene transfer product candidate for DMD, SGT-001 began a Phase 2
clinical study in December 2017. SGT-001 was granted fast track designation by the FDA in October 2018, orphan drug designation in August 2016, and rare
pediatric disease designation in 2017. In Europe, orphan designation was granted in September 2016. In February 2019, Solid reported micro-dystrophin
expression data for the first three patients in its clinical trial and announced plans to continue the study at a higher dose pending FDA and IRB approval.
Pfizer Inc., following its acquisition of Bamboo Therapeutics, Inc., has initiated a Phase 1 clinical trial in January 2018 to test the safety and
tolerability of its AAV-9 / micro-dystrophin gene transfer product candidate for DMD, PF-06939926/BMB-D001. The related orphan designation was granted
in Europe in August 2016, and in the U.S. in May 2017. Rare pediatric disease designation was granted by the FDA in April 2018.
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Other companies 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 efficacious than the products and product candidates in our DMD pipeline. Regarding any of these competitors, it is unknown if further clinical
development of these or other exon-skipping compounds is planned.
Additionally, companies such as Santhera, PTC Therapeutics, Summit, Catabasis, Pfizer, Fibrogen and Tivorsan have product candidates distinct
from ours in different stages of development or approval in DMD which we believe could be seen as complementary to exon skipping and not a direct
replacement of our product or product candidates at this time.
In addition, several companies and institutions have recently entered into collaborations or other agreements for the development of product
candidates, including mRNA, gene (CRISPR, AAV, etc.) or small molecule therapies that are potential competitors for therapies being developed in the
muscular dystrophy, neuromuscular, CNS and rare disease space, including but not limited to Biogen Inc., Ionis, Alexion Pharmaceuticals, Inc., Sanofi, Shire
(now Takeda), Eli Lilly, Alnylam Pharmaceuticals, Inc., Moderna Therapeutics, Inc., Summit, Akashi, Catabasis, Capricor Therapeutics, Oxford University,
Exonics Therapeutics, and Editas Medicine.
Platform Technology Competition. We believe that other biotechnology and pharmaceutical companies share a focus on RNA-targeted drug
discovery and development. Competitors with respect to our RNA-targeted technologies include, but are not limited to, Alnylam, Tekmira Pharmaceuticals
Corp., Ionis, BioMarin, Sanofi, Synthena AG, Santaris Pharma A/S (now Roche), Nippon, Daiichi Sankyo, Moderna Therapeutics and Wave.
Employees
As of December 31, 2018, we had 499 employees, 252 of whom hold advanced degrees. Of these employees, 255 are engaged directly in research
and development activities and 244 are in selling, general and administration including 48 in the sales force. None of our employees are covered by collective
bargaining agreements and we consider relations with our employees to be good.
General Corporate Information
We were originally incorporated in the State of Oregon on July 22, 1980, and on June 6, 2013, we reincorporated in the State of Delaware. Our
principal executive offices are located at 215 First Street, Suite 415, Cambridge, MA 02142 and our telephone number is (617) 274-4000. On July 12, 2012,
our common stock began trading 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 on July 11, 2012. Our common stock is quoted on the Nasdaq Global Select Market under the same symbol.
While we achieve revenue from EXONDYS 51 in the U.S. and through distribution of eteplirsen on a named patient basis or through our EAP
outside the U.S., we are likely to continue to incur operating losses in the near term associated with our ongoing operations, research and development
activities and potential business development activities. For more information about our revenues and operating losses, see Item 7, Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
As of December 31, 2018, we had approximately $1,174.9 million of cash, cash equivalents and investments, consisting of $370.8 million of cash
and cash equivalents, $803.1 million of short-term investments and $1.0 million of long-term restricted investment. We believe that our balance of cash, cash
equivalents and investments is sufficient to fund our current operational plan for at least the next twelve months. In addition to pursuing additional cash
resources through public or private financings, we may also seek to enter into contracts, including collaborations or licensing agreements with respect to our
technologies, with third parties, including government entities.
Where You Can Find Additional Information
We make available free of charge through our corporate website, www.sarepta.com, our annual reports, quarterly reports, current reports, proxy
statements and all amendments to those reports as soon as reasonably practicable after such material is electronically filed or furnished with the SEC. These
reports may also be obtained without charge by submitting a written request via mail to Investor Relations, Sarepta Therapeutics, Inc., 215 First Street, Suite
415, Cambridge, MA 02142 or by e-mail to investorrelations@sarepta.com. Our internet website and the information contained therein or incorporated
therein are not intended to be incorporated into this Annual Report on Form 10-K. In addition, the Securities and Exchange Commission (the “SEC”)
maintains an Internet site that contains reports, proxy and information statements, and other information regarding reports that we file or furnish electronically
with the SEC at www.sec.gov.
We have adopted a Code of Business Conduct and Ethics and written charters for our Audit Committee, Compensation Committee and Nominating
and Corporate Governance Committee. Each of the foregoing is available on our website at
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www.sarepta.com under “For Investors—Corporate Governance.” In accordance with SEC rules, we intend to disclose any amendment (other than any
technical, administrative, or other non-substantive amendment) to the above code, or any waiver of any provision thereof with respect to any of the executive
officers, on our website within four business days following such amendment or waiver. In addition, we may use our website as a means of disclosing
material non-public information and for complying with our disclosure obligations under Regulation Fair Disclosure promulgated by the SEC. These
disclosures will be included on our website under the “For Investors” section.
Item 1A. Risk Factors.
Set forth below and elsewhere in this report and in other documents we file with the SEC are descriptions of risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. Because of the following
factors, as well as other variables affecting our operating results, past financial performance should not be considered a reliable indicator of future
performance and investors should not use historical trends to anticipate results or trends in future periods. The risks and uncertainties described below are
not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also affect our results of operations and
financial condition.
Risks Related to Our Business
We are highly dependent on the commercial success of EXONDYS 51 in the U.S. We may not be able to meet expectations with respect to
EXONDYS 51 sales or attain profitability and positive cash-flow from operations.
On September 19, 2016, the FDA granted accelerated approval for EXONDYS 51 as a therapeutic treatment for DMD in patients who have a
confirmed mutation in the DMD gene that is amenable to exon 51 skipping. EXONDYS 51 is currently commercially available in the U.S. and Israel only,
although it is available in certain additional countries outside of the U.S. on a named patient basis and through our EAP. The commercial success of
EXONDYS 51 continues to depend on a number of factors, including, but not limited to:
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the effectiveness of our sales, managed markets, marketing efforts and support for EXONDYS 51;
the consistency of any new data we collect and analyses we conduct with prior results, whether they support a favorable safety, efficacy and
effectiveness profile of EXONDYS 51 and any potential impact on our FDA accelerated approval status and/or FDA package insert for
EXONDYS 51;
the effectiveness of our ongoing EXONDYS 51 commercialization activities, including negotiating and entering into any additional
commercial, supply and distribution contracts, ongoing manufacturing efforts and hiring any additional personnel as needed to support
commercial efforts;
our ability to comply with FDA post-marketing requirements and commitments, including through successfully conducting additional studies
that confirm clinical efficacy, effectiveness and safety of EXONDYS 51 and acceptance of the same by the FDA and medical community since
continued approval for this indication may be contingent upon verification of a clinical benefit in confirmatory trials;
the occurrence of any side effects, adverse reactions or misuse, or any unfavorable publicity in these areas;
the cost-effectiveness of EXONDYS 51 and whether we can consistently manufacture at acceptable costs;
the rate and consistency with which EXONDYS 51 is prescribed by physicians, which depends on physicians’ views on the safety,
effectiveness and efficacy of EXONDYS 51;
our ability to secure and maintain adequate reimbursement for EXONDYS 51, including during re-authorization processes that may be required
for patients who initially obtained coverage by third parties, including by government payors, managed care organizations and private health
insurers;
our ability to obtain and maintain patent protection for EXONDYS 51, to preserve our trade secrets, to prevent third parties from infringing on
our proprietary rights and to operate without infringing on the proprietary rights of third parties;
the development or commercialization of competing products or therapies for the treatment of DMD, or its symptoms, and the existence of
competing clinical trials;
our ability to increase awareness of the importance of genetic testing and knowing/understanding DMD mutations, and identifying and
addressing procedural barriers to obtaining therapy;
our ability to remain compliant with laws and regulations that apply to us and our commercial activities;
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the actual market-size, ability to identify patients and the demographics of patients eligible for EXONDYS 51, which may be different than
expected;
the sufficiency of our drug supply to meet commercial and clinical demands and standards, which could be negatively impacted for various
reasons, including if our projections on the potential number of amenable patients and their average weight are inaccurate, we are subject to
unanticipated regulatory requirements that increase our drug supply needs, our current drug supply is destroyed or negatively impacted at our
manufacturing sites, storage sites or in transit, failure to meet cGMP requirements or it takes longer than we project for the number of patients
we anticipate to get on EXONDYS 51 and any significant portion of our EXONDYS 51 supply expires before we are able to sell it;
our ability to obtain regulatory approvals to commercialize EXONDYS 51 in markets outside of the U.S. and Israel; and
the process leading to a patient’s first infusion of EXONDYS 51 may be slower for certain patients. For example, the time to first infusion may
take longer if a patient chooses to put in an intravenous port, which eases access to the vein. As the launch of EXONDYS 51 continues to
progress, we expect the variation among patients to decline, leading to a faster time to infusion. However, delays in the process prior to first
infusion could negatively impact the sales of EXONDYS 51.
We may experience significant fluctuations in sales of EXONDYS 51 from period to period and, ultimately, we may never generate sufficient
revenues from EXONDYS 51 to reach or maintain profitability or sustain our anticipated levels of operations.
Even though EXONDYS 51 received accelerated approval by the FDA, it faces future post-approval development and regulatory requirements,
which will present additional challenges we will need to successfully navigate.
On September 19, 2016, the FDA granted accelerated approval for EXONDYS 51 as a therapeutic treatment for patients with DMD who have a
confirmed mutation in the DMD gene that is amenable to exon 51 skipping. This indication is based on an increase in the surrogate biomarker of dystrophin
in skeletal muscles observed in some patients treated with EXONDYS 51. EXONDYS 51 will be subject to ongoing FDA requirements governing the
labeling, packaging, storage, advertising, promotion and recordkeeping of EXONDYS 51, and we are required to submit additional safety, efficacy and other
post-marketing information to the FDA.
Under the accelerated approval pathway, continued approval for this indication may be contingent upon verification of a clinical benefit in
confirmatory trials. These post-approval requirements and commitments may not be feasible and/or could impose significant burdens and costs on us;
could negatively impact our development, manufacturing and supply of EXONDYS 51; and could negatively impact our financial results. Failure to meet
post-approval commitments and requirements, including completion of enrollment and in particular, any failure to obtain positive safety and efficacy data
from our ongoing and planned EXONDYS 51 studies, would lead to negative regulatory action from the FDA and/or withdrawal of regulatory approval of
EXONDYS 51.
Manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory
authorities for compliance with cGMP regulations. Drug product manufacturers are required to continuously monitor and report adverse events from clinical
trials and commercial use of the product. If we or a regulatory agency discover previously unknown adverse events or events of unanticipated severity or
frequency, a regulatory agency may require labeling changes implementation of risk evaluation and mitigation strategy program, or additional post-marketing
studies or clinical trials. If we or a regulatory agency discover previously unknown problems with a product, such as problems with a facility where the API
or drug product is manufactured or tested, a regulatory agency may impose restrictions on that product and/or the manufacturer, including removal of specific
product lots from the market, withdrawal of the product from the market, or suspension of manufacturing. Sponsors of drugs approved under FDA accelerated
approval provisions also are required to submit to FDA, at least 30 days before initial use, all promotional materials intended for use after the first 120 days
following marketing approval. If we or the manufacturing facilities for EXONDYS 51 fail to comply with applicable regulatory requirements, a regulatory
agency may:
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seek an injunction or impose civil or criminal penalties or monetary fines;
suspend or withdraw or alter the conditions of our marketing approval;
mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
suspend any ongoing clinical trials;
require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates
for specific actions and penalties for noncompliance;
refuse to approve pending applications or supplements to applications submitted by us;
suspend or impose restrictions on operations, including costly new manufacturing requirements;
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seize or detain products, refuse to permit the import or export of products or require us to initiate a product recall; or
refuse to allow us to enter into supply contracts, including government contracts.
We are subject to uncertainty relating to reimbursement policies which, if not favorable, could hinder or prevent the commercial success of
EXONDYS 51 and/or our product candidates.
Our ability to successfully maintain and/or increase EXONDYS 51 sales in the U.S. depends in part on the coverage and reimbursement levels set
by governmental authorities, private health insurers and other third-party payors. Third party payors are increasingly challenging the effectiveness of and
prices charged for medical products and services. We may not be able to obtain or maintain adequate third-party coverage or reimbursement for EXONDYS
51, and/or we may be required to provide discounts or rebates on EXONDYS 51 in order to obtain or maintain adequate coverage.
We expect that private insurers will continue to consider the efficacy, effectiveness, cost-effectiveness and safety of EXONDYS 51, including any
new data and analyses that we are able to collect and make available in a compliant manner, in determining whether to approve reimbursement for
EXONDYS 51 and at what levels. If any new data and information we collect is not favorable, third party insurers may make coverage decisions that
negatively impact sales of EXONDYS 51. We continue to have discussions with payors, some of which may eventually deny coverage. We may not receive
approval for reimbursement of EXONDYS 51 from additional insurers on a satisfactory rate or basis, in which case our business would be materially
adversely affected. In addition, obtaining these approvals can be a time consuming and expensive process. Our business would be materially adversely
affected if we are not able to maintain favorable coverage decisions and/or fail to receive additional favorable coverage decisions from third party insurers, in
particular during re-authorization processes for patients that have already initiated therapy. Our business could also be adversely affected if government health
programs, private health insurers, including managed care organizations, or other reimbursing bodies or payors limit the indications for which EXONDYS 51
will be reimbursed or fail to recognize accelerated approval and surrogate endpoints as clinically meaningful.
In some foreign countries, particularly Canada and the countries of Europe, Latin America and Asia Pacific, the pricing of prescription
pharmaceuticals is subject to strict governmental control. In these countries, pricing negotiations with governmental authorities can take 12 to 24 months or
longer after the receipt of regulatory approval and product launch. In order to obtain favorable reimbursement for the indications sought or pricing approval in
some countries, we may be required to collect additional data, including conducting additional studies. Furthermore, several European countries have
implemented government measures to either freeze or reduce pricing of pharmaceutical products. If reimbursement for our products is unavailable in any
country in which reimbursement is sought, limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed. In
addition, many foreign countries are referencing to other countries’ official public price, hence an unsatisfactory price level in one country could consequently
impinge negatively upon overall revenue.
We expect to experience pricing pressures in connection with the sale of EXONDYS 51 and our future products due to a number of factors,
including current and future healthcare reforms and initiatives by government health programs and private insurers (including managed care plans) to reduce
healthcare costs, the scrutiny of pharmaceutical pricing, the ongoing debates on reducing government spending and additional legislative proposals. These
healthcare reform efforts or any future legislation or regulatory actions aimed at controlling and reducing healthcare costs, including through measures
designed to limit reimbursement, restrict access or impose unfavorable pricing modifications on pharmaceutical products, could impact our and our partners’
ability to obtain or maintain reimbursement for our products at satisfactory levels, or at all, which could materially harm our business and financial results.
Additionally, our gene therapy product candidates represent novel approaches to treatment that will call for new levels of innovation in both pricing
and drug access strategies. Current reimbursement models may not accommodate the unique factors of our gene therapy product candidates, including
potentially curative efficacy, high up-front costs, lack of long-term efficacy and safety data and fees associated with complex administration, dosing and
patient monitoring requirements. Hence, it may be necessary to restructure approaches to payment, pricing strategies and traditional payment models to
support these therapies.
The downward pressure on healthcare costs in general has become intense. As a result, increasingly high barriers are being erected to the entry of
new products. If we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell our product candidates will be harmed.
The manner and level at which reimbursement is provided for services related to our product candidates (e.g., for administration of our product to patients) is
also important. Inadequate reimbursement for such services may lead to physician resistance and limit our ability to market or sell our products.
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Healthcare reform and other governmental and private payor initiatives may have an adverse effect upon, and could prevent commercial
success of EXONDYS 51 and our other product candidates.
The U.S. government and individual states have aggressively pursued healthcare reform, as evidenced by the passing of the Healthcare Reform Act
and the ongoing efforts to modify or repeal that legislation. The Healthcare Reform Act substantially changed the way healthcare is financed by both
governmental and private insurers and contains a number of provisions that affect coverage and reimbursement of drug products and/or that could potentially
reduce the demand for pharmaceutical products such as increasing drug rebates under state Medicaid programs for brand name prescription drugs and
extending those rebates to Medicaid managed care and assessing a fee on manufacturers and importers of brand name prescription drugs reimbursed under
certain government programs, including Medicare and Medicaid. Other aspects of healthcare reform, such as expanded government enforcement authority
and heightened standards that could increase compliance-related costs, could also affect our business. Modifications have been implemented under the Trump
Administration and additional modifications or repeal may occur. There are, and may continue to be, judicial challenges. See “GOVERNMENT
REGULATION- Pharmaceutical Pricing and Reimbursement- Third Party Reimbursement and Pricing in the U.S.-Healthcare and Other Reform.” We cannot
predict the ultimate content, timing or effect of any changes to the Healthcare Reform Act or other federal and state reform efforts. There is no assurance that
federal or state health care reform will not adversely affect our future business and financial results, and we cannot predict how future federal or state
legislative, judicial or administrative changes relating to healthcare reform will affect our business.
The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs to
limit the growth of government-paid healthcare costs, including price controls, waiver from Medicaid drug rebate law requirements, restrictions on
reimbursement and requirements for substitution of generic products for branded prescription drugs. We anticipate that the U.S. Congress, state legislatures
and the private sector will continue to consider and may adopt healthcare policies intended to curb rising healthcare costs. These cost containment measures
may include implementation or modification of:
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controls on government funded reimbursement for drugs;
caps or 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;
delegation of decision making to state Medicaid agencies and waiver of reimbursement requirements;
expansion of use of managed care systems in which healthcare providers contract to provide comprehensive healthcare for a fixed cost per
person; and
prohibition on direct-to-consumer advertising or drug marketing practices.
We are unable to predict what additional legislation, regulations or policies, if any, relating to the healthcare industry or third party coverage and
reimbursement may be enacted in the future or what effect such legislation, regulations or policies would have on our business. Any cost containment
measures, including those listed above, or other healthcare system reforms that are adopted, could significantly decrease the available coverage and the price
we might establish for EXONDYS 51 and our other potential products, which would have an adverse effect on our net revenues and operating results.
EXONDYS 51 may not be widely adopted by patients, payors or healthcare providers, which would adversely impact our potential profitability
and future business prospects.
EXONDYS 51’s commercial success, particularly in the near term in the U.S., depends upon its level of market adoption by patients, payors and
healthcare providers. If EXONDYS 51 does not achieve an adequate level of market adoption for any reason, or if market adoption does not persist, our
potential profitability and our future business prospects will be severely adversely impacted. The degree of market acceptance of EXONDYS 51 depends on a
number of factors, including:
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our ability to demonstrate to the medical community, including specialists who may purchase or prescribe EXONDYS 51, the clinical efficacy,
effectiveness and safety of EXONDYS 51 as the prescription product of choice for DMD amenable to exon-51 skipping in the U.S.;
the effectiveness of our sales and marketing organizations and distribution networks;
the ability of patients or providers to be adequately reimbursed for EXONDYS 51 in a timely manner from government and private payors;
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the actual and perceived efficacy and safety profile of EXONDYS 51, particularly if unanticipated adverse events related to EXONDYS 51
treatment arise and create safety concerns among potential patients or prescribers or if new data and analyses we obtain for eteplirsen do not
support, or are interpreted by some parties to not support, the efficacy of EXONDYS 51; and
the efficacy and safety of our other exon-skipping product candidates, including our exon 45 and exon 53 product candidates (casimersen and
golodirsen, respectively), and third parties’ competitive therapies.
We may not be able to expand the global footprint of EXONDYS 51 outside of the U.S.
Even though EXONDYS 51 was approved for marketing in the U.S. and in Israel, we may not receive approval to commercialize EXONDYS 51 in
additional countries. In November 2016, we submitted a MAA for eteplirsen to the EMA and the application was validated in December 2016. As we
announced on June 1, 2018, the CHMP of the EMA adopted a negative opinion for eteplirsen. In September 2018, the CHMP of the EMA confirmed its
negative opinion for eteplirsen, and the European Commission adopted the CHMP opinion in December 2018. We plan to seek follow up EMA scientific
advice in 2019 to explore a potential approach for EMA approval of eteplirsen.
In order to market any product in a foreign country, we must comply with numerous and varying regulatory requirements for approval in those
countries regarding demonstration of evidence of the product’s safety and efficacy and governing, among other things, labeling, distribution, advertising, and
promotion, as well as pricing and reimbursement of the product. Obtaining marketing approval in a foreign country is an extensive, lengthy, expensive and
uncertain process, and the regulatory authority may reject an application or delay, limit or deny approval of eteplirsen for many reasons, including:
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we may not be able to demonstrate to the satisfaction of foreign regulatory authorities that eteplirsen is safe and effective for the treatment of
patients with DMD who have a confirmed mutation in the DMD gene that is amenable to exon 51 skipping;
the results of clinical trials may not meet the level of statistical or clinical significance required for approval by foreign regulatory authorities;
foreign regulatory authorities may disagree with the adequacy (number, design, size, controls, conduct or implementation) of our clinical
trials prior to granting approval, and we may not be able to generate the required data on a timely basis, or at all;
regulatory authorities may conclude that data we submit to them fail to demonstrate an appropriate level of safety or efficacy of eteplirsen or
that eteplirsen’s clinical benefits outweigh its safety risks;
regulatory authorities outside the U.S. may not accept data generated at our clinical trial sites or require us to generate additional data or
information;
regulatory authorities outside the U.S. may impose limitations or restrictions on the approved labeling of eteplirsen, thus limiting intended users
or providing an additional hurdle for market acceptance of the product;
regulatory authorities outside the U.S. may identify deficiencies in the manufacturing processes, or may require us to change our manufacturing
process or specifications; and
regulatory authorities outside the U.S. may adopt new or revised approval policies and regulations.
Approval procedures vary among countries, and can involve additional product testing and additional administrative review periods. The time
required to obtain approval in other countries might differ significantly from that required to obtain approval in the U.S. In particular, in many foreign
countries, it is required that a product receives pricing and reimbursement approval before the product can be distributed commercially. Many foreign
countries undertake cost-containment measures that could affect pricing or reimbursement of eteplirsen. This can result in substantial delays, and the price
that is ultimately approved in some countries may be lower than the price for which we expect to offer EXONDYS 51.
Marketing approval in one country does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one
country may have a negative effect on the approval process in others. Failure to obtain marketing approval in other countries or any delay or setback in
obtaining such approval would impair our ability to develop foreign markets for eteplirsen and could adversely affect our business and financial condition. In
addition, failure to obtain approval in one country or area may affect sales under the EAP in other countries or areas. Even if we are successful in obtaining
regulatory approval of eteplirsen in additional countries, our revenue earning capacity will depend on commercial and medical infrastructure, pricing and
reimbursement negotiations and decisions with third party payors, including government payors.
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We cannot predict whether historical revenues from eteplirsen on a named patient basis or through our EAP outside the U.S. will continue or
whether we will be able to continue to distribute eteplirsen on a named patient basis or through our EAP.
In certain countries outside the U.S., reimbursement for products that have not yet received marketing authorization may be provided through
national managed access programs. We have contracted with third party distributors to distribute eteplirsen in certain countries outside the U.S. on a named
patient basis and launched an ex-U.S. eteplirsen EAP, which we plan to expand to other jurisdictions in the future. While we generate revenue from the
distribution of eteplirsen through named patient programs and our EAP, we cannot predict whether historical revenues from these programs will continue,
whether we will be able to continue to distribute our products on a named patient basis or through EAP in these countries, whether we will be able to
commercialize our products in countries where the products have historically been available on a named patient basis, or whether commercial revenues will
exceed revenues historically generated from sales on a named patient basis or through our EAP. Reimbursement through national early access programs may
cease to be available if authorization for a named patient program and/or EAP expires or is terminated. For example, healthcare providers in EAP jurisdictions
may not be convinced that their patients can benefit from eteplirsen or may prefer to wait until such time as eteplirsen is approved by a regulatory authority in
their country before prescribing eteplirsen. Even if a healthcare provider is interested in obtaining access to eteplirsen for its patient through the EAP, the
patient will not be able to obtain access to eteplirsen if payment for the drug is not secured.
Any failure to maintain revenues from sales of eteplirsen on a named patient basis or through our EAP and/or to generate revenues from
commercial sales of eteplirsen exceeding historical sales on a named patient basis or through our EAP could have a material adverse effect on our business,
financial condition, results of operations and growth prospects.
If we are unable to successfully maintain and further develop internal commercialization capabilities, sales of EXONDYS 51 may be negatively
impacted.
We have hired and trained a commercial team and put in the organizational infrastructure we believe we need to support the commercial success of
EXONDYS 51 in the U.S. Factors that may inhibit our efforts to maintain and further develop commercial capabilities include:
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an inability to retain an adequate number of effective commercial personnel;
an inability to train sales personnel, who may have limited experience with our company or EXONDYS 51, to deliver a consistent message
regarding EXONDYS 51 and be effective in convincing physicians to prescribe EXONDYS 51;
an inability to equip sales personnel with compliant and effective materials, including medical and sales literature to help them educate
physicians and our healthcare providers regarding EXONDYS 51 and its proper administration and educate payors on the safety, efficacy and
effectiveness profile of EXONDYS 51 to support favorable coverage decisions; and
unforeseen costs and expenses associated with maintaining and further developing an independent sales and marketing organization.
If we are not successful in maintaining an effective commercial, sales and marketing infrastructure, we will encounter difficulty in achieving,
maintaining or increasing projected sales of EXONDYS 51 in the U.S., which would adversely affect our business and financial condition.
If we are unable to execute effectively our sales and marketing activities outside the U.S., we may be unable to generate sufficient product
revenue.
EXONDYS 51 is our first commercial product. As a result, our sales, marketing, managerial and other non-technical capabilities are relatively new
in the U.S. We have built a commercial sales force in Europe and we are currently in the process of building commercial infrastructure in other key countries
in order to be ready to launch eteplirsen with a relatively small specialty sales force in the event eteplirsen is ultimately approved in those jurisdictions. The
establishment and development of our commercial infrastructure will continue to be expensive and time consuming, and we may not be able to successfully
develop this capability in a timely manner or at all. We anticipate building sales, medical, marketing, managerial, distribution and other capabilities across
multiple jurisdictions to prepare for potential approvals ex-U.S. Doing so will require a high degree of coordination and compliance with laws and regulations
in such jurisdictions. If we are unable to effectively coordinate such activities or comply with such laws and regulations, our ability to commercialize
eteplirsen in such jurisdictions will be adversely affected. Even if we are able to effectively hire a sales force and develop a marketing and sales capabilities,
our sales force may not be successful in commercializing eteplirsen or any other product candidate that we develop. If we are unable to establish adequate
manufacturing, sales, marketing, supply and distribution capabilities, whether independently or with third parties, we may not be able to generate product
revenue and may not become profitable outside of the U.S.
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If we fail to obtain or maintain regulatory exclusivity for our products, then we may not be able to protect our products from competition and
our business may be adversely impacted. If a competitor obtains an authorization to market the same or substantially same product before a product of
ours is authorized in a given country and is granted regulatory exclusivity, then our product may not be authorized for sale as a result of the competitor’s
regulatory exclusivity and as a result, our investment in the development of that product may not be returned.
In addition to any patent protection, we rely on various forms of regulatory exclusivity to protect our products. During the development of our
products, we anticipate regulatory exclusivities available upon approval of our products. Implementation and enforcement of regulatory exclusivity, which
may consist of regulatory data protection and market protection, varies widely from country to country. Failure to qualify for regulatory exclusivity, or failure
to obtain or maintain the extent or duration of such protections that we expect in each of the markets for our products due to challenges, changes or
interpretations in the law or otherwise, could affect our revenues for our products or our decision on whether to market our products in a particular country or
countries or could otherwise have an adverse impact on our results of operations. We are not guaranteed to receive or maintain regulatory exclusivity for our
current or future products, and if our products that are granted orphan status were to lose their status as orphan drugs or the data or marketing exclusivity
provided for orphan drugs, our business and operations could be adversely affected.
Due to the nature of EXONDYS 51 and product candidate pipeline, in addition to new biologic exclusivity, orphan drug exclusivity is especially
important for our products that are eligible for orphan drug designation. For eligible products, we plan to rely on orphan drug exclusivity to maintain a
competitive position. If we do not have adequate patent protection for our products, then the relative importance of obtaining regulatory exclusivity is even
greater. While orphan status for any of our products, if granted or maintained, would provide market exclusivity for the time periods specified above upon
approval, we would not be able to exclude other companies from obtaining regulatory approval of products using the same or similar active ingredient for the
same indication beyond the exclusivity period applicable to our product on the basis of orphan drug status (e.g., seven years in the U.S.). Orphan drug
designation neither shortens the development time or regulatory review time of a drug, nor gives the drug any advantage in the regulatory review or approval
process.
In addition, we may face risks with maintaining regulatory exclusivities for our product, and our protection may be circumvented, even if
maintained. For instance, orphan drug exclusivity in the U.S. may be rescinded if (i) an alternative, competing product demonstrates clinical superiority to
our product with orphan exclusivity; (ii) we are unable to assure the availability of sufficient quantities of our orphan product to meet the needs of
patients. Moreover, competitors may receive approval of different drugs or biologics for indications for which our prior approved orphan product has
exclusivity. Orphan drug exclusivity in Europe may be modified for several reasons, including a significant change to the orphan medicinal product
designations or status criteria after-market authorization of the orphan product (e.g., product profitability exceeds the criteria for orphan drug designation),
problems with the production or supply of the orphan drug, or a competitor drug, although similar, is safer, more effective or otherwise clinically superior
than the initial orphan drug. Thus, we cannot guarantee that another company will not receive approval to market a product candidate that is granted orphan
drug exclusivity for the same drug or similar drug and same orphan indication as any of our product candidates for which we plan to file an NDA, Biologics
License Application (“BLA”) or MAA. If that were to happen, any pending NDA, BLA or MAA for our product candidate for that indication may not be
approved until the competing company’s period of exclusivity has expired in the U.S. or the EU, as applicable.
Even though we have obtained orphan drug designation for certain of our product candidates and even if we obtain orphan drug designation for
these or our future product candidates, due to the uncertainties associated with developing biopharmaceutical products, we may not be the first to obtain
marketing approval for any particular orphan indication, which means that we may not obtain orphan drug exclusivity and could also potentially be blocked
from approval of certain product candidates until the competitor’s orphan drug exclusivity period on its product expires (e.g., seven years in the
U.S.). Moreover, with respect to antisense oligonucleotides and gene therapy, it is uncertain how similarity between product candidates designed to treat the
same rare disease or condition may be determined on a country-by-country basis and whether the orphan drug exclusivity of a previously approved product
can block the approval of a chemically distinct product candidate under regulatory review.
The patient population suffering from DMD, LGMDs, Pompe disease and MPS IIIA is small and has not been established with precision. If the
actual number of patients is smaller than we estimate, our revenue and ability to achieve profitability may be adversely affected.
DMD, LGMD, Pompe disease, CMT and MPS IIIA are rare, fatal genetic neuromuscular disorders. DMD affects an estimated one in
approximately every 3,500 to 5,000 males born worldwide, of which up to 13% are estimated to be amenable to exon-51 skipping. LGMDs as a class affect
an estimated range of approximately one in every 14,500 to one in every 123,000 individuals. Pompe disease affects an estimated one in approximately every
40,000 individuals. CMT is a group of peripheral nerve disorders affecting approximately one in every 2,500 individuals. CMT type 1A affects approximately
50,000 patients in the U.S. MPS IIIA affects approximately 1 in 100,000 newborns. Our estimates of the size of these patient populations are based on
published studies as well as internal analyses. Various factors may decrease the market size of our product and product candidates, including the
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severity of the disease, patient demographics and the response of patients’ immune systems to our product candidates. If the results of these studies or our
analysis of them do not accurately reflect the relevant patient population, our assessment of the market may be inaccurate, making it difficult or impossible
for us to meet our revenue goals, or to obtain and maintain profitability.
We face intense competition and rapid technological change, which may result in other companies 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 of
many pharmaceutical and biotechnology companies that are actively engaged in research and development in areas in which our product and product
candidates are aimed. Some of these competitors are developing or testing product candidates that now, or may in the future, compete directly with our
product or our product candidates. For example, we face competition in the field of DMD by third parties who are developing or who had once developed: (i)
exon skipping product candidates, such as Wave Life Sciences (notably for exons 51 and 53), Nippon Shinyaku (notably for exon 53), Daiichi Sankyo
(notably for exon 45); (ii) gene therapies that express microdystrophin or mini-dystrophin, such as Pfizer and Solid Biosciences; (iii) CRISPR/Cas 9
approaches, such as Exonics Therapeutics and Editas Medicine; (iv) other disease modifying approaches, such as PTC Therapeutics, which has a small
molecule candidate, ataluren, that targets nonsense mutations; and (v) other approaches that may be palliative in nature or potentially complementary with our
product and product candidates and that are being developed by Santhera, Summit, Catabasis, Pfizer, Fibrogen and Tivorsan. Although BioMarin announced
on May 31, 2016 its intent to discontinue clinical and regulatory development of drisapersen as well as its other clinical stage candidates, BMN 044, BMN
045 and BMN 053, then-currently in Phase 2 studies for distinct forms of DMD, it further announced its intent to continue to explore the development of next
generation oligonucleotides for the treatment of DMD.
In addition, we are aware of many pharmaceutical and biotechnology companies that are actively engaged in research and development using
platform technologies that may be viewed as competing with ours beyond and including those companies mentioned immediately above, such as Alnylam
Pharmaceuticals, Inc., Ionis Pharmaceuticals, Inc., Roche Innovation Center Copenhagen (formerly Santaris Pharma A/S), Shire plc (now Takeda), Biogen,
Sanofi Additionally, several companies and institutions have entered into collaborations or other agreements for the development of product candidates,
including mRNA, gene therapy and gene editing (CRIPSR and AAV, among others) and small molecule therapies that are potential competitors for therapies
being developed in the muscular dystrophy, neuromuscular and rare disease space, including, but not limited to, Biogen Inc., Ionis, Alexion Pharmaceuticals,
Inc., Sanofi, Shire (now Takeda), Eli Lilly, Alnylam Pharmaceuticals, Inc., Moderna Therapeutics, Inc., Summit, Akashi, Catabasis, Capricor Therapeutics,
Oxford University, Exonics Therapeutics, and Editas Medicine.
If any of our competitors are successful in obtaining regulatory approval for any of their product candidates, it may limit our ability to enter into the
market, gain market share or maintain market share in the DMD space or other diseases targeted by our platform technologies, product and product candidate
pipeline.
It is possible that our competitors will succeed in developing technologies that limit the market size for our product or product candidates, impact
the regulatory approval and post-marketing process for our product and product candidates, are more effective than our product candidates or would render
our technologies obsolete or noncompetitive. Our competitors may, among other things:
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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 engage in future acquisitions or collaborations with other entities that complement or expand our business. We may not be able to
complete such transactions, and such transactions, if executed, may increase our capital requirements, dilute our stockholders, cause us to incur debt or
assume contingent liabilities and subject us to other risks.
In order to achieve our long-term business objectives, we actively evaluate various strategic transactions on an ongoing basis, including licensing
or acquiring complementary products, technologies or businesses. We may face competition from other companies
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in pursuing acquisitions and similar transactions in the biotechnology industry. This competition is most intense for approved drugs and late-stage drug
candidates, which have the lowest risk and would have the most immediate effect on our financial performance. Our ability to complete transactions may also
be limited by applicable antitrust and trade regulation laws and regulations in the U.S. and foreign jurisdictions in which we or the operations or assets we
seek to acquire carry on business.
To the extent that we are successful in undertaking acquisitions or collaborations with other entities, we may not realize the anticipated benefits of
such transaction, each of which involves numerous risks, including:
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failure to successfully develop the acquired or licensed drugs or technology or to achieve strategic objectives, including successfully developing
and commercializing the drugs, drug candidates or technologies that we acquire or license;
entry into markets in which we have no or limited direct prior experience or where competitors in such markets have stronger market positions;
disruption of our ongoing business, distraction of our management and employees from other opportunities and challenges and retention of key
employees;
potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or challenges of an acquired
company, or acquired or licensed product or technology, including but not limited to, problems, liabilities or other shortcomings or challenges
with respect to intellectual property, product quality, safety, accounting practices, employee, customer or third party relations and other known
and unknown liabilities;
liability for activities of the acquired company or licensor before the acquisition or license, including intellectual property infringement claims,
violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities;
exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of an acquisition or license,
including but not limited to, claims from terminated employees, customers, former equity holders or other third-parties;
difficulty in integrating the drugs, drug candidates, technologies, business operations and personnel of an acquired asset or company; and
difficulties in the integration of the acquired company’s departments, systems, including accounting, human resource and other administrative
systems, technologies, books and records, and procedures, as well as in maintaining uniform standards, controls, including internal control over
financial reporting required by the Sarbanes-Oxley Act of 2002 and related procedures and policies.
In addition, even if we achieve the long-term benefits associated with strategic transactions, our expenses and short-term costs may increase
materially and adversely affect our liquidity and short-term net income (loss). Future licenses or acquisitions could result in potentially dilutive issuances of
equity securities, the incurrence of debt, the creation of contingent liabilities, impairment expenses related to goodwill, and impairment or amortization
expenses related to other intangible assets, which could harm our financial condition.
Risks Related to the Development of our Product Candidates
We may find it difficult to enroll patients in our clinical trials, which could delay or prevent clinical trials of our product candidates.
Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trials
depends on the speed at which we can recruit eligible patients to participate in testing our product candidates. We have experienced delays in some of our
clinical trials, and we may experience similar delays in the future. These delays could result in increased costs, delays in advancing our product development,
delays in testing the effectiveness of our technology or termination of the clinical trials altogether.
We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to achieve
diversity in a study, to complete our clinical trials in a timely manner. Patient enrollment is affected by factors including:
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design of the study protocol;
size of the patient population;
eligibility criteria for the study in question;
manufacturing of product candidates;
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perceived risks and benefits of the product candidate under study, including as a result of adverse effects observed in similar or competing
therapies;
proximity and availability of clinical trial sites for prospective patients;
availability of competing therapies and clinical trials;
efforts to facilitate timely enrollment in clinical trials;
patient referral practices of physicians;
activities of patient advocacy groups;
ability to monitor patients adequately during and after treatment; and
severity of the disease under investigation.
In particular, each of the conditions for which we plan to evaluate our product candidates are rare genetic diseases with limited patient pools from
which to draw for clinical trials. Further, because newborn screening for these diseases is not widely adopted, and it can be difficult to diagnose these diseases
in the absence of a genetic screen, we may have difficulty finding patients who are eligible to participate in our studies. The eligibility criteria of our clinical
trials will further limit the pool of available study participants. Additionally, the process of finding and diagnosing patients may prove costly. The treating
physicians in our clinical trials may also use their medical discretion in advising patients enrolled in our clinical trials to withdraw from our studies to try
alternative therapies.
We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials
required by the FDA or the EMA or other regulatory agencies. Our ability to successfully initiate, enroll and complete a clinical trial in any foreign country is
subject to numerous risks unique to conducting business in foreign countries, including:
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difficulty in establishing or managing relationships with contract research organizations (“CROs”) and physicians;
different standards for the conduct of clinical trials;
our inability to locate qualified local consultants, physicians and partners; and
the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of
pharmaceutical and biotechnology products and treatment.
If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate
ongoing or planned clinical trials, any of which would have an adverse effect on our business.
Failures or delays in the commencement or completion of our ongoing and planned clinical trials of our product candidates could cause us not
to meet our expected timelines or result in increased costs to us, and could delay, prevent or limit our ability to gain regulatory approval of any product
candidate and to generate revenue and continue our business.
Successful completion of clinical trials at each applicable stage of development is a prerequisite to submitting a marketing application to the
regulatory agencies and, consequently, the ultimate approval and commercial marketing of any of our product candidates for the indications in which we
develop them. We do not know whether any of our clinical trials will begin or be completed, and results announced, as planned or expected, if at all, as the
commencement and completion of clinical trials and announcement of results can be delayed or prevented for a number of reasons, including, among others:
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denial by the regulatory agencies of permission to proceed with our planned clinical trials or any other clinical trials we may initiate, or
placement of a clinical trial on hold;
delays in filing or receiving approvals of additional INDs that may be required;
negative results from our ongoing non-clinical trials or clinical trials;
challenges in identifying, recruiting, enrolling and retaining patients to participate in clinical trials
timely and effectively contract with (under reasonable terms), manage and work with investigators, institutions, hospitals and the CROs
involved in the clinical trial;
negotiate contracts and other related documents with clinical trial parties and institutional review boards, such as informed consents, CRO
agreements and site agreements, which can be subject to extensive negotiations that could cause
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significant delays in the clinical trial process, with terms possibly varying significantly among different trial sites and CROs and possibly
subjecting the Company to various risks;
inadequate quantity or quality of supplies of a product candidate or other materials necessary to conduct clinical trials, for example as a result
of delays in defining and implementing the manufacturing process for materials used in pivotal trials or for the manufacture of larger quantities
or other delays or issues arising in the manufacturing of sufficient supply of finished drug product;
difficulties obtaining IRB approval, and equivalent approval for sites outside the U.S., to conduct a clinical trial at a prospective site or sites;
ensure adherence to trial designs and protocols agreed upon and approved by regulatory authorities and applicable legal and regulatory
guidelines;
delays or problems in analyzing data, or the need for additional analysis or data or the need to enroll additional patients;
the occurrence of serious adverse events or unexpected drug-related side effects experienced by patients in a clinical trial or unexpected results
in ongoing non-clinical trials;
delays in validating endpoints utilized in a clinical trial;
our inability to satisfy the requirements of the regulatory agencies to commence clinical trials, including CMC requirements, or other regulatory
requirements prior to the initiation of a clinical trial;
the regulatory agencies disagreeing with our clinical trial design and our interpretation of data from clinical trials, or changing the requirements
for approval even after the regulatory authority has reviewed and commented on the design for our clinical trials;
reports from non-clinical or clinical testing of competing therapies that raise safety or efficacy concerns; and
the recruitment and retention of employees, consultants or contractors with the required level of expertise.
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Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate
revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing or formulation changes to our
product candidates, we may need to conduct additional studies to demonstrate comparability of our modified product candidates to earlier versions. Clinical
study delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors
to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business
and results of operations.
Results from pre-clinical and early‑stage clinical trials may not be indicative of efficacy in late‑stage clinical trials, and our pre-clinical and
clinical trials may fail to demonstrate acceptable levels of safety, efficacy, and quality of our product candidates, which could prevent or 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 pre-clinical
and clinical trials, that the product candidate is safe and effective in humans. Ongoing and future pre-clinical and clinical trials of our product candidates may
not show sufficient safety, efficacy or adequate quality to obtain or maintain regulatory approvals. For example, although we believe the pre-clinical data for
PPMO SRP-5051 collected to date is positive, the additional data we collect, including in the clinic, may not be consistent with the pre-clinical data or show a
safe benefit that warrants further development or pursuit of a regulatory approval for PPMO product candidates.
Furthermore, success in pre-clinical and early clinical trials does not ensure that the subsequent trials will be successful, nor does it predict final
results of a confirmatory trial. Some of our clinical trials were conducted with small patient populations and were not blinded or placebo-controlled, making it
difficult to predict whether the favorable results that we observed in such trials will be repeated in larger and more advanced clinical trials. For example, on
October 3, 2018, Nationwide presented positive results from a Phase 1/2a micro-dystrophin gene therapy clinical trial in four individuals with DMD enrolled
in the trial. In addition, on February 27, 2019, we announced positive expression and biomarker data from the first three-patient cohort dosed in the MYO-101
gene therapy trial to treat LGMD type 2E, or beta-sarcoglycanopathy. The early data is based on small patient samples and therefore may not be predictive of
future results. In addition, we cannot assure that the results of additional data or data from any future trial will yield results that are consistent with the early
data presented, that we will be able to demonstrate the safety and efficacy of AAVrh.74, that later trial results will support further development, or even if
such later results are favorable, that we will be able to successfully complete the development of, obtain accelerated, conditional or standard regulatory
approval for, or successfully commercialize AAVrh74.MHCK7.micro-Dystrophin. Similarly, we cannot provide assurances that data from our studies with
respect to EXONDYS 51, golodirsen, casimersen and other gene therapy-based product candidates will be positive and consistent through the study periods
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or that the interpretation by regulators, such as the FDA or EMA, of the data we collect for our product or product candidates will be consistent with our
interpretations.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent regulatory approval of product
candidates, limit the commercial potential or result in significant negative consequences following any potential marketing approval.
Our product candidates may cause undesirable side effects. In addition to side effects caused by product candidates, the administration process or
related procedures also can cause adverse side effects. If any such adverse events occur in our trials, we may decide, or the FDA, the EMA or other regulatory
authorities could order us, to halt, delay or amend preclinical development or clinical development of our product candidates or we may be unable to receive
regulatory approval of our product candidates for any or all targeted indications. Even if we are able to demonstrate that all future serious adverse events are
not product-related, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the trial. Moreover, if we elect, or are
required, to delay, suspend or terminate any clinical trial of any of our product candidates, the commercial prospects of such product candidates may be
harmed and our ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm
our ability to develop other product candidates and may harm our business, financial condition and prospects significantly.
Our gene therapy product candidates may be perceived as unsafe or may result in unforeseen adverse events. Negative public opinion and
increased regulatory scrutiny of gene therapy may damage public perception of the safety of our gene therapy product candidates and harm our ability to
conduct our business or obtain regulatory approvals for our gene therapy product candidates.
Gene therapy remains a newly applied technology, with only a few gene therapy products approved to date in the U.S., the EU or elsewhere. Public
perception may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. In
particular, our success will depend upon physicians who specialize in the treatment of genetic diseases targeted by our product candidates, prescribing
treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments with which they are familiar and for which greater
clinical data may be available.
In addition, ethical, social and legal concerns about gene therapy, genetic testing and genetic research could result in additional regulations or
prohibiting the processes we may use. Federal and state agencies, congressional committees and foreign governments have expressed their intentions to
further regulate biotechnology. More restrictive regulations or claims that our product candidates are unsafe or pose a hazard could prevent us from
commercializing any products. New government requirements may be established that could delay or prevent regulatory approval of our product candidates
under development. It is impossible to predict whether legislative changes will be enacted, regulations, policies or guidance changed, or interpretations by
agencies or courts changed, or what the impact of such changes, if any, may be.
More restrictive government regulations or negative public opinion would harm our business, financial condition, results of operations and
prospects and may delay or impair the development and commercialization of our gene therapy product candidates or demand for any products we may
develop. For example, earlier gene therapy trials led to several well-publicized adverse events, including death. Serious adverse events related to clinical trials
we, our strategic partners or other companies conduct, even if such adverse events are not ultimately attributable to the relevant product candidates or
products, may result in increased government regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our product
candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates.
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 our product candidates in a timely manner or at all, which could impair our ability to generate sufficient revenue and have a successful
business.
The research, testing, manufacturing, labeling, approval, commercialization, marketing, selling and distribution of drug products are subject to
extensive regulation by applicable local, regional and national regulatory authorities and regulations may differ from jurisdiction to jurisdiction. In the U.S.,
approvals and oversight from federal (e.g., FDA), state and other regulatory authorities are required for these activities. Sale and marketing of our product
candidates in the U.S. or other countries is not permitted until we obtain the required approvals from the applicable regulatory authorities. Of the large
number of drugs in development in the biopharmaceutical industry, only a small percentage result in the submission of a marketing application to the FDA or
an MAA to the EMA and even fewer are approved for commercialization.
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Our ability to obtain the government or regulatory approvals required to commercialize any of our product candidates in any jurisdiction, including
in the U.S. or the EU, cannot be assured, may be significantly delayed or may never be achieved for various reasons including the following:
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Our non-clinical, clinical, chemistry, manufacturing and controls and other data and analyses from past, current and future studies for any of our
product candidates may not be sufficient to meet regulatory requirements for marketing application approvals. The regulatory authorities could
disagree with our interpretations and conclusions regarding data we provide in connection with NDA, BLA or MAA submissions for one or
more of our product candidates, and may delay, reject or refuse to accept for review, or approve any submission we make or identify additional
requirements for product approval to be submitted upon completion, if ever. In addition, in the U.S., an FDA advisory committee could
determine that our data are insufficient to provide a positive recommendation for approval of any NDA or BLA we submit to the FDA. Even if
we meet FDA requirements and an advisory committee votes to recommend approval of an NDA or BLA submission, the FDA could still
disagree with the advisory committee’s recommendation and deny approval of a product candidate based on their review.
The regulatory approval process for product candidates targeting orphan diseases, such as DMD, that use new technologies and processes, such
as antisense oligonucleotide therapies, gene therapy and other alternative approaches or endpoints for the determination of efficacy is uncertain
due to, among other factors, evolving interpretations of a new therapeutic class, the broad discretion of regulatory authorities, lack of precedent,
small safety databases, varying levels of applicable expertise of regulators or their advisory committees, scientific developments, changes in the
competitor landscape, shifting political priorities and changes in applicable laws, rules or regulations and interpretations of the same. As a result
of uncertainty in the approval process for products intended to treat serious rare diseases, we may not be able to anticipate, prepare for or satisfy
requests or requirements from regulatory authorities, including completing and submitting planned NDAs, BLAs and MAAs for our product
candidates, in a timely manner, or at all. Examples of such requests or requirements could include, but are not limited to, conducting additional
or redesigned trials and procedures (e.g., additional safety data, patient muscle biopsies, dystrophin analyses and using different assays),
repeating or completing additional analysis of our data, or providing additional supportive data. In addition, in the U.S., an FDA advisory
committee or regulators may disagree with our data analysis, interpretations and conclusions at any point in the approval process, which could
negatively impact the approval of our NDA or BLA or result in a decision by the Company not to proceed with an NDA or BLA submission for
a product candidate based on feedback from regulators.
We may not have the resources required to meet regulatory requirements and successfully navigate what is generally a lengthy, expensive and
extensive approval process for commercialization of drug product candidates.
Any failure on our part to respond to these requirements in a timely and satisfactory manner could significantly delay or negatively impact
confirmatory study timelines and/or the development plans we have for golodirsen, casimersen, PPMO, gene therapy-based product candidates or other
product candidates. Responding to requests from regulators and meeting requirements for clinical trials, submissions and approvals may require substantial
personnel, financial or other resources, which, as a small biopharmaceutical company, we may not be able to obtain in a timely manner or at all. In addition,
our ability to respond to requests from regulatory authorities that involve our agents, third party vendors and associates may be complicated by our own
limitations and those of the parties we work with. It may be difficult or impossible for us to conform to regulatory guidance or successfully execute our
product development plans in response to regulatory guidance, including guidance related to clinical trial design with respect to any NDA, BLA or MAA
submissions.
Even if our product candidates demonstrate safety and efficacy in clinical studies, the regulatory agencies may not complete their review processes
in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory
advisory group or authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional
government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development,
clinical studies and the review process. Regulatory agencies also may approve a treatment candidate for fewer or more limited indications than requested or
may grant approval subject to the performance of post-marketing studies. Finally, regulatory agencies may not approve the labeling claims that are necessary
or desirable for the successful commercialization of our treatment candidates. Even after approval and commercialization of a product candidate, we remain
subject to ongoing regulatory compliance and oversight to maintain our approval. Conducting our confirmatory studies could take years to complete, could
yield negative or uninterpretable results or could result in an FDA determination that the studies do not provide the safety and efficacy requirements to
maintain regulatory approval. If we or any of our strategic partners are unable to develop, or obtain regulatory approval for, or, if approved, maintain
regulatory compliance and successfully commercialize, our product candidates, our business will be materially harmed.
We are investing significant resources in the development of our novel gene therapy product candidates. Only a few gene therapy products have
been approved in the U.S. and EU. If we are unable to show the safety and efficacy of these product
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candidates, experience delays in doing so or are unable to successfully commercialize at least one of these drugs, our business would be materially
harmed.
We are investing significant resources in the development of our gene therapy product candidates. We believe that a significant portion of the long-
term value attributed to our company by investors is based on the commercial potential of these product candidates. There can be no assurance that any
development problems we experience in the future related to our gene therapy programs will not cause significant delays or unanticipated costs, or that such
development problems can be solved. Initial results from ongoing clinical trials may differ materially from final results from such clinical trials. The results
from preclinical and early clinical studies do not always accurately predict results in later, large-scale clinical trials. We may also experience delays in
developing a sustainable, reproducible and commercial-scale manufacturing process or transferring that process to commercial partners, which may prevent
us from completing our clinical trials or commercializing our products on a timely or profitable basis, if at all.
In addition, the clinical trial requirements of the FDA, the EMA, and other regulatory agencies and the criteria these regulators use to determine the
safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products.
The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or more
extensively studied pharmaceutical or other product candidates. Currently, only a few gene therapy products have been approved in the Western world.
Novartis’s and Gilead’s CAR-T therapies both received approval from the FDA in 2017. Given the few precedents of approved gene therapy products, it is
difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our gene therapy product candidates in the U.S., the EU
or other jurisdictions. Approvals by the EMA and the European Commission may not be indicative of what the FDA may require for approval.
Regulatory requirements governing gene therapy products have evolved and may continue to change in the future. For example, on July 11, 2018,
the FDA released draft guidance documents intended to reflect recent advances in the field, and to update the framework for the development, review and
approval of gene therapies. These draft guidance documents pertain to the development of gene therapies for the treatment of specific disease categories,
including rare diseases, and to manufacturing and long-term follow up issues relevant to gene therapy, among other topics. Furthermore, the FDA has
established the Office of Cellular, Tissue and Gene Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of
gene therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. Gene therapy clinical
trials conducted at institutions that receive funding for recombinant DNA research from the U.S. National Institutes of Health (“NIH”), are also subject to
review by the NIH Office of Biotechnology Activities’ Recombinant DNA Advisory Committee (“RAC”). Although the FDA decides whether individual
gene therapy protocols may proceed, the RAC review process can impede the initiation of a clinical trial, even if the FDA has reviewed the study and
approved its initiation. Clinical trial sites in the U.S. that receive NIH funding for research involving recombinant or synthetic nucleic acid molecules are
required to follow RAC recommendations, or risk losing NIH funding for such research or needing NIH pre-approval before conducting such research. In
addition, the FDA can put an IND, on clinical hold if the information in an IND is not sufficient to assess the risks in pediatric patients. Before a clinical trial
can begin at any institution, that institution’s institutional review board (“IRB”), and its Institutional Biosafety Committee will have to review the proposed
clinical trial to assess the safety of the study. Moreover, serious adverse events or developments in clinical trials of gene therapy product candidates conducted
by others may cause the FDA or other regulatory bodies to initiate a clinical hold on our clinical trials or otherwise change the requirements for approval of
any of our product candidates.
These regulatory review agencies, committees and advisory groups and the new requirements and guidelines they promulgate may lengthen the
regulatory review process, require us to perform additional or larger studies, increase our development costs, lead to changes in regulatory positions and
interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval studies, limitations or
restrictions. As we advance our product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable
requirements and guidelines. If we fail to do so, we may be required to delay or discontinue development of our product candidates.
If the anticipated or actual timing of marketing approvals for our gene therapy product candidates, or the market acceptance of these product
candidates, if approved, including treatment reimbursement levels agreed to by third-party payors, do not meet the expectations of investors or public market
analysts, the market price of our common stock would likely decline.
Because we are developing product candidates for the treatment of certain diseases in which there is little clinical experience and we are using
new endpoints or methodologies, there is increased risk that the FDA, the EMA or other regulatory
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authorities may not consider the endpoints of our clinical trials to provide clinically meaningful results and that these results may be difficult to analyze.
During the FDA review process, we will need to identify success criteria and endpoints such that the FDA will be able to determine the clinical
efficacy and safety profile of our product candidates. As we are developing novel treatments for diseases in which there is little clinical experience with new
endpoints and methodologies, such as gene therapy, there is heightened risk that the FDA, the EMA or other regulatory bodies may not consider the clinical
trial endpoints to provide clinically meaningful results (reflecting a tangible benefit to patients). In addition, the resulting clinical data and results may be
difficult to analyze. Even if the FDA does find our success criteria to be sufficiently validated and clinically meaningful, we may not achieve the pre-specified
endpoints to a degree of statistical significance. Different methodologies, assumptions and applications we utilize to assess particular safety or efficacy
parameters may yield different statistical results. Even if we believe the data collected from clinical trials of our product candidates are promising, these data
may not be sufficient to support approval by the FDA or foreign regulatory authorities. Pre-clinical and clinical data can be interpreted in different ways.
Accordingly, the FDA or foreign regulatory authorities could interpret these data in different ways from us or our partners, which could delay, limit or prevent
full or accelerated regulatory approval.
If our study data do not consistently or sufficiently demonstrate the safety or efficacy of any of our product candidates, the regulatory approvals for
such product candidates could be significantly delayed as we work to meet approval requirements, or, if we are not able to meet these requirements, such
approvals could be withheld or withdrawn.
Fast track product, breakthrough therapy, priority review, or Regenerative Medicine Advanced Therapy (“RMAT”) designation by the FDA, or
access to the PRIME scheme by the EMA, for our product candidates may not lead to faster development or regulatory review or approval process, and it
does not increase the likelihood that our product candidates will receive marketing approval.
We may seek fast track, breakthrough therapy designation, RMAT designation, PRIME scheme access or priority review designation for our
product candidates if supported by the results of clinical trials. A fast track product designation is designed to facilitate the clinical development and expedite
the review of drugs intended to treat a serious or life-threatening condition which demonstrate the potential to address an unmet medical need. A
breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease
or condition, where preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more
clinically significant endpoints, such as substantial treatment effects observed early in clinical development. A RMAT designation is designed to accelerate
approval for regenerative advanced therapies such as our gene therapy product candidates. Priority review designation is intended to speed the FDA
marketing application review timeframe for drugs that treat a serious condition and, if approved, would provide a significant improvement in safety or
effectiveness. PRIME is a scheme provided by the EMA to enhance support for the development of medicines that target an unmet medical need.
For drugs and biologics that have been designated as fast track products or breakthrough therapies, or granted access to the PRIME schema,
interaction and communication between the regulatory agency and the sponsor of the trial can help to identify the most efficient path for clinical development.
Sponsors of drugs with fast track products or breakthrough therapies may also be able to submit marketing applications on a rolling basis, meaning that the
FDA may review portions of a marketing application before the sponsor submits the complete application to the FDA, if the sponsor pays the user fee upon
submission of the first portion of the marketing application. For products that receive a priority review designation, the FDA's marketing application review
goal is shortened to six months, as opposed to ten months under standard review. This review goal is based on the date the FDA accepts the marketing
application for review, this application validation period typically adds approximately two months to the timeline for review and decision from the date of
submission. RMAT designations will accelerate approval but the exact mechanisms have not yet been announced by FDA.
Designation as a fast track product, breakthrough therapy, RMAT, PRIME, or priority review product is within the discretion of the regulatory
agency. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a fast track product, breakthrough therapy, RMAT,
PRIME, or priority review product, the agency may disagree and instead determine not to make such designation. In any event, the receipt of such a
designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under
conventional regulatory procedures and does not assure ultimate marketing approval by the agency. In addition, regarding fast track products and
breakthrough therapies, the FDA may later decide that the products no longer meet the conditions for qualification as either a fast track product, RMAT, or a
breakthrough therapy or, for priority review products, decide that period for FDA review or approval will not be shortened.
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We may not be able to advance all of our programs, and we may use our financial and human resources to pursue particular programs and fail
to capitalize on programs that may be more profitable or for which there is a greater likelihood of success.
As of December 31, 2018, our pipeline included 25 programs in various stages of development for a broad range of diseases and disorders. We plan
to expand our pipeline in 2019 through internal research and development and through strategic transactions. Because we have limited resources, we may not
be able to advance all of our programs. We may also forego or delay pursuit of opportunities with certain programs or for indications that later prove to have
greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market
opportunities. Our spending on current and future research and development programs for product candidates may not yield any commercially viable
products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to
that product candidate through strategic collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us
to retain sole development and commercialization rights to such product candidate, or we may allocate internal resources to a product candidate in a
therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.
Risks Related to Third Parties
If we are unable to maintain our agreements with third parties to distribute EXONDYS 51 to patients, our results of operations and business
could be adversely affected.
We rely on third parties to commercially distribute EXONDYS 51 to patients in the U.S. We have contracted with a third-party logistics company
to warehouse EXONDYS 51 and with distributors and specialty pharmacies to sell and distribute it to patients. A specialty pharmacy is a pharmacy that
specializes in the dispensing of medications for complex or chronic conditions that require a high level of patient education and ongoing management.
This distribution network requires significant coordination with our sales and marketing and finance organizations. In addition, failure to
coordinate financial systems could negatively impact our ability to accurately report product revenue from EXONDYS 51. If we are unable to effectively
manage the distribution process, the sales of EXONDYS 51, as well as any future products we may commercialize, could be delayed or severely
compromised and our results of operations may be harmed.
In addition, the use of third parties involves certain risks, including, but not limited to, risks that these organizations will:
not provide us with accurate or timely information regarding their inventories, the number of patients who are using EXONDYS 51 or serious
adverse events and/or product complaints regarding EXONDYS 51;
not effectively sell or support EXONDYS 51;
reduce or discontinue their efforts to sell or support EXONDYS 51;
not devote the resources necessary to sell EXONDYS 51 in the volumes and within the time frame we expect;
be unable to satisfy financial obligations to us or others; or
cease operations.
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Any such events may result in decreased product sales, lower product revenue, loss of revenue, and/or reputational damage, which would harm our
results of operations and business.
With respect to the pre-commercial distribution of eteplirsen to patients outside of the U.S., we have contracted with third party distributors and
service providers to distribute eteplirsen in certain countries on a named patient basis and through our EAP. We will need to continue building out our
network for commercial distribution in jurisdictions in which eteplirsen is approved, which will also require third party contracts. The use of distributors and
service providers involves certain risks, including, but not limited to, risks that these organizations will not comply with applicable laws and regulations, or
not provide us with accurate or timely information regarding serious adverse events and/or product complaints regarding eteplirsen. Any such events may
result in regulatory actions that may include suspension or termination of the distribution and sale of eteplirsen in a certain country, loss of revenue, and/or
reputational damage, which could harm our results of operations and business.
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We rely on third parties to conduct some aspects of our early stage research and pre-clinical and clinical development. The inadequate
performance by or loss of any of these third parties could affect the development and commercialization of our product candidate development.
We have relied upon, and plan to continue to rely upon, third parties to conduct some aspects of our early stage research and pre-clinical and
clinical development with respect to certain of our product candidates, including our follow-on exon-skipping product candidates, PPMO and gene therapy
product candidates. Our third-party collaborators may not commit sufficient resources or adequately develop our programs for these candidates. If our third-
party collaborators fail to commit sufficient resources to any of our product candidates or to carry out their contractual duties or obligations, our programs
related to any particular product candidate could be delayed, terminated, or unsuccessful. Furthermore, if we fail to make required payments to these third-
party collaborators, including up-front, milestone, reimbursement or royalty payments, or to observe other obligations in our agreements with them, these
third parties may not be required to perform their obligations under our respective agreements with them and may have the right to terminate such
agreements.
We also have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing pre-clinical and clinical
programs. We rely on these parties for execution of our pre-clinical and clinical trials, and we control only certain aspects of their activities. Nevertheless, we
are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and
our reliance on collaborators and CROs does not relieve us of our regulatory responsibilities.
The individuals at our third-party collaborators and CROs who conduct work on our behalf, including their sub-contractors, are not always our
employees, and although we participate in the planning of our early stage research and pre-clinical and clinical programs, we cannot control whether or not
they devote sufficient time and resources or exercise appropriate oversight of these programs, except for remedies available to us under our agreements with
such third parties. If our collaborators and CROs do not successfully carry out their contractual duties or obligations or if the quality or accuracy of the data
they obtain is compromised due to the failure to adhere to our pre-clinical and clinical protocols, regulatory requirements or for other reasons, our clinical
trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product
candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our
ability to generate revenues could be delayed.
Our reliance on third parties requires us to share our proprietary information, which increases the possibility that a competitor will discover
them or that our proprietary information will be misappropriated or inadvertently disclosed.
The use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that a
competitor will discover this information or that this information will be misappropriated or disclosed without our intent to do so. Furthermore, if these third
parties cease to continue operations and we are not able to quickly find a replacement provider or we lose information or items associated with our product
candidates, our development programs may be delayed. Although we carefully manage our relationships with our third-party collaborators and CROs, there
can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on
our business, financial condition and prospects.
Risks Related to Manufacturing
We currently rely on third parties to manufacture EXONDYS 51 and to produce our product candidates; our dependence on these parties,
including any inability on our part to accurately anticipate product demand and timely secure manufacturing capacity to meet commercial, EAP, clinical
and pre-clinical product demand may impair the availability of product to successfully support various programs, including research and development
and the potential commercialization of our product candidates.
We currently do not have the internal ability to undertake the manufacturing process for EXONDYS 51 or our product candidates in the quantities
needed to meet commercial, clinical or early access programs demand for eteplirsen, or to conduct our research and development programs and conduct
clinical trials for our product candidates. Therefore, we rely on, and expect to continue relying on for the foreseeable future, a limited number of third parties
to manufacture and supply materials (including raw materials and subunits), API and drug product, as well as to perform additional steps in the manufacturing
process, such as labeling and packaging of vials and storage of EXONDYS 51 and our product candidates. There are a limited number of third parties with
facilities and capabilities suited for the manufacturing process of EXONDYS 51 and our product candidates, which creates a heightened risk that we may not
be able to obtain materials and APIs in the quantity and purity that we require.
In addition, the process for adding new manufacturing capacity can be lengthy and could cause delays in our development efforts. Any interruption
of the development or operation of those facilities due to, among other reasons, events such as order delays for equipment or materials, equipment
malfunction, quality control and quality assurance issues, regulatory delays and possible
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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 such as earthquake or fire, could result in the cancellation of
shipments, loss of product in the manufacturing process or a shortfall in available EXONDYS 51, 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
replacements in a timely manner, our ability to manufacture EXONDYS 51 or our product candidates in sufficient quality and quantity required for our
planned commercial, pre-clinical and clinical or early access programs use of eteplirsen would adversely affect our various product research, development and
commercialization efforts.
Furthermore, any problems in our manufacturing process or the facilities with which we contract could make us a less attractive collaborator for
potential partners, including larger pharmaceutical companies and academic research institutions, which could limit our access to additional attractive
development programs. Problems in third-party manufacturing processes or facilities also could restrict our ability to meet market demand for our products.
We have, through our third-party manufacturers, produced or are in the process of producing supply of our product candidates and EXONDYS 51,
respectively, based on our current understanding of market demands and our anticipated needs for our research and development efforts, clinical trials, early
access programs and commercial sales. In light of the limited number of third parties with the expertise to produce EXONDYS 51 and our product candidates,
the lead time needed to manufacture them, and the availability of underlying materials, we may not be able to, in a timely manner or at all, establish or
maintain sufficient commercial and other manufacturing arrangements on the commercially reasonable terms necessary to provide adequate supply of
EXONDYS 51 and our other product candidates to meet demands that meet or exceed our projected needs. Furthermore, we may not be able to obtain the
significant financial capital that may be required in connection with such arrangements. Even after successfully engaging third parties to execute the
manufacturing process for EXONDYS 51 and our product candidates, such parties may not comply with the terms and timelines 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 business plans on expected or required
timelines in connection with the commercialization of EXONDYS 51 and the continued development of our product candidates. We may also be required to
enter into long-term manufacturing agreements that contain exclusivity provisions and /or substantial termination penalties, which could have a material
adverse effect on our business prior to and after commercialization.
The third parties we use in the manufacturing process for EXONDYS 51 and our product candidates may fail to comply with
current GMP (“cGMP”) regulations.
Our contract manufacturers are required to produce our materials, APIs and drug products under cGMP. We and our contract manufacturers are
subject to periodic inspections by the FDA, EMA and corresponding state and foreign authorities to ensure strict compliance with cGMP and other applicable
government regulations. In addition, before we can begin to commercially manufacture our product candidates in third-party or our own facilities, we must
obtain regulatory approval from the FDA, which includes a review of the manufacturing process and facility. A manufacturing authorization must also be
obtained from the appropriate European Union regulatory authorities and may be required by other foreign regulatory authorities. The timeframe required to
obtain such approval or authorization is uncertain. In order to obtain approval, we will need to ensure that all of our processes, methods and equipment are
compliant with cGMP, and perform extensive audits of vendors, contract laboratories and suppliers. In complying with cGMP, we will be obligated to expend
time, money and effort in production, record keeping and quality control to assure that the product meets applicable specifications and other requirements.
While we work diligently with all contract manufacturers to maintain full compliance, we do not have direct control over a third-party
manufacturer’s compliance with these regulations and requirements. In addition, changes in cGMP could negatively impact the ability of our contract
manufacturers to complete the manufacturing process of EXONDYS 51 and our product candidates in a compliant manner on the schedule we require for
commercial and clinical trial use, respectively. The failure to achieve and maintain compliance with cGMP and other applicable government regulations,
including failure to detect or control anticipated or unanticipated manufacturing errors, could result in product recalls, clinical holds, delayed or withheld
approvals, patient injury or death.
This risk is particularly heightened as we optimize manufacturing for our product candidates. For example, we were notified by the Research
Institute at Nationwide that they received a letter from the FDA on July 24, 2018, stating that their Phase 1/2a DMD micro-dystrophin gene therapy trial had
been placed on clinical hold due to the presence of a trace amount of DNA fragment in research-grade third-party supplied plasmid (the “Clinical Hold”). The
Research Institute, working with us, developed an action plan with immediate plans to submit for review by the FDA, which included the use of GMP-s
plasmid for the program. On September 24, 2018, we announced that the FDA had lifted the Clinical Hold and that we do not anticipate any material delay to
this program.
If our contract manufacturers fail to adhere to applicable cGMP and other applicable government regulations, or experience manufacturing
problems, we will suffer significant consequences, including product seizures or recalls, postponement or cancellation
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of clinical trials, loss or delay of product approval, fines and sanctions, loss of revenue, termination of the development of a product candidate, reputational
damage, shipment delays, inventory shortages, inventory write-offs and other product-related charges and increased manufacturing costs. If we experience
any of these results, the success of our commercialization of EXONDYS 51 and/or our development efforts for our product candidates could be significantly
delayed, fail or otherwise be negatively impacted.
We may not be able to successfully scale up manufacturing of EXONDYS 51 or our product candidates in sufficient quality and quantity or
within sufficient timelines, or be able to secure ownership of intellectual property rights developed in this process, which could negatively impact the
commercial success of EXONDYS 51 and/or the development of our product candidates.
We are working to increase manufacturing capacity and scale up production of some of the components of our drug products. Our focus remains on
(i) achieving larger-scale manufacturing capacity for EXONDYS 51 and other product candidates throughout the manufacturing supply chain (ii) continuing
to increase material and API production capacity to provide the anticipated amounts of drug product needed for our planned studies for our product
candidates and (iii) optimizing manufacturing for our follow-on exon skipping product candidates and other programs, including PPMO and gene therapy. We
may not be able to successfully increase manufacturing capacity or scale up the production of materials, APIs and drug products, whether in collaboration
with third party manufacturers or on our own, in a manner that is safe, compliant with cGMP conditions or other applicable legal or regulatory requirements,
in a cost-effective manner, in a time frame required to meet our timeline for commercialization, clinical trials and other business plans, or at all.
Compliance with cGMP requirements and other quality issues may arise during our efforts to increase manufacturing capacity and scale up
production with our current or any new contract manufacturers. These issues may arise in connection with the underlying materials, the inherent properties of
EXONDYS 51 or a product candidate, EXONDYS 51 or a product candidate in combination with other components added during the manufacturing and
packaging process or during shipping and storage of the APIs or finished drug product. In addition, in order to release EXONDYS 51 for commercial use and
demonstrate stability of product candidates for use in clinical trials (and any subsequent drug products for commercial use), our manufacturing processes and
analytical methods must be validated in accordance with regulatory guidelines. We may not be able to successfully validate, or maintain validation of, our
manufacturing processes and analytical methods or demonstrate adequate purity, stability or comparability of EXONDYS 51 or our product candidates in a
timely or cost-effective manner, or at all. If we are unable to successfully validate our manufacturing processes and analytical methods or to demonstrate
adequate purity, stability or comparability, the commercial availability of EXONDYS 51 and the continued development and/or regulatory approval of our
product candidates may be delayed or otherwise negatively impacted, which could significantly harm our business.
During our work with our third-party manufacturers to increase and optimize manufacturing capacity and scale up production, it is possible that
they could make proprietary improvements in the manufacturing and scale-up processes for EXONDYS 51 or our product candidates. We may not own or be
able to secure ownership of such improvements or may have to share the intellectual property rights to those improvements. Additionally, it is possible that
we will need additional processes, technologies and 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 intellectual property rights required for the manufacturing process needed for large-scale clinical trials or commercialization
of EXONDYS 51 or the continued development of our product candidates could cause significant delays in our business plans or otherwise negatively impact
the commercialization of EXONDYS 51 or the continued development of our product candidates.
Products intended for use in gene therapies are novel, complex and difficult to manufacture. We could experience production problems that
result in delays in our development or commercialization of gene therapy programs, limit the supply of our products or otherwise harm our business.
We currently have development, manufacturing and testing agreements with third parties to manufacture supplies of our gene therapy product
candidates. Several factors could cause production interruptions, including equipment malfunctions, facility contamination, raw material shortages or
contamination, natural disasters, disruption in utility services, human error or disruptions in the operations of suppliers.
The physical and chemical properties of biologics such as ours generally cannot be fully characterized. As a result, assays of the finished product
may not be sufficient to ensure that the product will perform in the intended manner. Accordingly, we employ multiple steps to control our manufacturing
process to assure that the process works and the product candidate is made strictly and consistently in compliance with the process. Problems with the
manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures,
product recalls, product liability claims or insufficient inventory. We may encounter problems achieving adequate quantities and quality of clinical-grade
materials that meet FDA, EMA or other applicable foreign standards or specifications with consistent and acceptable production yields and costs.
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In addition, the FDA, the EMA and other foreign regulatory authorities may require us to submit samples of any lot of any approved product
together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA or other foreign regulatory
authorities may require that we not distribute a lot until the competent authority authorizes its release. Slight deviations in the manufacturing process,
including those affecting quality attributes and stability and deviations among different sites, may result in unacceptable changes in the product that could
result in lot failures or product recalls. Lot failures or product recalls could cause us to delay clinical trials or product launches which could be costly to us and
otherwise harm our business, financial condition, results of operations and prospects.
We also may encounter problems hiring and retaining the experienced scientific, quality control and manufacturing personnel needed to operate our
manufacturing process which could result in delays in our production or difficulties in maintaining compliance with applicable regulatory requirements.
Furthermore, no manufacturer currently has the experience or ability to produce our vectors or gene therapy product candidates at commercial
levels. Even if we timely develop a manufacturing process and successfully transfer it to the third-party vector and product manufacturers or successfully and
timely develop our internal capacity, if we or such third-party manufacturers are unable to produce the necessary quantities of viral vectors and our product
candidates, or in compliance with GMP or other pertinent regulatory requirements, and within our planned time frame and cost parameters, it may result in
delays in our development plans or increased capital expenditures, and the development and sales of our products, if approved, may be materially harmed.
Risks Related to our Intellectual Property
Our success, competitive position and future revenue depend in part on our ability and the abilities of our licensors and other collaborators to
obtain, maintain and defend the patent protection for our product, product candidates, and platform technologies, to preserve our trade secrets, and to
prevent third parties from infringing on our proprietary rights.
We currently directly hold various issued patents and patent applications, or have exclusive license or option rights to issued patents and patent
applications, in each case in the U.S. as well as other countries that protect our product, product candidates and platform technologies. We anticipate filing
additional patent applications both in the U.S. and in other countries. Our success will depend, in significant part, on our ability to obtain, maintain and
defend our U.S. and foreign patents covering our product, product candidates and platform technologies as well as preserving our trade secrets for these
assets. The patent process is subject to numerous risks and uncertainties, and we can provide no assurance that we will be successful in obtaining,
maintaining, or defending our patents. Even when our patent claims are allowed, the claims may not issue, or in the event of issuance, may not be sufficient to
protect our product, product candidates or platform technologies.
The patent positions of pharmaceutical, biotechnology and other life sciences companies can be highly uncertain and involve complex legal and
factual questions for which important legal principles remain unresolved. This uncertainty is heightened for our PMO-based product and product candidates
and gene therapy-based product candidates for which there has been little patent litigation involving such technologies. No consistent policy regarding the
breadth of claims allowed in biotechnology patents has emerged to date in the U.S. and tests used for determining the patentability of patent claims in all
technologies are in flux. The USPTO and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical and/or
biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified in the patent application, thereby
limiting the scope of protection against competitive challenges. Accordingly, even if we or our licensors are able to obtain patents, the patents might be
substantially narrower than anticipated. Thus, there is no assurance 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 issued to us may be subjected to further governmental review that may ultimately result in the reduction
of their scope of protection, and pending patent applications may have their requested breadth of protection significantly limited before being issued, if issued
at all. The pharmaceutical, biotechnology and other life sciences patent situation outside the U.S. can be even more uncertain.
As a matter of public policy, there might be significant pressure on governmental bodies to limit the scope of patent protection or impose
compulsory licenses for disease treatments that prove successful, particularly as a tactic to impose a price control. Additionally, jurisdictions other than the
U.S. might have less restrictive patent laws than the U.S., giving foreign competitors the ability to exploit these laws to create, develop and market competing
products.
We may be able to assert that certain activities engaged in by our competitors infringe on our current or future patent rights. To the extent that we
enforce our patents, an alleged infringer may deny infringement and/or counter-claim that our patents are not valid, and if successful, could negatively impact
our patent estate. We may not be able to successfully defend patents necessary to prevent competitors from commercializing competing product candidates.
Our patent rights might be challenged, invalidated, circumvented or otherwise not provide any competitive advantage. Defending our patent positions may
require significant financial resources and could negatively impact other Company objectives.
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Under the Hatch-Waxman Act, one or more motivated third parties may file an Abbreviated New Drug Application, seeking approval of a generic
copy of an innovator product approved under the NDA pathway such as our PMO product, or a New Drug Application under Section 505(b)(2), which may
be for a new or improved version of the original innovator product. The third parties are allowed to rely on the safety and efficacy data of the innovator’s
product, may not need to conduct clinical trials and can market a competing version of a product after the expiration or loss of patent exclusivity or the
expiration or loss of regulatory exclusivity and often charge significantly lower prices. Upon the expiration or loss of patent protection or the expiration or
loss of regulatory exclusivity for a product, the major portion of revenues for that product may be dramatically reduced in a very short period of time. If we
are not successful in defending our patents and regulatory exclusivities, we will not derive the expected benefit from them.
The DMD patent landscape is continually evolving, and we may be able to assert that certain activities engaged in by third parties infringe our
current or future patent rights. There has been, and we believe that there will continue to be, significant litigation in the biopharmaceutical and pharmaceutical
industries regarding patent and other intellectual property rights. As such, the patents and patent applications that we own, license, have optioned, and rely on
for exclusivity for our product candidates may be challenged.
Uncertainty over intellectual property in the pharmaceutical and biotechnology industry has been the source of litigation and other disputes,
which is inherently costly and unpredictable.
Litigation, interferences, oppositions, inter partes reviews, administrative challenges or other similar types of proceedings are, have been and may
in the future be necessary in some instances to determine the validity and scope of certain of our proprietary rights, and in other instances to determine the
validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. We may
also face challenges to our patent and regulatory exclusivities covering our products by third parties, including manufacturers of generics and biosimilars that
may choose to launch or attempt to launch their products before the expiration of our patent or regulatory exclusivity. Litigation, interference, oppositions,
inter partes reviews, administrative challenges or other similar types of proceedings are unpredictable and may be protracted, expensive and distracting to
management. The outcome of such proceedings could adversely affect the validity and scope of our patent or other proprietary rights, hinder our ability to
manufacture and market our products, require us to seek a license for the infringed product or technology or result in the assessment of significant monetary
damages against us that may exceed amounts, if any, accrued in our financial statements. An adverse determination in a judicial or administrative proceeding
or a failure to obtain necessary licenses could prevent us from manufacturing or selling our products. Furthermore, payments under any licenses that we are
able to obtain would reduce our profits derived from our products. Any of these circumstances could result in financial, business or reputational harm to us or
could cause a decline or volatility in our stock price.
On September 16, 2011, the Leahy-Smith America Invents Act (the “Leahy-Smith Act”), was signed into law. The Leahy-Smith Act includes a
number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted, and may also affect patent
litigation. The USPTO has issued regulations and procedures to govern administration of the Leahy-Smith Act, but many of the substantive changes to patent
law 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 have
on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the
prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business
and financial condition. For instance, a third party may petition the Patent Trial and Appeal Board (“PTAB”) seeking to challenge the validity of some or all
of the claims in any of our patents through an inter partes review or other post-grant proceeding. Should the PTAB institute an inter partes review or other
proceeding and decide that some or all of the claims in the challenged patent are invalid, such a decision, if upheld on appeal, could have a material adverse
effect on our business and financial condition.
Our business prospects will be impaired if third parties successfully assert that our product, product candidates, or platform technologies
infringe proprietary rights of such third parties.
Similar to us, competitors continually seek intellectual property protection for their technology. Several of our development programs, particularly
gene therapy programs, focus on therapeutic areas that have been the subject of extensive research and development by third parties for many years and have
been protected with third party patent rights. Due to the amount of intellectual property in our various fields of technology, we cannot be certain that we do
not infringe intellectual property rights of competitors or that we will not infringe intellectual property rights of competitors granted or created in the
future. Our competitors might have or obtained patents that limit, interfere with or eliminate our ability to make, use and sell our product, product candidates
or platform technologies in important commercial markets.
In order to maintain or obtain freedom to operate for our products and product candidates, we may incur significant expenses, including those
associated with entering into agreements with third parties that require milestone and royalty payments. Additionally, if we were to challenge the patent rights
of our competitors, we might not be successful.
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If our product, product candidates, or platform technologies infringe enforceable proprietary rights of others, we could incur substantial costs and
may have to:
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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, or cease commercialization of an infringing product;
redesign our product, product candidates or processes to avoid infringement;
pay damages; and/or
defend litigation or administrative proceedings which might be costly whether we win or lose, and which could result in a substantial diversion
of financial and management resources.
Any of these events could result in product and product candidate development delays or cessation, and as such substantially harm our potential
earnings, financial condition and operations. The patent landscape of our product candidates is continually evolving and multiple parties, including both
commercial entities and academic institutions, may have rights to claims or may be pursuing additional claims that could provide these parties a basis to assert
that our product, product candidates or platform technologies infringe on the intellectual property rights of such parties. There has been, and we believe that
there will continue to be, significant litigation in the biopharmaceutical and pharmaceutical industries regarding patent and other intellectual property rights.
Risks Related to our Business Operations
If we fail to comply with healthcare and other regulations, we could face substantial penalties and our business, operations and financial
condition could be adversely affected.
As a manufacturer of pharmaceuticals, within the United States, certain federal and state healthcare laws and regulations will apply to or affect our
business. The laws and regulations include:
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federal healthcare program anti-kickback laws, which prohibit, among other things, persons from soliciting, receiving or providing
remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good
or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid;
federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented,
information or claims for payment from Medicare, Medicaid or other third party payors that are false or fraudulent;
the Federal Food, Drug and Cosmetic Act, which among other things, strictly regulates drug product and medical device marketing, prohibits
manufacturers from marketing such products for off-label use and regulates the distribution of samples;
federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the government or provide certain
discounts or rebates to government authorities or private entities, often as a condition of reimbursement under government healthcare programs;
the so-called “federal sunshine” law, which requires pharmaceutical and medical device companies to monitor and report certain financial
interactions with physicians and teaching hospitals to the federal government for re-disclosure to the public; and
state law equivalents of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by
any third party payor, including commercial insurers, state laws regulating interactions between pharmaceutical manufactures and health care
providers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each
other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts.
The number and complexity of both federal and state laws continues to increase, and additional governmental resources are being used to enforce
these laws and to prosecute companies and individuals who are believed to be violating them. We anticipate that government scrutiny of pharmaceutical sales
and marketing practices will continue for the foreseeable future and subject us to the risk of government investigations and enforcement actions.
In connection with the commercial launch of EXONDYS 51, we are in the process of expanding our compliance program, which is based on
industry best practices and is designed to ensure that our commercialization of EXONDYS 51 complies with all applicable laws, regulations and industry
standards. As the requirements in this area are constantly evolving, we cannot be certain that
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our program will eliminate all areas of potential exposure. Although compliance programs can mitigate the risk of investigation and prosecution for violations
of these laws, the risks cannot be entirely eliminated. If our operations are found to be in violation of any of the laws described above or any other laws, rules
or regulations that apply to us, we will be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our
operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our
financial results. Responding to government investigations, defending any claims raised, and any resulting fines, restitution, damages and penalties,
settlement payments or administrative actions, as well as any related actions brought by stockholders or other third parties, could have a material impact on
our reputation, business and financial condition and divert the attention of our management from operating our business. Even if we successfully defend
against an action against us for violation of a law, the action and our defense could nonetheless cause us to incur significant legal expenses and divert our
management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security,
fraud and reporting laws may prove costly.
We may be subject to product liability claims and our insurance may not be adequate to cover damages.
The current and future use of our product candidates by us and our collaborators in clinical trials, expanded access programs, the sale of
EXONDYS 51 and future products, or the use of our products under emergency use vehicles may expose us to liability claims inherent to the manufacture,
clinical testing, marketing and sale of medical products. These claims might be made directly by consumers or healthcare providers or indirectly by
pharmaceutical companies, our collaborators or others selling such products. Regardless of merit or eventual outcome, we may experience financial losses in
the future due to such product liability claims. We have obtained commercial general liability insurance coverage for our clinical trials and the sale of
commercial products in connection with the FDA’s approval of EXONDYS 51. However, we may not be able to maintain insurance coverage at a reasonable
cost or in sufficient amounts to protect us against all losses. If a successful product liability claim or series of claims is brought against us for uninsured
liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired.
If we, our collaborators, or any third-party manufacturers engaged by us or our collaborators fail to comply with environmental, health and
safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
We, our collaborators, and any third-party manufacturers we engage are subject to numerous environmental, health and safety laws and regulations,
including those governing laboratory procedures and the generation, handling, use, storage, treatment, manufacture, transportation and disposal of, and
exposure to, hazardous materials and wastes, as well as laws and regulations relating to occupational health and safety, including those governing laboratory
procedures, exposure to blood-borne pathogens and the handling of bio-hazardous materials. Our operations involve the use of hazardous materials, including
organic and inorganic solvents and reagents. Although we believe that our activities conform in all material respects 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 damage and personal injury claims, loss of permits or a
cessation of operations, and any of these events could harm our business and financial condition. We expect that our operations will be affected by other new
environmental, health and workplace safety laws on an ongoing basis, and although we cannot predict the ultimate impact of any such new laws, they may
impose greater compliance costs or result in increased risks or penalties, which could harm our business.
Further, with respect to the operations of any current or future collaborators or third party contract manufacturers, it is possible that if they fail to
operate in compliance with applicable environmental, health and safety laws and regulations or properly dispose of wastes associated with our product or
product candidates, we could be held liable for any resulting damages, suffer reputational harm or experience a disruption in the manufacture and supply of
our product or product candidates.
The EU has enacted a new data privacy regulation, the General Data Protection Regulation, a violation of which could subject us to significant
fines.
In May 2018, a new privacy regime, the General Data Protection Regulation (“GDPR”) will take effect and immediately be binding across all
member states of the European Economic Area (“EEA”). The GDPR increases our obligations with respect to clinical trials conducted in the EEA by
expanding the definition of personal data to include coded data, and requiring changes to informed consent practices and more detailed notices for clinical
trial subjects and investigators. In addition, the GDPR increases the scrutiny that clinical trial sites located in the EEA should apply to transfers of personal
data from such sites to countries that are considered to lack an adequate level of data protection, such as the U.S. The GDPR imposes substantial fines for
breaches of data protection requirements, which can be up to four percent of global revenue or 20 million Euros, whichever is greater, and it also confers a
private right of action on data subjects for breaches of data protection requirements. Compliance with these directives will be
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a rigorous and time-intensive process that may increase our cost of doing business, and despite those efforts, there is a risk that we may be subject to fines and
penalties, litigation and reputational harm in connection with our European activities.
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 would suffer.
We are highly dependent on the efforts and abilities of the principal members of our senior management. Additionally, we have scientific personnel
with significant and unique expertise in RNA-targeted therapeutics and gene therapy technologies. The loss of the services of any one of the principal
members of our 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 and
motivate such personnel. In order to develop and commercialize our products successfully, we will be required to retain key management and scientific
employees. In certain instances, we may also need to expand or replace our workforce and our management ranks. In addition, we rely on certain consultants
and advisors, including scientific and clinical advisors, to assist us in the formulation and advancement of our research and development programs. Our
consultants and advisors may be employed by other entities or have commitments under consulting or advisory contracts with third parties that limit their
availability 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.
We expect to expand our organization and may experience difficulties in managing this growth, which could disrupt our operations.
As of December 31, 2018, we had 499 full-time employees. As our business activities expand, we expect to expand our full-time employee base
and to hire more consultants and contractors. Our management may need to divert a disproportionate amount of its attention away from our day-to-day
activities and devote a substantial amount of time to managing these growth activities. Our ability to manage our growth properly and maintain compliance
with all applicable rules and regulations will require us to continue to improve our operational, legal, financial and management controls, as well as our
reporting systems and procedures. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our
infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected
growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product
candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or
grow revenues could be reduced, and we may not be able to implement our business strategy.
Our sales and operations are subject to the risks of doing business internationally.
We are increasing our presence in international markets, including emerging markets, subjecting us to many risks that could adversely affect our
business and revenues, such as:
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the inability to obtain necessary foreign regulatory or pricing approvals of products in a timely manner;
uncertainties regarding the collectability of accounts receivable;
fluctuations in foreign currency exchange rates that may adversely impact our revenues, net income and value of certain of our investments;
difficulties in staffing and managing international operations;
the imposition of governmental controls;
less favorable intellectual property or other applicable laws;
increasingly complex standards for complying with foreign laws and regulations that may differ substantially from country to country and may
conflict with corresponding U.S. laws and regulations;
the far-reaching anti-bribery and anti-corruption legislation in the U.K., including the U.K. Bribery Act 2010, and elsewhere and escalation of
investigations and prosecutions pursuant to such laws;
compliance with complex import and export control laws;
restrictions on direct investments by foreign entities and trade restrictions; and
changes in tax laws and tariffs.
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In addition, our international operations are subject to regulation under U.S. law. For example, the Foreign Corrupt Practices Act (FCPA) prohibits
U.S. companies and their representatives from paying, offering to pay, promising to pay or authorizing the payment of anything of value to any foreign
government official, government staff member, political party or political candidate for the purpose of obtaining or retaining business or to otherwise obtain
favorable treatment or influence a person working in an official capacity. In many countries, the health care professionals we regularly interact with may meet
the FCPA's definition of a foreign government official. Failure to comply with domestic or foreign laws could result in various adverse consequences,
including: possible delay in approval or refusal to approve a product, recalls, seizures or withdrawal of an approved product from the market, disruption in the
supply or availability of our products or suspension of export or import privileges, the imposition of civil or criminal sanctions, the prosecution of executives
overseeing our international operations and damage to our reputation. Any significant impairment of our ability to sell products outside of the U.S. could
adversely impact our business and financial results.
Unfavorable global economic conditions could harm our business, financial condition or results of operations.
Our results of operations could be harmed by general conditions in the global economy and in the global financial markets. A severe or prolonged
economic downturn could result in a variety of risks to our business, including weakened demand for our product candidates and our ability to raise additional
capital when needed on acceptable terms, if at all. For example, the global financial crisis of 2007-2008 and the ongoing European economic crisis caused
extreme volatility and disruptions in the capital and credit markets. A weak or declining economy could strain our manufacturers, possibly resulting in
manufacturing disruption, or cause delays in payments for our services by third-party payors or our future collaborators. Any of the foregoing could harm our
business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could harm our business.
Additionally, in June 2016, a majority of United Kingdom (UK) voters voted for the UK to exit the European Union (Brexit) and in March 2017,
the UK government provided official legal notification to the European Union that the UK will exit the European Union. The timing and completion of Brexit
is subject to judicial and parliamentary developments in the UK, as well as any legal challenges. The economic effects of Brexit will depend on any
agreements the UK makes to retain access to European Union markets either during a transitional period or more permanently. Brexit could adversely affect
European and worldwide economic or market conditions and could contribute to instability in global financial markets. Brexit is likely to lead to legal
uncertainty and potentially divergent national laws and regulations as the UK determines which European Union laws to replace or replicate. Any of these
effects of Brexit, and any other effects we cannot anticipate, could adversely affect our business, business opportunities, results of operations, financial
condition and cash flows.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any
cyber security incidents, could harm our ability to operate our business effectively.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and
that of our suppliers, as well as personally identifiable information of EXONDYS 51 patients, clinical trial participants and employees. Similarly, our third-
party providers possess certain of our sensitive data. The secure maintenance of this information is critical to our operations and business strategy. Despite our
security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or
other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any
such access, disclosure or other loss of information, including our data being breached at third party providers, could result in legal claims or proceedings,
liability under laws that protect the privacy of personal information, disrupt our operations and damage our reputation, which could adversely affect our
business.
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 made
against us in such disputes even after expending significant amounts of money and company resources in defending our positions in such lawsuits and
disputes. The outcome of such lawsuits and disputes is inherently uncertain and may have a negative impact on our business, financial condition and results of
operations.
Comprehensive tax reform in the United States could adversely affect our business and financial condition.
The Tax Cuts and Jobs Act (the “TCJA”) was enacted on December 22, 2017 in the United States. The TCJA contains significant changes to
corporate taxation, including reduction of the U.S. corporate tax rate from 35% to 21%, elimination of U.S. tax on foreign earnings (subject to certain
important exceptions), one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, limitation of the tax deduction for
interest expense, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing
many business deductions and credits.
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We continue to evaluate the overall impact of the TCJA on our business. There is continued uncertainty in the TCJA, and although changes or
challenges cannot be predicted, we believe we have used reasonable assumptions and interpretations in applying TCJA. We continue to monitor for
legislative developments, issuance of regulations and technical memorandum to provide further clarification and/or interpretations of the TCJA and will
adjust our financial statements as needed.
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
transactions involving our common stock.
In general, under Section 382 of the Internal Revenue Code, a corporation that undergoes an ‘‘ownership change’’ is subject to limitations on its
ability to utilize its pre-change net operating losses and certain other tax assets to offset future taxable income. In general, an ownership change occurs if the
aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during
the testing period, which is generally three years. An ownership change could limit our ability to utilize our net operating loss and tax credit carryforwards for
taxable years including or following such “ownership change.” Limitations imposed on the ability to use net operating losses and tax credits to offset future
taxable income could require us to pay U.S. federal income taxes earlier than we estimated or than would have otherwise been required if such limitations
were not in effect and could cause such 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 and potentially adversely affecting our financial position. Similar rules and limitations may apply for state income tax
purposes.
We are winding down our expired U.S. government contracts, and the U.S. government may deny payment of some or all of the currently
outstanding amounts owed to us. In addition, further development of our infectious disease programs may be limited 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 infectious disease development programs. These
contracts are expired and we are currently involved in contract close-out activities. The U.S. government has the right to perform additional audits prior to
making final payment of costs and fees. If we are not able to adequately support costs incurred or other government requirements, the government may deny
payment of some or all of the currently outstanding amounts owed to us. In addition, the U.S. government may have the right to develop all or some parts of
product candidates that we have developed under a U.S. government contract after such contract has terminated or expired.
Our employees, principal investigators, consultants and strategic partners may engage in misconduct or other improper activities, including
non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and strategic partners. Misconduct
by these parties could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the
FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or
data accurately or disclose unauthorized activities to us. We adopted a code of conduct applicable to all of our employees, but it is not always possible to
identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or
unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these
laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could
have a significant impact on our business, including the imposition of significant fines or other sanctions.
The increasing use of social media platforms presents new risks and challenges.
Social media is increasingly being used to communicate about our product, technologies and programs, and the diseases our product and product
candidates are designed to treat. Social media practices in the biopharmaceutical industry continue to evolve and regulations relating to such use are not
always clear. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business. For example, patients may use social
media channels to comment on the effectiveness of a product or to report an alleged adverse event. When such disclosures occur, there is a risk that we fail to
monitor and comply with applicable adverse event reporting obligations or we may not be able to defend the Company or the public's legitimate interests in
the face of the political and market pressures generated by social media due to restrictions on what we may say about our product and/or product candidates.
There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social networking
website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face overly restrictive
regulatory actions or incur other harm to our business.
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We or the third parties upon whom we depend may be adversely affected by natural disasters and our business continuity and disaster recovery
plans may not adequately protect us from a serious disaster.
Natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition
and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our office, manufacturing
and/or lab spaces, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise
disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery
and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as
a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business.
Risks Related to our Financial Condition and Capital Requirements
We have incurred operating losses since our inception and we may not achieve or sustain profitability.
We incurred an operating loss of $343.6 million for the year ended December 31, 2018, respectively. Our accumulated deficit was $1.6 billion as of
December 31, 2018. Although we launched EXONDYS 51 in the U.S. in September 2016, we believe that it will take us some time to attain profitability and
positive cash flow from operations. Since EXONDYS 51 and our product candidates target small patient populations, the per-patient drug pricing must be
high in order to recover our development and manufacturing costs, fund adequate patient support programs, fund additional research and achieve profitability.
We may be unable to maintain or obtain sufficient sales volumes at a price high enough to justify our product development efforts and our sales, marketing
and manufacturing expenses.
We have generally incurred expenses related to research and development of our technologies and product candidates and from general and
administrative expenses that we have incurred while building our business infrastructure. We anticipate that our expenses will increase substantially if and/or
as we:
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continue our launch and commercialization of EXONDYS 51 in the U.S.;
expand the global footprint of EXONDYS 51 outside of the U.S.;
establish our sales, marketing and distribution capabilities;
continue our research, pre-clinical 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 our
product candidates;
initiate additional clinical trials for our product candidates;
seek marketing approvals for our product candidates that successfully complete clinical trials;
acquire or in-license other product candidates;
maintain, expand and protect our intellectual property portfolio;
increase manufacturing capabilities including capital expenditures related to our real estate facilities and entering into manufacturing
agreements;
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 and
planned future commercialization efforts.
As a result, we expect to continue to incur significant operating losses at least through 2018. Because of the numerous risks and uncertainties
associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when, or if, we will become profitable.
We will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital
when needed may force us to delay, limit or terminate our product development efforts or other operations.
We will likely require additional capital from time to time in the future in order to meet FDA post-marketing approval requirements and market and
sell EXONDYS 51 as well as to continue the development of product candidates in our pipeline, to prepare for potential commercialization of our product
candidates, to expand our product portfolio and to continue or enhance our
-53-
business development efforts. The actual amount of funds that we may need and the sufficiency of the capital we have or are able to raise will be determined
by many factors, some of which are in our control and others that are beyond our control.
While we are currently well capitalized, we may use available capital resources sooner than we expect under our current operating plan. In
addition, our operating plan may change. We may need or choose to seek additional funds sooner than planned, through equity or debt financings, government
or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a
combination of these approaches. In any event, we expect to require additional capital to expand future development efforts, obtain regulatory approval for,
and to commercialize, our product candidates. Raising funds in the current economic environment may present additional challenges. Even if we believe we
have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or in light of specific
strategic considerations.
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop
and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms
acceptable to us, if at all. In the event we receive negative data from our key clinical programs or encounter other major setbacks in our development or
regulatory activities or in our commercialization efforts, if any of our product candidates are approved, our stock price is likely to decline which would make
a future financing more difficult. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders. The issuance of
additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of
additional equity or convertible securities would dilute all of our stockholders. The incurrence of indebtedness would result in increased fixed payment
obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our
ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.
We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable
and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which
may have a material adverse effect on our business, operating results and prospects.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or
development programs or the commercialization of any product, if approved, or be unable to expand our operations or otherwise capitalize on our business
opportunities, as desired, which could materially affect our business, financial condition and results of operations.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights.
We may seek additional capital through a combination of private and public equity offerings, debt financings, collaborations and strategic and
licensing arrangements. To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into
common stock, the ownership interest of our stockholders in our company will be diluted. In addition, the terms of any such securities may include
liquidation or other preferences that materially adversely affect the rights of our stockholders. Debt financing, if available, would increase our fixed payment
obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt,
making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic partnerships and licensing arrangements with
third parties, we may have to relinquish valuable rights to our product candidates, our intellectual property, future revenue streams or grant licenses on terms
that are not 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 U.S. The preparation
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 judgments include revenue
recognition, inventory, valuation of stock-based awards, research and development expenses and income tax. We base our estimates on historical experience,
facts and circumstances known to us and on various other assumptions that we believe to be reasonable under the circumstances. We cannot provide
assurances, however, that our estimates, or the assumptions underlying them, will not change over time or otherwise prove inaccurate. If this is the case, we
may be required to restate our consolidated financial statements, which could, in turn, subject us to securities class action litigation. Defending against such
potential litigation relating to a restatement of our consolidated financial statements would be expensive and would require significant attention and resources
of our management. Moreover, our insurance to cover our obligations with respect to the ultimate resolution of any such litigation may be inadequate. As a
result of these factors, any such potential litigation could have a
-54-
material adverse effect on our financial results and cause our stock price to decline, which could in turn subject us to securities class action litigation.
Risks Related to Our Common Stock
Our 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 historically been volatile. Our
stock has had significant swings in trading prices, in particular in connection with our public communications regarding feedback received from regulatory
authorities. For example, over the last thirty eight months, our stock has increased as much as 74% in a single day or decreased as much as 55% in a single
day. The market has from time to time experienced significant price and volume fluctuations unrelated to the operating performance of particular companies.
The market price of our common stock may fluctuate significantly due to a variety of factors, including but not limited to:
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the commercial performance of EXONDYS 51 in the U.S.;
the timing of our submissions to regulatory authorities and regulatory decisions and developments;
positive or negative clinical trial results or regulatory interpretations of data collected in clinical trials conducted by us, our strategic partners,
our competitors or other companies with investigational drugs targeting the same, similar or related diseases to those targeted by us;
delays in beginning and completing pre-clinical and clinical trials for potential product candidates;
delays in entering or failing to enter into strategic relationships with respect to development and/or commercialization of EXONDYS 51 or our
product candidates or entry into strategic relationships on terms that are not deemed to be favorable to our Company;
technological innovations, product development or additional 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 declared
by the USPTO, including in the near term any outcomes of ongoing interference proceedings and over the longer term the outcomes from any
related appeals;
public concern relating to the commercial value, efficacy or safety of any of our products;
our ability to obtain funds, 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;
changes in senior management; 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 operating
performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities
class action litigation has often been instituted against these companies. Such litigation could result in substantial costs and a diversion of our management’s
attention and resources.
Our revenues and operating results could fluctuate significantly, which may adversely affect our stock price.
Our revenues and operating results may vary significantly from year-to-year and quarter-to-quarter as well as in comparison to the corresponding
quarter of the preceding year. Variations my result from one or more factors, including, without limitation:
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timing of purchase orders;
changes in coverage and reimbursement policies of health plans and other health insurers, especially in relation to those products that are
currently manufactured, under development or identified for future development by us;
re-authorizations processes that may be required for patients who initially obtained coverage by third parties, including government payors,
managed care organizations and private health insurers;
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transition from temporary billing codes established by the Centers for Medicare & Medicaid Services (CMS) to permanent medical codes;
timing of approval of applications filed with the FDA;
timing of product launches and market acceptance of products launched;
changes in the amounts spent to research, develop, acquire, license or promote new and existing products;
results of clinical trial programs;
serious or unexpected health or safety concerns with our product or product candidates;
introduction of new products by others that render our product obsolete or noncompetitive;
the ability to maintain selling prices and gross margin on our product;
increases in the cost of raw materials contained within our product;
manufacturing and supply interruptions, including product rejections or recalls due to failure to comply with manufacturing specifications;
timing of revenue recognition relating to our distribution agreements;
the ability to protect our intellectual property from being acquired by other entities;
the ability to avoid infringing the intellectual property of others; and
the addition or loss of customers.
In addition, in one or more future periods, our results of operations may fall below the expectations of securities analysts and investors. In that
event, the market price of our common stock could decline.
Provisions of our certificate of incorporation, bylaws and Delaware law might deter acquisition bids for us that might be considered favorable
and prevent or frustrate any attempt to replace or remove the then-current management and board of directors.
Certain provisions of our certificate of incorporation and bylaws may make it more difficult for a third party to acquire control of us or effect a
change in our board of directors and management. These provisions include:
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when the board is comprised of six or more directors, classification of our board of directors into two classes, with one class elected each year;
directors may only be removed for cause by the affirmative vote of a majority of the voting power of all the then-outstanding shares of voting
stock;
prohibition of cumulative voting of shares in the election of directors;
right of the board of directors to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death,
disqualification or removal of a director;
express authorization of the board of directors to make, alter or repeal our bylaws;
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 at
stockholder meetings;
the ability of our board of directors to authorize the issuance of undesignated preferred stock, the terms and rights of which may be established
and 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
repeal our 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 business
combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation and our
bylaws and in the Delaware General Corporation Law could make it more difficult for
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stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors.
A significant number of shares of our common stock are issuable pursuant to outstanding stock awards, and we expect to issue additional stock
awards and 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 depress the price of our common stock.
As of December 31, 2018, there were approximately 71.1million shares of common stock outstanding and outstanding awards to purchase 9.1
million shares of common stock under various incentive stock plans. Additionally, as of December 31, 2018, there were approximately 4.4 million shares of
common stock available for future issuance under our 2018 Equity Incentive Plan, approximately 0.2 million shares of common stock available for issuance
under our 2013 Employee Stock Purchase Plan, and approximately 0.9 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 potential acquisitions or in connection with additional stock options or other equity awards granted to our employees, officers,
directors and consultants under our 2018 Equity Incentive Plan, our 2013 Employee Stock Purchase Plan or our 2014 Employment Commencement Incentive
Plan. The issuance of additional shares of common stock or warrants to purchase common stock and the perception that such issuances may occur or exercise
of outstanding warrants or stock options may have a dilutive impact on other stockholders and could have a material negative effect on the market price of our
common stock.
Future sales of our common stock in the public market could cause our share price to fall.
Sales of a substantial number of our common stock in the public market, including sales by members of our management or board of directors, or
the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale
of additional equity or equity-related securities.
Risks Related to Our Convertible Senior Notes
Servicing our 1.50% notes due 2024 (the “Notes”) requires a significant amount of cash, and we may not have sufficient cash flow to pay our
debt.
In 2017, we issued $570 million aggregate principal amount of Notes. Our ability to make scheduled payments of the principal of, to pay interest
on, or to refinance our indebtedness, including the Notes, depends on our future performance, which is subject to many factors, including, economic,
financial, competitive and other, beyond our control. We do not expect our business to be able to generate cash flow from operations, in the foreseeable
future, sufficient to service our debt and make necessary capital expenditures and may therefore be required to adopt one or more alternatives, such as selling
assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our Notes, which are
non-callable and mature in 2024, will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these
activities or engage in these activities on desirable terms, which could result in a default on our debt obligations, and limit our flexibility in planning for and
reacting to changes in our business.
We may not have the ability to raise the funds necessary to repurchase the Notes as required upon a fundamental change, and our future debt
may contain limitations on our ability to repurchase the Notes.
Holders of the Notes will have the right to require us to repurchase their Notes for cash upon the occurrence of a fundamental change at a
fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. A
fundamental change may also constitute an event of default or prepayment under, and result in the acceleration of the maturity of, our then-existing
indebtedness. We cannot assure you that we will have sufficient financial resources, or will be able to arrange financing, to pay the fundamental change
repurchase price in cash with respect to any Notes surrendered by holders for repurchase upon a fundamental change. In addition, restrictions under our then
existing credit facilities or other indebtedness, if any, may not allow us to repurchase the Notes upon a fundamental change. Our failure to repurchase the
Notes upon a fundamental change when required would result in an event of default with respect to the Notes which could, in turn, constitute a default under
the terms of our other indebtedness, if any. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we
may not have sufficient funds to repay the indebtedness and repurchase the Notes.
Capped call transactions entered into in connection with our Notes may impact the value of our common stock.
In connection with the Notes, we entered into capped call transactions (the “capped call transactions”) with certain financial institutions. The
capped call transactions are expected to generally reduce the potential dilution upon conversion of the Notes into shares of our common stock.
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In connection with establishing their initial hedges of the capped call transactions, these financial institutions or their respective affiliates entered
into various derivative transactions with respect to our common stock and/or to purchase our common stock. The financial institutions, or their respective
affiliates, may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling
our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes. This activity could also cause or avoid an
increase or a decrease in the market price of our common stock or the Notes, which could affect the value of our common stock.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
A description of the facilities we own and/or occupy is included in the following table. We believe that our current facilities in Cambridge,
Andover and Burlington, Massachusetts and Dublin and Columbus, Ohio are suitable and will provide sufficient capacity to meet the projected needs of our
business for the next 12 months. Except as noted below, all of our properties are currently being used in the operation of our business.
Location of Property
215 First Street, Cambridge, MA
100 Federal Street, Andover, MA
300 Federal Street, Andover, MA
55 Network Drive, Burlington, MA
5200 Blazer Parkway, Dublin, OH
3435 Stelzer Road, Columbus, OH(1)
Lease
Expiration
Square
Footage
Date
163,842 September 2025
62,000 N/A – facility is owned
23,102 December 2020
44,740 January 2022
22,600 November 2019
77,679 June 2026
Purpose
Laboratory and office space
Laboratory and office space
Office space
Laboratory and office space
Laboratory and office space
Laboratory and office space
Other
Information
Corporate headquarters
Primarily laboratory space
Office space
Primarily laboratory space
Primarily laboratory space
Primarily laboratory space
(1)
As of December 31, 2018, the Company did not yet occupy 3435 Stelzer Road, Columbus, OH.
Item 3. Legal Proceedings.
For material legal proceedings, please read Note 21, Commitments and Contingencies - Litigation to our consolidated financial statements included
in this Annual Report.
Item 4. Mine Safety Disclosures.
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is quoted on the NASDAQ Global Select Market under the same symbol “SRPT”.
PART II
Holders
As of February 22, 2019, we had 196 stockholders of record of our common stock.
Dividends
We did not declare or pay cash dividends on our common stock in 2018, 2017 or 2016. We currently expect to retain future earnings, if any, to
finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination
related to our dividend policy will be made at the discretion of our board of directors.
Performance Graph
The following graph compares the performance of our Common Stock for the periods indicated with the performance of the NASDAQ Composite
Index, NASDAQ Biotechnology Index and the NYSE ARCA Biotechnology Index. This graph assumes an investment of $100 on December 31, 2011 in each
of our common stock, the NASDAQ Composite Index, NASDAQ Biotechnology Index and the NYSE ARCA Biotechnology Index, and assumes
reinvestment of 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 SEC and is not to be incorporated by reference into any of our filings under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general
incorporation language in any such filing.
Recent Sales of Unregistered Securities.
In September 2018, we issued 10,500 restricted stock awards to three employees. These restricted stock awards will vest and become exercisable as
to 100% of the total number of shares of restricted common stock of the Company on the three-year anniversary of the grant date, subject to the continued
employment with the Company of each employee through such vesting date. Such issuance was exempt under Section 4(a)(2) of the Securities Act of 1933,
as amended.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
None.
Item 6. Selected Financial Data.
The following selected financial data are derived from our consolidated financial statements and should be read in conjunction with, and is
qualified in its entirety by, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial
Statements and Supplementary Data.
Operations data:
Revenues
Cost of sales (excluding amortization of in-
licensed rights)
Research and development
Selling, general and administrative
Settlement and license charges
Amortization of in-licensed rights
Operating loss
Interest (expense) income and other, net
Gain from sale of Priority Review Voucher
Loss on change in warrant valuation
Loss before income tax expense
Income tax (benefit) expense
Net loss
Net loss per share—basic and diluted
Balance sheet data:
Cash and cash equivalents
Marketable securities
Working capital
Total assets
Long-term debt
Stockholders’ equity
For the Year Ended December 31,
2018
2017
2016
2015
2014
(in thousands, except per share amounts)
$
301,034 $
154,584 $
5,421 $
1,253 $
9,757
34,193
401,843
207,761
—
865
(343,628)
(18,982)
—
—
(362,610)
(692)
(361,918) $
7,353
166,707
122,682
28,427
1,053
(171,638)
(1,990)
125,000
—
(48,628)
2,060
(50,688) $
101
188,272
83,749
—
29
(266,730)
(535)
—
—
(267,265)
—
—
146,394
75,043
—
—
(220,184)
154
—
—
(220,030)
—
(267,265) $
(220,030) $
(5.46) $
(0.86) $
(5.49) $
(5.20) $
370,829 $
803,083
1,252,493
1,642,075
420,554
1,032,276
599,691 $
489,349
1,140,312
1,307,964
431,051
789,217
122,420 $
195,425
298,054
424,104
16,150
336,691
80,304 $
112,189
162,249
273,782
20,905
190,347
—
94,231
49,315
—
—
(133,789)
779
—
(2,779)
(135,789)
—
(135,789)
(3.39)
73,551
136,793
210,929
295,033
6,328
247,653
$
$
$
-60-
Item 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 consolidated
financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that
involve risks and uncertainties. Please review our legend titled “Forward-Looking Information” at the beginning of this Annual Report on Form 10-K which
is incorporated herein by reference. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such
differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Annual
Report on Form 10-K. Throughout this discussion, unless the context specifies or implies otherwise, the terms “Sarepta”, “we”, “us” and “our” refer to
Sarepta Therapeutics, Inc. and its subsidiaries.
Overview
We are a commercial-stage biopharmaceutical company focused on helping patients through the discovery and development of unique RNA-
targeted therapeutics, gene therapy and other genetic therapeutic modalities for the treatment of rare diseases. Applying our proprietary, highly-differentiated
and innovative technologies, and through collaborations with our strategic partners, we are developing potential therapeutic candidates for a broad range of
diseases and disorders, including DMD, LGMDs, CMT, MPS IIIA and Pompe.
Our first commercial product in the U.S., EXONDYS 51, was granted accelerated approval by the FDA on September 19, 2016. EXONDYS 51 is
indicated for the treatment of DMD in patients who have a confirmed mutation of the DMD gene that is amenable to exon 51 skipping. EXONDYS 51 uses
our PMO chemistry and exon-skipping technology to skip exon 51 of the dystrophin gene. EXONDYS51 is designed to bind to exon 51 of dystrophin pre-
messenger RNA (“mRNA”), resulting in exclusion of this exon during mRNA processing in patients with genetic mutations that are amenable to exon 51
skipping. Exon skipping is intended to promote the production of an internally truncated but functional dystrophin protein.
A summary description of our main product candidates, including those in collaboration with our strategic partners, is as follows:
•
•
•
•
Golodirsen (SRP-4053) uses our PMO chemistry and exon-skipping technology to skip exon 53 of the DMD gene. Golodirsen is designed to
bind to exon 53 of dystrophin pre-mRNA, resulting in exclusion, or “skipping”, of this exon during mRNA processing in patients with genetic
mutations that are amenable to exon 53 skipping. We are enrolling and dosing patients in ESSENCE (4045-301), our Phase 3 placebo
controlled confirmatory trial in patients who have a confirmed mutation of the DMD gene that is amenable to exon 45 or 53 skipping using
casimersen and golodirsen, respectively. Golodirsen is also being evaluated in a Phase 1/2 trial having two parts. Part I of the Phase 1/2 trial has
been completed, and Part II, an open-label portion of the trial, is expected to be completed in 2019 (Study 4053-101). In September 2017, we
announced positive results of an analysis that included biopsies of the bicep muscle at baseline and on-treatment at the Part II, Week 48 time
point. The 4053-101 interim trial results demonstrated statistical significance on all primary and secondary biological endpoints. In December
2018, we completed the submission of our rolling NDA to the FDA seeking accelerated approval for golodirsen. The FDA accepted the NDA
and granted priority review status for golodirsen with a targeted regulatory action date of August 19, 2019. The FDA also indicated that it does
not intend to conduct an advisory board for golodirsen.
Casimersen (SRP-4045) uses our PMO chemistry and exon-skipping technology to skip exon 45 of the DMD gene. Casimersen is designed to
bind to exon 45 of dystrophin pre-mRNA, resulting in exclusion, or “skipping”, of this exon during mRNA processing in patients with genetic
mutations that are amenable to exon 45 skipping. We are enrolling and dosing patients in ESSENCE, further described above. We have
completed a dose titration portion (Phase 1) and the open-label portion (Phase 2) of a Sarepta sponsored Phase 1/2 the trial clinical trial
studying casimersen (4045-101). We anticipate submitting an NDA to the FDA for casimersen in 2019 if we believe the results of an interim
dystrophin analysis in the ESSENCE study are positive.
SRP-5051 uses our next-generation chemistry platform, PPMO, and our exon-skipping technology to skip exon 51 of the DMD gene. SRP-
5051, a peptide conjugated PMO, is designed to bind to exon 51 of dystrophin pre-mRNA, resulting in exclusion of this exon during mRNA
processing in patients with genetic mutations that are amenable to exon 51 skipping. Exon skipping is intended to promote the production of an
internally truncated but functional dystrophin protein. In the fourth quarter of 2017, we received clearance from the FDA and commenced a
first-in-human, single ascending dose, study for the treatment of DMD in patients who are amenable to exon 51 skipping. We expect to
complete this study in 2019.
SRP-9001 (micro-dystrophin gene therapy program), in collaboration with Nationwide, aims to express micro-dystrophin – a smaller but still
functional version of dystrophin. A unique, engineered micro-dystrophin is used because naturally-occurring dystrophin is too large to fit in an
AAV vector. In the fourth quarter of 2017, an IND application for the micro-
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dystrophin gene therapy program was cleared by the FDA, and a Phase 1/2a clinical trial in individuals with DMD was initiated. On October 3,
2018, Nationwide presented positive results from the Phase 1/2a clinical trial in four individuals with DMD enrolled in the trial. In the fourth
quarter of 2018, we commenced a placebo-controlled trial with the goal to establish the functional benefits of micro-dystrophin expressions.
We plan to conduct a confirmatory trial using commercial supply of SRP-9001 by the end of 2019, pending regulatory feedback.
MYO-101. Myonexus, one of our strategic partners, develops gene therapy programs for various forms of LGMDs. The most advanced of
Myonexus’ product candidates, MYO-101, is designed to transfer a gene that codes for and restores beta-sarcoglycan protein with the goal of
restoring the dystrophin associated protein complex. It utilizes the AAVrh.74 vector system, the same vector used in the micro-dystrophin gene
therapy program we are developing with Nationwide. Myonexus commenced a Phase 1/2a trial of MYO-101 in the fourth quarter of 2018, and
on February 27, 2019, we announced positive two-month data from the first three-patient cohort dosed in the MYO-101 trial.
GALGT2. An additional gene therapy program for DMD and other muscular dystrophies, also in collaboration with Nationwide, aims to
express the enzyme GALGT2 from an AAV vector. In the fourth quarter of 2017, the IND application for GALGT2 was cleared by the FDA,
and a Phase 1/2a clinical trial testing GALGT2 for the treatment of DMD was initiated.
LYS-SAF 302. We are collaborating with Lysogene to develop a gene therapy, LYS-SAF302, to treat MPS IIIA. The first patient has been dosed
in AAVance, a global Phase 2/3 clinical trial of LYS-SAF302, aiming at evaluating the effectiveness of a one-time delivery of a AAVrh10 virus
carrying the N-SGSH gene.
Neutrophin 3 (CMT Type 1A). A gene therapy program in collaboration with Nationwide that aims to express NT-3 encoding the NTF3 gene to
treat CMT neuropathies, including CMT type 1A. A clinical trial to test NT-3 gene therapy is planned to commence dosing in 2019 for CMT
type 1A, pending regulatory feedback. We believe that the delivery of NT-3 gene may have applicability to other sub-types of CMT in addition
to other muscle-wasting diseases.
•
•
•
•
Our pipeline includes 25 programs in various stages of pre-clinical and clinical development, reflecting our aspiration to apply our multifaceted
approach and expertise in precision genetic medicine to make a profound difference in the lives of patients suffering from rare diseases.
We have developed proprietary state-of-the-art CMC and manufacturing capabilities that allow synthesis and purification of our product candidates
to support both clinical development as well as commercialization. Our current main focus in manufacturing is to continue scaling up production of our PMO-
based therapies and optimizing manufacturing for PPMO and gene therapy-based product candidates. We have entered into certain manufacturing and supply
arrangements with third-party suppliers which will in part utilize these capabilities to support production of certain of our product candidates and their
components. In 2017, we opened a facility in Andover, Massachusetts, which significantly enhances our research and development manufacturing
capabilities. However, we currently do not have internal large scale GMP manufacturing capabilities to produce our product and product candidates for
commercial and/or clinical use.
As of December 31, 2018, we had approximately $1,174.9 million of cash, cash equivalents and investments, consisting of $370.8 million of cash
and cash equivalents, $803.1 million of short-term investments and $1.0 million of long-term restricted investment. We believe that our balance of cash, cash
equivalents and investments is sufficient to fund our current operational plan for at least the next twelve months.
The likelihood of our long-term success must be considered in light of the expenses, difficulties and delays frequently encountered in the
development and commercialization of new pharmaceutical products, competitive factors in the marketplace and the complex regulatory environment in
which we operate. We may never achieve significant revenue or profitable operations.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K. The preparation of our consolidated financial statements in accordance with accounting principles generally
accepted in the U.S. requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses 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. We believe that the estimates and judgments upon which we rely are reasonable based upon historical experience and
information available to us at the time that we make these estimates and judgments. To the extent there are material differences between these estimates and
actual results, our consolidated financial statements will be affected. Although we believe that our judgments and
-62-
estimates are appropriate, actual results may differ from these estimates. We believe the following accounting policies to be most critical to the judgments and
estimates used in the preparation of our consolidated financial statements:
•
•
•
•
revenue recognition;
inventory;
stock-based compensation; and
income tax.
Revenue Recognition
To determine revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps: (1) identify the contracts
with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the
performance obligations in the contract; and (5) recognize revenue when or as we satisfy a performance obligation.
Variable Consideration
Product revenues are recorded at the net sales price (transaction price) which includes estimated reserves for variable consideration, such as
Medicaid rebates, governmental chargebacks, including Public Health Service (“PHS”) chargebacks, prompt payment discounts, co-pay assistance and
distribution fees. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable
(if no payment is required by us) or a current liability (if a payment is required by us). These reserves reflect our best estimates of the amount of consideration
to which we are entitled based on the terms of the contracts. Additional details relating to variable consideration follows:
•
•
•
•
•
Medicaid rebates relate to our estimated obligations to states under established reimbursement arrangements. Rebate reserves are recorded in
the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability which is
included in accrued expenses.
Governmental chargebacks, including PHS chargebacks, relate to our estimated obligations resulting from contractual commitments to sell
products to qualified healthcare providers at prices lower than the list prices that we charge to wholesalers. The wholesaler charges us for the
difference between what the wholesaler pays for the products and the ultimate selling price to the qualified healthcare providers. Chargeback
reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable.
Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider from the wholesaler, and we generally
issue credits for such amounts within a few weeks of receiving notification of resale from the wholesaler.
Prompt payment discounts relate to our estimated obligations for credits to be granted to a specialty pharmacy for remitting payment on its
purchases within established incentive periods. Reserves for prompt payment discounts are recorded in the same period the related revenue is
recognized, resulting in a reduction of product revenue and accounts receivable.
Co-pay assistance relates to financial assistance provided to qualified patients, whereby we may assist them with prescription drug co-payments
required by the patient’s insurance provider. Reserves for co-pay assistance are recorded in the same period the related revenue is recognized,
resulting in a reduction of product revenue and the establishment of a liability which is included in accrued expenses.
Distribution fees relate to fees paid to Customers in the distribution channel that provide us with inventory management, data and distribution
services and are generally accounted for as a reduction of revenue. To the extent that the services received are distinct from our sale of products
to the Customer, these payments are accounted for as selling, general and administrative expenses. Reserves for distribution fees result in an
increase in a liability if payments are required of us or a reduction of accounts receivable if no payments are required of us.
Please read Note 7, Accounts Receivable and Reserves for Product Sales to the consolidated financial statements included elsewhere in this Annual
Report on Form 10-K for a further discussion of revenue recognition.
Inventory Valuation
We periodically analyze our inventory levels, and write down inventory that has become obsolete, inventory that has a cost basis in excess of its
estimated net realizable value and inventory in excess of expected sales requirements as cost of sales. The determination of whether inventory costs will be
realizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of
inventory may be required.
-63-
Stock Compensation Expense
For stock awards with performance conditions, determining the appropriate amount to expense based on the anticipated achievement of
performance targets requires judgment, including forecasting the achievement of future financial targets. The estimate of expense is revised periodically based
on the probability of achieving the required performance targets and adjustments are made throughout the term as appropriate. The cumulative impact of any
revision is reflected in the period of change.
Please read Note 16, Stock-Based Compensation to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K
for a further discussion of stock-based compensation.
Income Tax
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained upon an examination.
The calculation of our tax liabilities resulting from uncertain tax positions can involve significant judgment. Further, the calculation may involve the
application of complex tax regulations in a foreign jurisdiction. Although we believe that we have adequately provided for tax liabilities resulting from
uncertain tax positions, the actual amounts paid, if any, could have a material impact on our results of operations. Interest and penalties associated with
uncertain tax positions are classified as a component of income tax expense.
Please read Note 2, Summary Of Significant Accounting Policies and Recent Accounting Pronouncements to the consolidated financial statements
included elsewhere in this Annual Report on Form 10-K for a further discussion of our critical accounting policies and estimates.
-64-
The following table sets forth selected consolidated statements of operations data for each of the periods indicated:
Revenues:
Product, net
Total revenues
Cost and expenses:
Cost of sales (excluding amortization of in-licensed rights)
Research and development
Selling, general and administrative
EXONDYS 51 settlement and license charges
Amortization of in-licensed rights
Total cost and expenses
Operating loss
Other (loss) income:
Interest expense and other, net
Gain from sale of Priority Review Voucher
Loss before income tax (benefit) expense
Income tax (benefit) expense
Net loss
Net loss per share — basic and diluted
Revenues:
Product, net
Total revenues
Cost and expenses:
Cost of sales (excluding amortization of in-licensed rights)
Research and development
Selling, general and administrative
EXONDYS 51 settlement and license charges
Amortization of in-licensed rights
Total cost and expenses
Operating loss
Other (loss) income:
Interest expense and other, net
Gain from sale of Priority Review Voucher
Loss before income tax expense
Income tax expense
Net loss
Net loss per share — basic and diluted
*
NM: not meaningful
For the Year Ended December 31
2018
2017
Change
Change
(in thousands, except per
share amounts)
$
%
$
301,034
301,034
$
154,584
154,584
$
146,450
146,450
95%
95%
34,193
401,843
207,761
—
865
644,662
(343,628)
(18,982)
—
(362,610)
(692)
(361,918)
$
7,353
166,707
122,682
28,427
1,053
326,222
(171,638)
(1,990)
125,000
(48,628)
2,060
(50,688)
$
26,840
235,136
85,079
(28,427)
(188)
318,440
(171,990)
(16,992)
(125,000)
(313,982)
(2,752)
(311,230)
365%
141%
69%
(100)%
(18)%
98%
100%
NM*
(100)%
NM*
(134)%
NM*
(5.46)
$
(0.86)
$
(4.60)
NM*
For the Year Ended December 31
2017
2016
Change
Change
(in thousands, except per
share amounts)
$
%
154,584
154,584
$
$
5,421
5,421
149,163
149,163
NM*
NM*
7,353
166,707
122,682
28,427
1,053
326,222
(171,638)
(1,990)
125,000
(48,628)
2,060
(50,688)
$
101
188,272
83,749
—
29
272,151
(266,730)
(535)
—
(267,265)
—
(267,265)
$
$
$
7,252
(21,565)
38,933
28,427
1,024
54,071
95,092
(1,455)
125,000
218,637
2,060
216,577
NM*
(11)%
46%
NM*
NM*
20%
(36)%
272%
NM*
(82)%
NM*
(81)%
(0.86)
$
(5.49)
$
4.63
(84)%
$
$
$
$
$
-65-
Revenues
Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which
reserves are established and which result from Medicaid rebates, governmental chargebacks, including PHS chargebacks, prompt pay discounts, co-pay
assistance and distribution fees. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of
accounts receivable (if no payments are required of us) or a current liability (if a payment is required of us). These reserves are based on estimates of the
amounts earned or to be claimed on the related sales. Our estimates take into consideration current contractual and statutory requirements. The amount of
variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable
that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately
received or paid may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net
product revenue and earnings in the period such variances become known.
Net product revenues for EXONDYS 51 for 2018 increased by $146.5 million compared with 2017. Net product revenues for EXONDYS 51 for
2017 increased by $149.2 million compared with 2016. The increases primarily reflect the continuing increase in demand for EXONDYS 51 in the U.S.
Cost of Sales
Our cost of sales relates to sales of EXONDYS 51 following its commercial launch in the U.S. Prior to receiving regulatory approval for
EXONDYS 51 by the FDA in September 2016, we expensed such manufacturing and material costs as research and development expenses. For EXONDYS
51 sold in 2017 and 2016, the majority of related manufacturing costs incurred had previously been expensed as research and development expenses, as such
costs were incurred prior to the FDA approval of EXONDYS 51. For EXONDYS 51 sold in 2018, only part of the related manufacturing costs incurred had
previously been expensed as research and development expenses. The following table summarizes the components of our cost of sales for the periods
indicated:
For the Year Ended December 31
2018
2017
Change
Change
Royalty payments to BioMarin
Inventory costs related to EXONDYS 51 sold
Overhead costs
Other inventory costs
Total cost of sales
$
$
(in thousands)
15,065 $
8,616
4,754
5,758
34,193 $
4,719 $
414
1,387
833
7,353 $
219%
%
$
10,346
8,202 NM*
3,367
4,925 NM*
26,840
243%
365%
Royalty payments to BioMarin
Overhead costs
Inventory costs related to EXONDYS 51 sold
Other inventory costs
Total cost of sales
*
NM: not meaningful
For the Year Ended December 31
2017
2016
Change
Change
(in thousands)
4,719 $
1,387
414
833
7,353 $
— $
29
26
46
101 $
$
%
4,719 NM*
1,358 NM*
388 NM*
787 NM*
7,252 NM*
$
$
The cost of sales for 2018 increased $26.8 million compared with 2017. The increase was primarily driven by the following:
•
•
•
$10.3 million increase in royalty payments to BioMarin primarily as a result of the increasing demand for EXONDYS 51 during 2018;
$8.2 million and $3.4 million increases in inventory costs related to EXONDYS 51 sold and overhead costs, respectively, reflect increasing
demand for EXONDYS 51; and
$4.9 million increase in other inventory costs as a result of the write-off of certain batches of EXONDYS 51 not meeting our quality
specifications.
-66-
The cost of sales for 2017 increased $7.3 million compared with 2016. The increase was primarily driven by the following:
•
•
$4.7 million increase in royalty payments to BioMarin as a result of the execution of the settlement and license agreements with BioMarin in
July 2017 as well as increasing demand for EXONDYS 51 during 2017; and
$1.4 million, $0.4 million and $0.8 million increases in overhead costs, inventory costs related to EXONDYS 51 sold, and other inventory
costs, respectively, reflect increasing demand for EXONDYS 51.
If product related costs had not previously been expensed as research and development expenses prior to receiving FDA approval, the incremental
inventory costs related to EXONDYS 51 sold in 2018, 2017 and 2016 would have been approximately $12.6 million, $8.6 million and $0.5 million,
respectively.
Research and Development Expenses
Research and development expenses consist of costs associated with research activities as well as costs associated with our product development
efforts, conducting pre-clinical trials, clinical trials and manufacturing activities. Direct research and development expenses associated with our programs
include clinical trial site costs, clinical manufacturing costs, costs incurred for consultants, up-front fees and milestones paid to third parties in connection
with technologies that have not reached technological feasibility and do not have an alternative future use, and other external services, such as data
management and statistical analysis support, and materials and supplies used in support of clinical programs. Indirect costs of our clinical programs include
salaries, stock-based compensation and allocation of our facility costs.
Research and development expenses represent a substantial percentage of our total operating expenses. 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, a significant portion of our research and
development expenses are not tracked on a project-by-project basis, as the costs may benefit multiple projects.
The following table summarizes our research and development expenses by project for each of the periods indicated:
Up-front and milestone payments
Eteplirsen (exon 51)
Casimersen (exon 45)
Golodirsen (exon 53)
PPMO platform
Gene therapies
Summit Utrophin cost-sharing
Other projects
Internal research and development expenses
Total research and development expenses
Eteplirsen (exon 51)
Up-front and milestone payments
Golodirsen (exon 53)
Casimersen (exon 45)
PPMO platform
Other projects
Internal research and development expenses
Total research and development expenses
*
NM: not meaningful
For the Year Ended December 31
2017
2018
(in thousands)
142,413
32,056
26,758
25,875
23,911
8,880
8,599
2,135
131,216
401,843
$
$
22,000
40,161
19,867
19,626
8,145
—
—
1,200
55,708
166,707
For the Year Ended December 31
2016
2017
(in thousands)
40,161
22,000
19,626
19,867
8,145
1,200
55,708
166,707
$
$
65,454
48,035
11,847
9,562
570
678
52,126
188,272
$
$
$
$
$
$
$
$
Change
$
120,413
(8,105)
6,891
6,249
15,766
8,880
8,599
935
75,508
235,136
Change
$
(25,293)
(26,035)
7,779
10,305
7,575
522
3,582
(21,565)
Change
%
NM*
(20)%
35%
32%
194%
NM*
NM*
78%
136%
141%
Change
%
(39)%
(54)%
66%
108%
NM*
77%
7%
(11)%
-67-
The following table summarizes our research and development expenses by category for each of the periods indicated:
Up-front and milestone payments
Clinical and manufacturing expenses
Compensation and other personnel expenses
Pre-clinical expenses
Professional services
Facility-related expenses
Stock-based compensation
Collaboration expense
Restructuring expenses
Other
Total research and development expenses
Clinical and manufacturing expenses
Compensation and other personnel expenses
Up-front and milestone payments
Professional services
Pre-clinical expenses
Facility-related expenses
Stock-based compensation
Restructuring expenses
Research and other
Total research and development expenses
*
NM: not meaningful
For the Year Ended December 31
2018
2017
Change
Change
(in thousands)
142,413
111,101
49,701
22,992
17,926
16,555
14,214
8,599
—
18,342
401,843
$
$
22,000
75,728
25,607
9,407
10,132
8,940
8,542
—
188
6,163
166,707
For the Year Ended December 31
2017
2016
(in thousands)
75,728
25,607
22,000
10,132
9,407
8,940
8,542
188
6,163
166,707
$
$
82,077
21,322
48,035
7,537
3,415
8,095
9,499
2,013
6,279
188,272
$
120,413
35,373
24,094
13,585
7,794
7,615
5,672
8,599
(188)
12,179
235,136
%
NM*
47%
94%
144%
77%
85%
66%
NM*
(100)%
198%
141%
Change
Change
$
%
(6,349)
4,285
(26,035)
2,595
5,992
845
(957)
(1,825)
(116)
(21,565)
(8)%
20%
(54)%
34%
175%
10%
(10)%
(91)%
(2)%
(11)%
$
$
$
$
$
$
$
$
Research and development expenses for 2018 increased by $235.1 million, or 141%, compared with 2017. The increase was primarily driven by
the following:
•
•
•
•
•
•
$120.4 million increase in up-front and milestone payments, primarily consisting of (1) $85.0 million up-front and milestone payments to
Myonexus as a result of the execution of a warrant agreement in May 2018 as well as certain development milestones being achieved or
becoming probable of being achieved, (2) $44.8 million up-front and milestone payments to Lysogene as a result of the execution of a
collaboration and license agreement in October 2018 as well as certain development milestones becoming probable of being achieved, and (3)
$8.0 million related to the purchase of a license to develop, manufacture and commercialize a pre-clinical Pompe product candidate under a
license agreement with Lacerta in August 2018, partially offset by a $22.0 million payment in the prior year to Summit as a result of achieving
the milestone of the last patient being dosed in the safety arm cohort to the PhaseOut DMD study;
$35.4 million increase in clinical and manufacturing expenses primarily due to increased patient enrollment in our ongoing ESSENCE trial as
well as a ramp-up of manufacturing activities for golodirsen, our gene therapy programs, and our PPMO platform. These increases were
partially offset by a ramp-down of clinical trials in eteplirsen primarily because the PROMOVI trial has been fully enrolled;
$24.1 million and $7.6 million increases in compensation and other personnel expenses and facility-related expenses, respectively, primarily
due to a net increase in headcount;
$13.6 million increase in pre-clinical expenses primarily due to the continuing ramp-up of toxicology studies in our PPMO platform;
$7.8 million increase in professional services primarily due to continuing accelerated company growth as a result of expansion of our research
and development pipeline;
$5.7 million increase in stock-based compensation expense primarily driven by increases in headcount and stock price;
-68-
•
•
following:
•
•
•
•
•
•
$8.6 million increase in collaboration expense driven by collaboration cost sharing with Summit on its Utrophin platform; and
$12.2 million increase in research and other, primarily consisting of (1) $4.0 million increase in sponsored research with institutions such as
Duke University and Nationwide, (2) $3.8 million increase in loss due to impairment of certain patents, and (3) $2.9 million increase in lab
supplies as a result increase in headcount.
Research and development expenses for 2017 decreased by $21.6 million, or 11%, compared with 2016. The increase was primarily driven by the
$6.3 million decrease in clinical and manufacturing expenses primarily because of the capitalization of inventory following the approval of
EXONDYS 51 by the FDA partially offset by increased patient enrollment in our on-going late stage clinical trials;
$26.0 million decrease in up-front and milestone payments. In 2017, we made a $22.0 million payment to Summit as a result of achieving the
milestone of the last patient being dosed in the safety arm cohort to the PhaseOut DMD study. In 2016, we made $40.0 million and $7.0 million
up-front payments to Summit and UWA, respectively, as a result of the execution of their respective license agreements;
$4.3 million increase in compensation and other personnel expenses as a result of an increase in headcount;
$2.6 million increase in professional fee due to accelerated company growth as a result of expansion of our research and development pipeline;
$6.0 million increase in pre-clinical expenses as a result of a ramp-up of toxicology studies in our PPMO platform and other follow-on exons;
and
$1.8 million decrease in restructuring expenses as a majority of activities of the restructuring plans implemented in 2016 were completed prior
to 2017.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of salaries, benefits, stock-based compensation and related costs for personnel in our
executive, finance, legal, information technology, business development, human resources, commercial and other general and administrative functions. Other
general and administrative expenses include an allocation of our facility costs and professional fees for legal, consulting and accounting services.
-69-
The following table summarizes our selling, general and administrative expenses by category for each of the periods indicated:
Professional services
Compensation and other personnel expenses
Stock-based compensation
Facility-related expenses
Former CEO severance expense
Restructuring expenses
Other
Total selling, general and administrative expenses
Professional services
Compensation and other personnel expenses
Stock-based compensation
Facility-related expenses
Former CEO severance expense
Restructuring expenses
Other
Total selling, general and administrative expenses
*
NM: not meaningful
For the Year Ended December 31
2018
2017
Change
Change
(in thousands)
$
%
$
$
$
$
$
78,856
72,042
35,913
10,729
—
(2,222)
12,443
207,761
$
44,652
36,956
19,848
5,828
3,537
2,832
9,029
122,682
For the Year Ended December 31
2017
2016
(in thousands)
44,652
36,956
19,848
5,828
3,537
2,832
9,029
122,682
$
$
19,372
29,807
20,463
4,669
—
2,548
6,890
83,749
$
$
$
$
34,204
35,086
16,065
4,901
(3,537)
(5,054)
3,414
85,079
77%
95%
81%
84%
(100)%
(178)%
38%
69%
Change
Change
$
%
25,280
7,149
(615)
1,159
3,537
284
2,139
38,933
130%
24%
(3)%
25%
NM*
11%
31%
46%
following:
•
•
•
•
•
following:
•
•
•
Selling, general and administrative expenses for 2018 increased by $85.1 million, or 69%, compared with 2017. This was primarily driven by the
$34.2 million increase in professional services primarily due to continuing global expansion;
$35.1 million and $4.9 million increases in compensation and other personnel expenses and facility-related expenses, respectively, primarily
due to an increase in headcount;
$16.1 million increase in stock-based compensation primarily due to increases in headcount and stock price, the achievement of a milestone
related to the September 2016 restricted stock awards with performance conditions as well as the impact of revised forfeiture rate assumption
for officers and members of our Board of Directors (beginning on January 1, 2018, based on recent trending of employee turnover data, we
began to apply different forfeiture rates to non-officer employees and directors and officers);
$3.5 million decrease in severance expense as a result of the termination of our former CEO in June 2017; and
$5.1 million decrease in restructuring expenses primarily due to the relief of cease-use liabilities as a result of the termination of the rental
agreement for our Corvallis facility.
Selling, general and administrative expenses for 2017 increased by $38.9 million, or 46%, compared with 2016. This was primarily driven by the
$25.3 million increase in professional services driven by increased legal fees because of on-going litigations and global expansion;
$7.1 million and $1.2 million increases in compensation and other personnel expenses and facility-related expenses, respectively, primarily
reflect an increase in headcount; and
$3.5 million increase in severance expense due to the resignation of our former CEO.
-70-
EXONDYS 51 Settlement and License Charges
As a result of the execution of the settlement and license agreements with BioMarin in July 2017, we recognized EXONDYS 51 litigation and
license charges of $28.4 million during 2017.
Amortization of In-licensed Rights
Amortization of in-license rights relate to the agreements we entered into with BioMarin and UWA in July 2017 and April 2011, respectively. We
recorded an in-licensed right asset of approximately $6.6 million as a result of the settlement and license agreements with BioMarin. Additionally, following
the first sale of EXONDYS 51 in September 2016, we recorded an in-licensed right asset of $1.0 million related to the license agreement with UWA. Both in-
licensed rights are being amortized on a straight-line basis over the life of the patent from the first commercial sale of EXONDYS 51. For the years ended
December 31, 2018, 2017 and 2016, we recorded amortization of in-licensed rights of approximately $0.9 million, $1.1 million and less than $0.1 million,
respectively.
Interest expense and other, net
Interest expense and other, net, primarily consists of interest income on our cash, cash equivalents and investments, interest expense and rental
income and loss. Our cash equivalents and investments consist of money market funds, commercial paper, government and government agency debt securities
and certificates of deposit. Interest expense includes interest accrued on our convertible notes, term loan, revolving line of credit and a mortgage loan related
to our Corvallis, Oregon property. Rental income and loss is from leasing excess space in some of our facilities.
Interest expense and other, net for 2018 increased by $17.0 million compared with 2017. Interest expense and other, net for 2017 increased by $1.5
million compared with 2016. For both 2018 and 2017, the increase was primarily driven by an increase in interest expense incurred in connection with the
$570.0 million convertible debt offering partially offset by interest income from higher balances of cash, cash equivalents and investments.
Gain from Sale of Priority Review Voucher
In February 2017, we entered into an agreement with Gilead Sciences, Inc. (“Gilead”) to sell our Rare Pediatric Disease Priority Review Voucher
(“PRV”). We received the PRV when EXONDYS 51 was approved by the FDA for the treatment of patients with DMD amenable to exon 51 skipping.
Following the early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in March
2017, we completed our sale of the PRV to a subsidiary of Gilead. Pursuant to the agreement, the subsidiary of Gilead paid us $125.0 million, which was
recorded as a gain from sale of the PRV as it did not have a carrying value at the time of the sale.
Income tax (benefit) expense
Income tax benefit for 2018 was approximately $0.7 million, which primarily reflected adjustments to estimated state income taxes in 2017.
Income tax expense for 2017 was approximately $2.1 million, which related to the alternative minimum tax related to the gain from the sale of the PRV and
estimated state income taxes. There was no income tax expense in 2016.
-71-
Liquidity and Capital Resources
The following table summarizes our financial condition for each of the periods indicated:
Financial assets:
Cash and cash equivalents
Short-term investments
Long-term investments
Restricted cash and investments
Total cash, cash equivalents and
investments
Borrowings:
Long-term debt
Convertible debt
Total borrowings
Working capital
Current assets
Current liabilities
Total working capital
As of
December 31,
2018
As of
December 31,
2017
(in thousands)
Change
$
Change
%
$
370,829
803,083
—
1,001
$
599,691
479,369
9,980
784
(228,862)
323,714
(9,980)
217
(38)%
68%
(100)%
28%
1,174,913
$
1,089,824
$
85,089
8%
—
420,554
420,554
1,426,183
173,690
1,252,493
$
$
$
$
30,410
400,641
431,051
1,228,644
88,332
1,140,312
$
$
$
$
(30,410)
19,913
(10,497)
197,539
85,358
112,181
(100)%
5%
(2)%
16%
97%
10%
$
$
$
$
$
$
For the year ended December 31, 2018, our principal source of liquidity was from debt and equity financings and product sales from EXONDYS
51. For the year ended December 31, 2017, our principal source of liquidity was from debt and equity financings, sale of the PRV and product sales from
EXONDYS 51. Our principal uses of cash are research and development expenses, selling, general and administrative expenses, investments, capital
expenditures, business development transactions and other working capital requirements.
Our future expenditures and capital requirements may be substantial and will depend on many factors, including but not limited to the following:
our ability to continue to generate revenues from sales of EXONDYS 51 and potential future products;
the timing and costs associated with our global expansion;
the timing and costs of building out our manufacturing capabilities;
the timing of advanced payments related to our future inventory commitments and manufacturing obligations;
the timing and costs associated with our clinical trials and pre-clinical trials;
the attainment of milestones and our obligations to make milestone payments to Myonexus, BioMarin, Lysogene, Lacerta, Nationwide, UWA
and other institutions;
repayment of outstanding debt; 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 to seek additional financings primarily from, but not limited to, the sale and issuance of equity and debt securities, the licensing or sale of our
technologies or additional government contracts. We cannot provide assurances 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 unable to 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 we issue additional equity securities, our existing stockholders could experience substantial
dilution.
-72-
Cash Flows
The following table summarizes our cash flow activity for each of the periods indicated:
For the Year Ended December 31
2018
2017
(in thousands)
Change
$
Change
%
(388,660)
(370,488)
530,150
(228,998)
$
$
(231,996)
(178,815)
888,082
477,271
$
$
(156,664)
(191,673)
(357,932)
(706,269)
68%
107%
(40)%
(148)%
For the Year Ended December 31
2017
2016
(in thousands)
Change
$
Change
%
(231,996)
(178,815)
888,082
477,271
$
$
(245,820)
(90,193)
378,129
42,116
$
$
13,824
(88,622)
509,953
435,155
(6)%
98%
135%
NM*
$
$
$
$
Cash provided by (used in)
Operating activities
Investing activities
Financing activities
(Decrease) increase in cash and cash equivalents
Cash provided by (used in)
Operating activities
Investing activities
Financing activities
Increase in cash and cash equivalents
*
NM: not meaningful
Operating Activities.
Cash used in operating activities increased by $156.7 million for 2018 compared with 2017, primarily due to the following:
$186.2 million increase in net loss (excluding the gain from sale of PRV in 2017) primarily driven by increases in research and development
expense and selling, general and administrative expense partially offset by an increase in net product revenues for EXONDYS 51; and
$10.4 million increase in unfavorable change in operating assets and liabilities.
The increases were partially offset by:
$37.7 million increase in non-cash adjustments.
Cash used in operating activities decreased by $13.8 million for 2017 compared with 2016 primarily due to the following:
$91.6 million decrease in net loss (excluding the gain from sale of PRV) which was driven by net product revenues for EXONDYS 51 and
decreased research and development expenses primarily due to capitalization of inventory following the approval of EXONDYS 51 partially
offset by increased selling, general and administrative expenses; and
$3.9 million increase in non-cash adjustments.
The increases were partially offset by:
unfavorable changes of $81.7 million in operating assets and liabilities primarily related to increases in accounts receivables and inventory as
we launched EXONDYS 51.
•
•
•
•
•
•
Investing Activities.
Cash used in investing activities increased by $191.7 million for 2018 compared with 2017, primarily due to the following:
•
•
•
•
$582.1 million increase in purchase of available-for-sale securities;
$49.2 million increase in purchase of property and equipment;
$125.0 million decrease in proceeds from sales of the PRV; and
$10.7 million decrease in proceeds from maturity of a restricted investment.
-73-
The increases were partially offset by:
$569.6 million increase in proceeds from maturity of available-for-sale securities; and
$6.0 million decrease in purchase of intangible assets.
Cash used in investing activities increased by $88.6 million for 2017 compared with 2016, primarily due to the following:
$394.1 million increase in purchase of available-for-sale securities;
$6.7 million increase in purchase of property and equipment; and
$7.7 million increase in purchase of intangible assets.
The increases were partially offset by:
$184.1 million increase in proceeds from maturity of available-for-sale securities;
$125.0 million from sales of the PRV;
$10.7 million increase in proceeds from maturity of a restricted investment.
•
•
•
•
•
•
•
•
Financing Activities.
Cash provided by financing activities decreased by $357.9 million for 2018 compared with 2017, primarily driven by the following:
•
•
•
•
•
•
•
•
•
•
$388.7 million decrease in proceeds from debt financings; and
$214.6 million increase in repayment of outstanding debts.
The decreases were partially offset by:
$159.5 million increase in proceeds from sales of common stock;
$50.9 million decrease in purchase of capped call options; and
$35.0 million increase in proceeds from the exercise of options and our employee stock purchase program.
Cash provided by financing activities increased by $510.0 million for 2017 compared with 2016, primarily driven by the following:
$624.6 million increase in proceeds from debt financings.
The increase was partially offset by:
$50.9 million increase in purchase of capped call options;
$47.2 million increase in repayment of outstanding debts;
$10.8 million decrease in proceeds from sales of common stock; and
$5.7 million decrease in proceeds from the exercise of options and our employee stock purchase program.
Off-Balance Sheet Arrangements
During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements
or for another contractually narrow or limited purpose.
-74-
Contractual Payment Obligations
In our continuing operations, we have entered into long-term contractual arrangements from time to time for our facilities, the provision of goods
and services, and issuance of debt securities, among others. The following table presents contractual obligations arising from these arrangements as of
December 31, 2018:
Total
Less Than
1 Year
Payment Due by Period
1 - 3 Years
3 - 5 Years
(in thousands)
More than
5 Years
Convertible debt (1)
Lease obligations
Manufacturing obligations (2)
Total contractual obligations and contingencies
$
$
620,231
77,720
458,352
1,156,303
$
$
8,550
11,588
182,352
202,490
$
$
17,100
23,953
68,000
109,053
$
$
17,100
21,655
84,000
122,755
$
$
577,481
20,524
124,000
722,005
(1)
(2)
Interest is included.
Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding or subject to cancellation fees and that
specify all significant terms. Purchase obligations relate primarily to our commercialization of EXONDYS 51 and clinical programs for DMD and
gene therapy programs.
Milestone Obligations
For product candidates that are currently in various research and development stages, we may be obligated to make up to $378.8 million of future
development, up-front royalty and sales milestone payments associated with our collaboration and license agreements. Payments under these agreements
generally become due and payable upon achievement of certain development, regulatory or sales milestones. Because the achievement of these milestones is
not probable and payment is not required as of December 31, 2018, such contingencies have not been recorded in our consolidated financial statements.
Amounts related to contingent milestone payments are not yet considered contractual obligations as they are contingent on the successful achievement of
certain development, regulatory approval and sales milestones.
Other Funding Commitments
We have several on-going clinical trials in various stages. Our most significant clinical trial expenditures are to CROs. The CRO contracts are
generally cancellable at our option. As of December 31, 2018, we have approximately $71.6 million in cancellable future commitments based on existing
CRO contracts.
Recent Accounting Pronouncements
Please read Note 2, Summary of Significant Accounting Policies and Recent Accounting Pronouncements to the consolidated financial statements
included 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 36 months or less. Our cash is deposited in and invested
through highly rated financial institutions in North America. As of December 31, 2018, we had $1,174.9 million of cash, cash equivalents and investments,
comprised of $370.8 million of cash and cash equivalents, $803.1 million short-term investments and $1.0 million of restricted investment. The Company
only holds debt securities classified as available-for-sale. The fair value of cash equivalents and short-term investments is subject to change as a result of
potential changes in market interest rates. The potential change in fair value for interest rate sensitive instruments has been assessed on a hypothetical 10 basis
point adverse movement across all maturities. For each of the years ended December 31, 2018 and 2017, we estimate that such hypothetical adverse 10 basis
point movement would result in a hypothetical loss in fair value of approximately $0.1 million and $0.3 million, respectively, to our interest rate sensitive
instruments.
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
item by reference.
-75-
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
We 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
participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and
procedures pursuant to paragraph (b) of Rule 13a-15 and 15d-15 under the Exchange Act. Based on that review, the principal executive officer and principal
financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the
reports we file or 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) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate
to allow timely decisions regarding required disclosure.
We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control procedure, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all
control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been
detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error
or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of
the control. We considered these limitations during the development of our disclosure controls and procedures, and will continually reevaluate them to ensure they
provide reasonable assurance that such controls and procedures are effective.
Internal Control over Financial Reporting
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for our Company, as such term is
defined 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
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and
procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our
management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could
have 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 any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in its 2013 Internal Control Integrated Framework.
Based on this assessment, management has concluded that, as of December 31, 2018, our internal control over financial reporting was effective
based on those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by KPMG LLP, an independent
registered public accounting firm, as stated in their report which appears in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There have not been material changes in our internal control over financial reporting as defined in Rules 13a–15(f) and 15d–15(f) under the
Exchange Act for the quarter ended December 31, 2018 that our certifying officers concluded materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
-76-
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Sarepta Therapeutics, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Sarepta Therapeutics, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2018, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive loss, stockholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial
statements), and our report dated February 28, 2019 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Cambridge, Massachusetts
February 28, 2019
(signed) KPMG LLP
-77-
Item 9B. Other Information.
None.
-78-
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information regarding our directors and executive officers required by this item will be included in either an amendment to this Annual Report
on Form 10-K or in our definitive proxy statement for our 2018 annual meeting of stockholders to be filed with the Commission not later than 120 days after
the end of the fiscal year covered by this Annual Report on Form 10-K and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this item will be included in either an amendment to this Annual Report on Form 10-K or in our definitive proxy
statement for our 2019 annual meeting of stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this
Annual 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 proxy
statement for our 2019 annual meeting of stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this
Annual 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 proxy
statement for our 2019 annual meeting of stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this
Annual 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 proxy
statement for our 2019 annual meeting of stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K and is incorporated herein by reference.
-79-
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1) Financial Statements
PART IV
The following consolidated financial statements of the Company and the Report of KPMG LLP, Independent Registered Public Accounting Firm,
are included in Part IV of this Annual Report on Form 10-K on the pages indicated:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
F-2
F-3
F-4
F-5
F-6
F-7
All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes
thereto.
(3) Exhibits
The 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:
Exhibit
Number
2.1
Description
Agreement and Plan of Merger dated June 6, 2013 between
Sarepta Therapeutics, Inc., a Delaware corporation, and
Sarepta Therapeutics, Inc., an Oregon corporation.
Incorporated by Reference to Filings Indicated
Form
8-K12B
File No.
001-14895
Exhibit
2.1
Filing
Date
6/6/13
Provided
Herewith
2.2
Warrant to Purchase Common Stock of Myonexus
10-Q
001-14895
2.1
8/8/18
Therapeutics, Inc., issued by Myonexus Therapeutics, Inc. to
Sarepta Therapeutics, Inc., dated as of May 3, 2018.
Amended and Restated Certificate of Incorporation.
8-K12B
001-14895
Amendment to the Amended and Restated Certificate of
8-K
001-14895
3.1
3.2
3.3
4.1
4.2
Incorporation.
Amended and Restated Bylaws.
Form of Specimen Certificate for Common Stock.
Form of Common Stock Purchase Warrant, issued on
January 30, 2009.
4.3
Form of Common Stock Purchase Warrant, issued on
August 25, 2009.
4.4
Indenture, dated as of November 14, 2017, by and between
Sarepta Therapeutics, Inc. and U. S. Bank National
Association (including the form of the 1.50% Convertible
Senior Note due 2024).
3.1
3.1
3.1
4.1
4.4
4.1
4.1
6/6/13
6/30/15
9/25/14
8/8/13
1/30/09
8/24/09
11/14/17
8-K
10-Q
8-K
8-K
8-K
001-14895
001-14895
001-14895
001-14895
001-14895
4.5
Form of Note (included in Exhibit 4.1)
8-K
001-14895
4.1
11/14/17
-80-
Exhibit
Number
Description
10.1†
Amended and Restated Executive Employment Agreement
dated April 19, 2013 by and between Sarepta Therapeutics,
Inc. and Christopher Garabedian.
10.2†
Executive Employment Agreement dated March 29, 2011 by
and between AVI BioPharma, Inc. and Peter S. Linsley,
Ph.D.
10.3†
Executive Employment Agreement dated June 13, 2011 by and
between AVI BioPharma, Inc. and Edward Kaye, M.D.
10.4†
Stand Alone Stock Option Grant between the Registrant and
Peter Linsley dated May 16, 2011.
10.5†
Stand Alone Stock Option Grant between the Registrant and
Edward Kaye dated June 20, 2011.
Incorporated by Reference to Filings Indicated
Form
10-Q
File No.
Exhibit
001-14895
10.2
Provided
Herewith
Filing
Date
5/9/13
10-Q
001-14895
10.4
5/10/11
10-Q
001-14895
10.4
8/8/11
S-8
S-8
333-175031
333-175031
4.8
4.9
6/20/11
6/20/11
10.6†
10.7†
AVI BioPharma, Inc. 2002 Equity Incentive Plan.
Schedule 14A
001-14895 Appendix A
4/11/02
Sarepta Therapeutics, Inc. Amended and Restated 2011 Equity
8-K
001-14895
10.1
7/1/16
Incentive Plan.
10.8†
Form of Stock Option Award Agreement under the Amended
10-K
001-14895
10.13
2/28/17
and Restated 2011 Equity Incentive Plan.
10.9†
Form of Restricted Stock Agreement under the Amended and
10-K
001-14895
10.14
2/28/17
Restated 2011 Equity Incentive Plan.
10.10†
AVI BioPharma, Inc. Non-Employee Director Compensation
8-K
001-14895
10.85
10/1/10
Policy.
10.11†
Form of Indemnification Agreement.
10.12†
Form of Restricted Stock Unit Award Agreement under 2011
Equity Incentive Plan.
8-K
10-K
001-14895
001-14895
10.86
10.17
10/8/10
2/28/17
10.13†
Form of Stock Appreciate Right Award Agreement under the
10-K
001-14895
10.18
2/28/17
2011 Equity Incentive Plan.
10.14†
Form of Senior Vice President Change in Control and
10-K
001-14895
10.19
3/15/13
Severance Agreement.
10.15†
Form of Vice President Change in Control and Severance
10-K
001-14895
10.20
3/15/13
Agreement.
10.16†
Sarepta Therapeutics, Inc. Amended and Restated 2013
8-K
001-14895
10.2
7/1/16
Employee Stock Purchase Plan.
10.17†
Executive Employment Agreement with Jayant Aphale, Ph.D.
10.18†
Offer Letter dated October 23, 2013 by and between Sarepta
Therapeutics, Inc. and Sandesh Mahatme.
10-Q
10-K
001-14895
10.1
001-14895
10.24
8/8/13
3/3/14
10.19†
Offer Letter dated October 23, 2012 by and between Sarepta
10-K
001-14895
10.25
3/3/14
Therapeutics, Inc. and David Tyronne Howton.
10.20†
Sarepta Therapeutics, Inc. 2014 Employment Commencement
S-8
001-14895
4.4
2/25/16
Incentive Plan, as amended.
-81-
Exhibit
Number
10.21
10.22*
Description
Form of Stock Option Award Agreement under 2014
Employment Commencement Incentive Plan
Amended and Restated Exclusive License Agreement by and
among The University of Western Australia, Sarepta
Therapeutics, Inc., and Sarepta International CV dated
April 10, 2013.
Incorporated by Reference to Filings Indicated
Form
10-K
File No.
Exhibit
001-14895
10.28
Provided
Herewith
Filing
Date
3/3/14
10-Q
001-14895
10.1
5/9/13
10.23*
First Amendment to License Agreement by and among The
10-Q
001-14895
10.1
8/9/16
University of Western Australia, Sarepta Therapeutics, Inc.,
and Sarepta International CV dated June 19, 2016.
10.24
Commercial Lease between Research Way Investments,
SB-2
333-20513
10.9
1/28/97
Landlord, and Antivirals, Inc., Tenant, effective June 15,
1992.
10.25
Lease Extension and Modification Agreement dated
10-K
001-14895
10.53
3/15/11
September 1, 1996, by and between Research Way
Investments and Antivirals, Inc.
10.26
Second Lease Extension and Modification Agreement dated
10-Q
001-14895
10.55
8/9/06
January 24, 2006 by and between Research Way
Investments and AVI BioPharma, Inc.
10.27
Real Property Purchase Agreement by and between WKL
10-Q
001-14895
10.61
8/9/07
Investments Airport, LLC and AVI BioPharma, Inc., dated
March 1, 2007, as amended.
10.28
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
10.29
Purchase and Sale Agreement dated May 22, 2014 between
10-Q
001-14895
10.1
8/7/14
Sarepta Therapeutics, Inc. and Eisai Inc.
10.30†
Employment Agreement dated September 20, 2016 between
10-Q
001-14895
10.1
11/7/16
Sarepta Therapeutics, Inc. and Edward M. Kaye, M.D.
10.31
Credit and Security Agreement between Sarepta Therapeutics,
10-Q
001-14895
10.1
8/6/15
Inc. and MidCap Financial dated June 26, 2015
10.32
Pledge Agreement between Sarepta Therapeutics, Inc. and
10-Q
001-14895
10.2
8/6/15
MidCap Financial dated June 26, 2015
10.33†
Separation and Consulting Agreement and General Release
between Sarepta Therapeutics, Inc. and Christopher
Garabedian entered into on June 30, 2015
10-Q
001-14895
10.3
8/6/15
10.34†
Amendment No. 1 to the Sarepta Therapeutics, Inc. Amended
8-K
001-14895
10.1
6/30/15
and Restated 2011 Equity Incentive Plan
10.35*
License and Collaboration Agreement between Summit
10-Q
001-14895
10.2
11/7/16
(Oxford) Ltd and Sarepta Therapeutics, Inc. dated October
3, 2016
10.36
Asset Purchase Agreement dated February 20, 2017 by and
between Sarepta Therapeutics Inc. and Gilead Sciences,
Inc.
-82-
10-Q
001-14895
10.1
5/4/17
Exhibit
Number
Description
10.37†
Offer Letter dated December 5, 2012 by and between Sarepta
Therapeutics, Inc. and Shamim Ruff
Incorporated by Reference to Filings Indicated
Form
10-Q
File No.
Exhibit
001-14895
10.2
Provided
Herewith
Filing
Date
5/4/17
10.38†
Offer Letter dated December 3, 2012 by and between Sarepta
10-Q
001-14895
10.3
5/4/17
Therapeutics, Inc. and Alexander “Bo” Cumbo
10.39†
Offer Letter dated February 2, 2017 by and between Sarepta
Therapeutics, Inc. and Dr. Catherine Stehman-Breen
10-Q
001-14895
10.4
5/4/17
10.40†
Form of Severance Letter Agreement entered between Sarepta
10-K
001-14895
10.58
3/1/18
Therapeutics, Inc. and each of Sandesh Mahatme,
Alexander “Bo” Cumbo, David Tyronne Howton, Jr. and
Shamim Ruff
10.41†
10.42†
Employment Agreement, dated as of June 26, 2017, between
Sarepta Therapeutics, Inc. and Douglas S. Ingram
Change in Control and Severance Agreement by and between
Douglas S. Ingram and Sarepta Therapeutics, Inc., effective
June 26, 2017
10.43†
Amendment No. 1 to the Sarepta Therapeutics, Inc. 2014
Employment Commencement Incentive Plan
10.44†
Restricted Stock Agreement under the 2014 Employment
Commencement Incentive Plan
10.45†
Performance Stock Option Award Agreement under the 2014
Employment Commencement Incentive Plan
8-K
8-K
8-K
8-K
8-K
001-14895
10.1
6/28/17
001-14895
10.2
6/28/17
001-14895
10.3
6/28/17
001-14895
10.4
6/28/17
001-14895
10.5
6/28/17
10.46
Amendment No. 1 to the License and Collaboration
10-Q
001-14895
10.1
8/3/17
Agreement between Summit (Oxford) Ltd. and Sarepta
Therapeutics Inc. dated June 13, 2017
10.47*
Settlement Agreement between Sarepta Therapeutics, Inc.,
10-Q
001-14895
10.7
8/3/17
Sarepta International C.V. and The University of Western
Australia on the one hand, and BioMarin Leiden Holding
BV, BioMarin Nederlands BV and BioMarin Technologies
BV on the other hand dated July 17, 2017
10.48*
License Agreement between Sarepta Therapeutics, Inc. and
Sarepta International C.V. on the one hand and BioMarin
Leiden Holding BV, BioMarin Nederlands BV and
BioMarin Technologies BV on the other hand dated July
17, 2017
10-Q
001-14895
10.8
8/3/17
10.49
Amended and Restated Credit and Security Agreement
10-Q
001-14895
10.9
8/3/17
between Sarepta Therapeutics, Inc. and MidCap Financial
Trust dated July 18, 2017
10.50
Revolving Credit and Security Agreement between Sarepta
10-Q
001-14895
10.10
8/3/17
Therapeutics, Inc. and MidCap Financial Trust dated July
18, 2017
10.51
Amendment to the Pledge Agreement related to the Amended
and Restated Credit and Security Agreement between
Sarepta Therapeutics, Inc. and MidCap Financial Trust
dated July 18, 2017
-83-
10-Q
001-14895
10.11
8/3/17
Exhibit
Number
10.52
Description
Pledge Agreement related to the Revolving Credit Agreement
between Sarepta Therapeutics, Inc. and MidCap Financial
Trust dated July 18, 2017
Incorporated by Reference to Filings Indicated
Form
10-Q
File No.
Exhibit
001-14895
10.12
Provided
Herewith
Filing
Date
8/3/17
10.53
Consulting Agreement dated August 17, 2017 by and between
Sarepta Therapeutics, Inc. and Dr. Edward M. Kaye
10-Q
001-14895
10.1
11/1/17
10.54
Offer Letter dated August 28, 2017 by and between Sarepta
10-Q
001-14895
10.2
11/1/17
Therapeutics, Inc. and Guriqbal S. Basi
10.55
Letter Agreement by and between Sarepta Therapeutics, Inc.
10-Q
001-14895
10.3
11/1/17
and Guriqbal S. Basi dated September 25, 2017
10.56
Letter Agreement by and between Sarepta Therapeutics, Inc.
and Catherine Stehman-Breen dated September 26, 2017
10-Q
001-14895
10.4
11/1/17
10.57
First Amendment to the Amended and Restated Credit and
8-K
001-14895
4.3
11/14/17
Security Agreement, dated November 7, 2017, between the
Company and MidCap Financial Trust, as administrative
agent.
10.58
First Amendment to the Credit and Security Agreement, dated
November 7, 2017, between the Company and MidCap
Financial Trust, as administrative agent
8-K
001-14895
4.4
11/14/17
10.59
Base Call Option Transaction Confirmation, dated as of
8-K
001-14895
10.1
11/14/17
November 8, 2017, between Sarepta Therapeutics, Inc. and
JPMorgan Chase Bank, National Association, London
Branch.
10.60
Base Call Option Transaction Confirmation, dated as of
8-K
001-14895
10.2
11/14/17
10.61
10.62
November 8, 2017, between Sarepta Therapeutics, Inc. and
Goldman Sachs & Co. LLC.
Additional Call Option Transaction Confirmation, dated as of
November 9, 2017, between Sarepta Therapeutics, Inc. and
JPMorgan Chase Bank, National Association, London
Branch
Additional Call Option Transaction Confirmation, dated as of
November 9, 2017, between Sarepta Therapeutics, Inc. and
Goldman Sachs & Co. LLC
8-K
001-14895
10.3
11/14/17
8-K
001-14895
10.4
11/14/17
10.63†
General Release and Amendment to Separation Agreement
10-Q
001-14895
10.1
5/3/18
between Sarepta Therapeutics, Inc. and Dr. Catherine
Stehman-Breen dated April 12, 2018
10.64
Seventh Amendment to a Lease Agreement between the
10-Q
001-14895
10.4
5/3/18
Company and ARE-MA Region No. 38, LLC dated April
27, 2018
10.65†
Sarepta Therapeutics, Inc. 2018 Equity Incentive Plan
10.66†
Employment Agreement between Sarepta Therapeutics, Inc.
and Gilmore O’Neill, M.D., effective as of June 7, 2018
-84-
10-Q
10-Q
001-14895
001-14895
10.1
10.2
8/8/18
8/8/18
Exhibit
Number
10.67†
Description
Change in Control and Severance Agreement between Sarepta
Therapeutics, Inc. and Gilmore O’Neill, M.D., effective as
of June 7, 2018
Incorporated by Reference to Filings Indicated
Form
10-Q
File No.
Exhibit
001-14895
10.3
Provided
Herewith
Filing
Date
8/8/18
10.68†
Letter Agreement between Douglas S. Ingram and Sarepta
10-Q
001-14895
10.4
8/8/18
Therapeutics, Inc. dated June 26, 2018
10.69†
Form of Restricted Stock Unit Award Agreement under
Sarepta Therapeutics, Inc. 2014 Employment
Commencement Incentive Plan
10-Q
001-14895
10.5
8/8/18
10.70†
Amendment No. 2 to the Sarepta Therapeutics, Inc. 2014
10-Q
001-14895
10.6
8/8/18
Employment Commencement Incentive Plan
10.71†
Form of Stock Option Award Agreement under Sarepta
Therapeutics, Inc. 2018 Equity Incentive Plan
10-Q
001-14895
10.1
10/31/18
10.72†
Form of Restricted Stock Award Agreement under Sarepta
10-Q
001-14895
10.2
10/31/18
Therapeutics, Inc. 2018 Equity Incentive Plan
10.73†
Form of Restricted Stock Unit Award Agreement under
10-Q
001-14895
10.3
10/31/18
Sarepta Therapeutics, Inc. 2018 Equity Incentive Plan
10.74†
Form of Stock Appreciation Right Award Agreement under
10-Q
001-14895
10.4
10/31/18
Sarepta Therapeutics, Inc. 2018 Equity Incentive Plan
10.75**† Amendment to Restricted Stock Award Agreement between
Douglas S. Ingram and Sarepta Therapeutics, Inc. dated
December 17, 2018
21.1**
Subsidiaries of the Registrant.
23.1**
Consent of Independent Registered Public Accounting Firm.
24.1**
31.1**
Power of Attorney (contained on signature page).
Certification of the Company’s President and Chief Executive
Officer, Douglas S. Ingram, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2**
Certification of the Company’s Executive Vice President,
Chief Financial Officer and Chief Business Officer,
Sandesh Mahatme, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1***
Certification of the Company’s President and Chief Executive
Officer, Douglas S. Ingram, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2***
Certification of the Company’s Executive Vice President,
Chief Financial Officer and Chief Business Officer,
Sandesh Mahatme, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
-85-
X
X
X
X
X
X
X
X
Exhibit
Number
Description
Form
File No.
Exhibit
Filing
Date
Provided
Herewith
Incorporated by Reference to Filings Indicated
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Document.
†
^
*
**
***
Indicates management contract or compensatory plan, contract or arrangement.
Confidential treatment has been requested for portions of this exhibit.
Confidential treatment has been granted for portions of this exhibit.
Field herewith
Furnished herewith.
Item 16. Form 10-K Summary.
Not applicable.
-86-
X
X
X
X
X
X
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: February 28, 2019
SAREPTA THERAPEUTICS, INC.
SIGNATURES
By: /s/ Douglas S. Ingram
Douglas S. Ingram
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Douglas S. Ingram and
Sandesh Mahatme, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful
attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity
stated below, and to file, any and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-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 the
registrant and in the capacities indicated on February 28, 2019:
Signature
/s/ Douglas S. Ingram
Douglas S. Ingram
/s/ Sandesh Mahatme
Sandesh Mahatme
/s/ M. Kathleen Behrens
M. Kathleen Behrens, Ph.D.
/s/ Richard Barry
Richard Barry
/s/ Michael W. Bonney
Michael W. Bonney
/s/ Mary Ann Gray
Mary Ann Gray, Ph.D.
/s/ Claude Nicaise, MD
Claude Nicaise, MD
/s/ Hans Wigzell
Hans Wigzell, M.D., Ph.D.
President, Chief Executive Officer and Director (Principal Executive Officer)
Title
Executive Vice President, Chief Financial Officer and Chief Business Officer (Principal
Financial and Accounting Officer)
Chairwoman of the Board
Director
Director
Director
Director
Director
-87-
SAREPTA THERAPEUTICS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
Page
Number
F-2
F-3
F-4
F-5
F-6
F-7
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Sarepta Therapeutics, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Sarepta Therapeutics, Inc. and subsidiaries (the Company) as of December 31, 2018 and
2017, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three year
period ended December 31, 2018, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations
and its cash flows for each of the years in the three year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2019 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2002.
Cambridge, Massachusetts
February 28, 2019
(signed) KPMG LLP
F-2
Sarepta Therapeutics, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
Assets
Current Assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventory
Other current assets
Total Current Assets
Property and equipment, net of accumulated depreciation of $28,149
and $18,022 as of December 31, 2018 and 2017, respectively
Intangible assets, net of accumulated amortization of $3,852 and $4,145 as of
December 31, 2018 and 2017, respectively
Investments and other assets
Total Assets
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable
Accrued expenses
Current portion of long-term debt
Deferred revenue
Other current liabilities
Total Current Liabilities
Long-term debt
Deferred rent and other
Total Liabilities
Commitments and contingencies (Note 21)
Stockholders’ Equity:
Preferred stock, $.0001 par value, 3,333,333 shares authorized; none issued and
outstanding
Common stock, $.0001 par value, 99,000,000 shares authorized; 71,071,887
and 64,791,670 issued and outstanding at December 31, 2018 and 2017, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
As of
December 31,
2018
As of
December 31,
2017
$
370,829
803,083
49,044
125,445
77,782
1,426,183
599,691
479,369
29,468
83,605
36,511
1,228,644
97,024
43,156
$
$
11,574
107,294
1,642,075
33,829
134,095
—
3,303
2,463
173,690
420,554
15,555
609,799
14,355
21,809
1,307,964
8,467
68,982
6,175
3,316
1,392
88,332
424,876
5,539
518,747
—
—
7
2,611,294
(99)
(1,578,926)
1,032,276
1,642,075
$
6
2,006,598
(379)
(1,217,008)
789,217
1,307,964
$
$
$
$
See accompanying notes to consolidated financial statements.
F-3
Sarepta Therapeutics, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
2018
For the Year Ended December 31,
2017
2016
$
301,034
301,034
$
154,584
154,584
$
Revenues:
Product, net
Total revenues
Cost and expenses:
Cost of sales (excluding amortization of in-licensed rights)
Research and development
Selling, general and administrative
EXONDYS 51 litigation and license charges
Amortization of in-licensed rights
Total cost and expenses
Operating loss
Other (loss) income:
Interest expense and other, net
Gain from sale of Priority Review Voucher
Total other (loss) income
Loss before income tax (benefit) expense
Income tax (benefit) expense
Net loss
Other comprehensive loss:
Unrealized gain (loss) on available-for-sale securities
Total other comprehensive gain (loss)
Comprehensive loss
Net loss per share — basic and diluted
Weighted average number of shares of common stock
outstanding for computing basic and diluted net
loss per share
34,193
401,843
207,761
—
865
644,662
(343,628)
(18,982)
—
(18,982)
(362,610)
(692)
(361,918)
7,353
166,707
122,682
28,427
1,053
326,222
(171,638)
(1,990)
125,000
123,010
(48,628)
2,060
(50,688)
280
280
(361,638)
$
(259)
(259)
(50,947) $
5,421
5,421
101
188,272
83,749
—
29
272,151
(266,730)
(535)
—
(535)
(267,265)
—
(267,265)
(9)
(9)
(267,274)
$
$
(5.46)
$
(0.86) $
(5.49)
66,250
58,818
48,697
See accompanying notes to consolidated financial statements.
F-4
Sarepta Therapeutics, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands)
Accumulated
Common Stock
Shares
Amount
Other
Comprehensive
Loss
Total
Stockholders'
Accumulated
Deficit
(899,055)
364,749
—
Additional
Paid-In
Capital
1,089,508
19,353
—
(2,168)
1,577
30,107
—
—
1,503,126
13,799
—
(2,227)
5
—
—
—
—
—
—
—
—
5
—
—
—
45,630
1,113
50
(47)
7,876
137
—
—
—
54,759
793
400
(60)
8,798
1
353,958
102
—
—
—
—
—
64,792
2,119
58
(79)
—
—
—
—
—
—
6
—
—
—
1,425
156,953
(50,901)
30,465
—
—
2,006,598
47,916
—
(9,061)
4,107
1
513,408
75
—
—
—
71,072 $
—
—
—
—
7
2,306
50,127
—
—
$ 2,611,294
$
(111)
—
—
—
—
—
(9)
—
(120)
—
—
—
—
—
—
—
—
(259)
—
(379)
—
—
—
—
—
—
—
—
—
—
—
(267,265)
(1,166,320)
—
—
—
—
—
—
—
—
—
(50,688)
(1,217,008)
—
—
—
—
Equity
190,347
19,353
—
(2,168)
364,749
1,577
30,107
(9)
(267,265)
336,691
13,799
—
(2,227)
353,959
1,425
156,953
(50,901)
30,465
(259)
(50,688)
789,217
47,916
—
(9,061)
513,409
—
—
—
2,306
—
50,127
—
280
280
—
(361,918)
(99) $ (1,578,926) $ 1,032,276
(361,918)
BALANCE AT DECEMBER 31, 2015
Exercise of options for common stock
Grant of restricted stock awards, net of cancellations
Shares withheld for taxes
Issuance of common stock for cash, net of
offering costs
Issuance of common stock under employee stock
purchase plan
Stock-based compensation
Unrealized loss from available-for-sale securities
Net loss
BALANCE AT DECEMBER 31, 2016
Exercise of options for common stock
Grant of restricted stock awards and vest of
restricted stock units, net of cancellations
Shares withheld for taxes
Issuance of common stock for cash, net of
offering costs
Issuance of common stock under employee
stock purchase plan
Equity component of convertible notes
Purchase of capped call share options
Stock-based compensation
Unrealized loss from available-for-sale securities
Net loss
BALANCE AT DECEMBER 31, 2017
Exercise of options for common stock
Grant of restricted stock awards and vest of
restricted stock units, net of cancellations
Shares withheld for taxes
Issuance of common stock for cash, net of
offering costs
Issuance of common stock under employee
stock purchase plan
Stock-based compensation
Unrealized gain from available-for-sale securities
Net loss
BALANCE AT DECEMBER 31, 2018
See accompanying notes to consolidated financial statements.
F-5
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to cash flows in operating activities:
Gain from sale of Priority Review Voucher
Depreciation and amortization
Amortization of investment (discount) premium
Loss from extinguishment of debt
Non-cash interest expense
Loss on disposal of assets
Stock-based compensation
Non-cash restructuring expense
Changes in operating assets and liabilities, net:
Net increase in accounts receivable
Net increase in inventory
Net increase in other assets
Net increase in accounts payable, accrued expenses,
deferred revenue and other liabilities
Net cash used in operations
Cash flows from investing activities:
Purchase of property and equipment
Purchase of intangible assets
Purchase of available-for-sale securities
Maturity and sales of available-for-sale securities
Proceeds from sale of Priority Review Voucher
Purchase of restricted investment
Maturity of restricted investment
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from July 2017 Term Loan
Repayment of June 2015 and July 2017 Term Loan
Repayment of mortgage loans and notes payable
Proceeds from revolving line of credit
Repayment of revolving line of credit
Payment for debt extinguishment
Proceeds from sales of common stock, net of offering costs
Proceeds from convertible debt offering
Debt issuance costs
Purchase of capped call options
Proceeds from exercise of options and employee stock purchase program
Net cash provided by financing activities
(Decrease) increase in cash and cash equivalents
Cash, cash equivalents and restricted cash:
Beginning of period
End of period
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents
Restricted cash in other assets
Total cash, cash equivalents and restricted cash
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for income taxes
Supplemental schedule of non-cash investing activities and financing activities:
Sarepta Therapeutics, Inc.
Consolidated Statements of Cash Flows
(in thousands)
2018
For the Year Ended December 31,
2017
2016
$
(361,918)
$
(50,688)
$
(267,265)
—
12,245
(7,672)
2,322
20,190
3,938
50,127
—
(19,576)
(41,840)
(136,638)
90,162
(388,660)
(61,157)
(3,188)
(1,171,603)
865,813
—
(353)
—
(370,488)
—
(30,000)
(1,265)
235,872
(235,954)
(2,134)
513,409
—
—
—
50,222
530,150
(228,998)
599,827
370,829
370,829
—
370,829
11,308
1,548
$
$
$
$
$
$
$
$
$
$
$
(125,000)
8,092
(888)
—
2,679
805
30,465
—
(24,240)
(70,792)
(15,354)
12,925
(231,996)
(12,000)
(9,215)
(589,520)
296,225
125,000
—
10,695
(178,815)
30,000
(15,000)
(109)
39,708
(39,645)
—
353,959
570,000
(15,154)
(50,901)
15,224
888,082
477,271
122,556
599,827
599,691
136
599,827
1,912
5,336
625
204
1,529
2,525
343
2,227
—
$
$
$
$
$
$
$
$
$
$
$
$
$
—
5,611
80
—
355
293
29,962
911
(1,251)
(12,813)
(9,012)
7,309
(245,820)
(5,341)
(1,525)
(195,427)
112,100
—
—
—
(90,193)
—
(5,000)
(2,603)
—
—
—
364,802
—
—
—
20,930
378,129
42,116
80,440
122,556
122,420
136
122,556
1,562
—
400
—
—
1,186
1,163
2,168
—
Accrued exit and legal fees for debts
Reclassification of software licenses
Property and equipment reclassified to asset held for sale
Property and equipment included in accrued expenses
Intangible assets included in accrued expenses
Shares withheld for taxes
Reclassification of long term investments to short term investments
$
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
—
—
—
5,421
374
9,061
9,980
$
$
$
$
$
$
$
F-6
Sarepta Therapeutics, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
Sarepta Therapeutics, Inc. (together with its wholly-owned subsidiaries, “Sarepta” or the “Company”) is a commercial-stage biopharmaceutical
company focused on the discovery and development of unique RNA-targeted therapeutics, gene therapy and other genetic medicine approaches for the
treatment of rare diseases. Applying its proprietary, highly-differentiated and innovative platform technologies, the Company is able to target a broad range of
diseases and disorders.
Its first commercial product in the U.S., EXONDYS 51® (eteplirsen) Injection (“EXONDYS 51”), was granted accelerated approval by the U.S.
Food and Drug Administration (the “FDA”) on September 19, 2016. EXONDYS 51 is indicated for the treatment of Duchenne muscular dystrophy (“DMD”)
in patients who have a confirmed mutation of the DMD gene that is amenable to exon 51 skipping. In December 2018, the Company completed the
submission of its rolling new drug application (“NDA”) to the FDA seeking accelerated approval for golodirsen, the Company’s PMO chemistry and exon-
skipping technology to skip exon 53 of the DMD gene.
As of December 31, 2018, the Company had approximately $1,174.9 million of cash, cash equivalents and investments, consisting of $370.8
million of cash and cash equivalents, $803.1 million of short-term investments, and $1.0 million of a long-term restricted investment. The Company believes
that its balance of cash, cash equivalents and investments as of December 31, 2018 is sufficient to fund its current operational plan for at least the next twelve
months, though it may pursue additional cash resources through public or private debt and equity 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 PRONOUNCEMENTS
Basis of Presentation
The accompanying consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States (“U.S. GAAP”), reflect the accounts of Sarepta Therapeutics, Inc. and its wholly-owned subsidiaries. All intercompany transactions between
and among its consolidated subsidiaries have been eliminated. Management has determined that the Company operates in one segment: helping patients
through the discovery and development of unique RNA-targeted therapeutics, gene therapy and other genetic therapeutic modalities for the treatment of rare
diseases. The Company’s CEO, as the chief operating decision-maker, manages and allocates resources to the operations of the Company on a total company
basis. The Company’s research and development organization is responsible for the research and discovery of new product candidates and supports
development and registration efforts for potential future products. The Company’s supply chain organization manages the development of the manufacturing
processes, clinical trial supply and commercial product supply. The Company’s commercial organization is responsible for commercialization of EXONDYS
51 in the U.S. and internationally. The Company is supported by other back-office general and administration functions. Consistent with this decision-making
process, the Company’s CEO uses consolidated, single-segment financial information for purposes of evaluating performance, forecasting future period
financial results, allocating resources and setting incentive targets.
Estimates and Uncertainties
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, equity, revenue, expenses and the disclosure of contingent assets and liabilities. Actual results could
differ from those estimates.
Fair Value Measurements
The Company has certain financial assets that are recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy
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.
F-7
The fair value of the majority of the Company’s financial assets is categorized as Level 1 within the fair value hierarchy. These assets include
money market funds, publicly traded debt, and equity securities. For additional information related to fair value measurements, please read Note 5, Fair Value
Measurements to the consolidated financial statements.
Cash and Cash Equivalents
Only investments that are highly liquid and readily convertible to cash and have original maturities of three months or less are considered cash
equivalents.
Investments
Available-For-Sale Debt Securities
Available-for-sale debt securities are recorded at fair market value and unrealized gains and losses are included in accumulated other
comprehensive loss in stockholder’s equity. Realized gains and losses are reported in interest expense and other, net, on a specific identification basis.
Equity Investments
The Company’s equity investments include its investments in a publicly traded biotechnology company and a privately held biotechnology
company and are included in investments and other assets in the Company’s consolidated balance sheets. The equity investment in the publicly traded
biotechnology company has a readily determinable fair value and is carried at fair value with changes in value recorded in the Company’s consolidated
statements of operations and comprehensive loss. The equity investment in the privately held biotechnology company does not have readily determinable fair
value and is measured at cost less any impairment, plus or minus changes resulting from observable price changes for the identical or a similar investment of
the same issuer, which is recorded as a gain or loss on the Company’s consolidated statements of operations and comprehensive loss.
Accounts Receivable
The Company’s accounts receivable arise from product sales, government research contracts and other grants. They are generally stated at the
invoiced amount and do not bear interest. Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of
variable consideration for which reserves are established and which result from Medicaid rebates, governmental chargebacks including Public Health Services
(“PHS”) chargebacks, prompt pay discounts, co-pay assistance and distribution fees. These reserves are based on the amounts earned or to be claimed on the
related sales and are classified as reductions of accounts receivable (if no payments are required of the Company) for PHS chargebacks, prompt pay discounts
and certain distribution fees, or a current liability (if a payment is required of us), for Medicaid rebates, co-pay assistance and certain distribution fees.
The accounts receivable from product sales represents receivables due from the Company’s specialty distributor and specialty pharmacies in the
U.S. as well as certain distributors in the EU, Brazil, Israel and the Middle East (collectively, “Customers”). The Company monitors the financial
performance and creditworthiness of its Customers so that it can properly assess and respond to changes in the Customers’ credit profiles. The Company
provides reserves against trade receivables for estimated losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are
written-off against the established reserve. As of December 31, 2018, the credit profiles for the Company’s Customers are deemed to be in good standing and
an allowance for doubtful accounts receivable is not considered necessary. Further, no accounts receivable amounts related to government research contracts
and other grants have historically been written off and, thus, an allowance for doubtful accounts receivable related to government research contracts and other
grants is also not considered necessary.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist of accounts receivable from Customers and
cash, cash equivalent and investments held at financial institutions.
For the year ended December 31, 2018, the majority of the Company’s accounts receivable arose from product sales in the U.S. and all customers
have standard payment terms which generally require payment within 30 to 60 days. Outside of the U.S., the payment terms range between 60 and 120 days.
Three individual customers accounted for 42%, 38% and 18% of net product revenues and 51%, 28% and 10% of accounts receivable from product sales,
respectively. As of December 31, 2018, the Company believes that such Customers are of high credit quality.
F-8
As of December 31, 2018, the Company’s cash equivalents and investments were concentrated at three financial institutions. The Company does
not believe that there is significant risk of non-performance by the financial institutions.
Inventories
Inventories are stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis. The Company capitalizes
inventory costs associated with products following regulatory approval when future commercialization is considered probable and the future economic benefit
is expected to be realized. EXONDYS 51 inventory that may be used in clinical development programs is charged to research and development expense when
the product enters the research and development process and no longer can be used for commercial purposes.
The Company periodically reviews its inventories for excess amounts or obsolescence and writes down obsolete or otherwise unmarketable
inventory to its estimated net realizable value. Additionally, though the Company’s product is subject to strict quality control and monitoring which it
performs throughout the manufacturing processes, certain batches or units of product may not meet quality specifications resulting in a charge to cost of sales.
Property and Equipment
Property and equipment are initially recorded at cost, including the acquisition cost and all costs necessarily incurred to bring the asset to the
location and working condition necessary for its intended use. The cost of normal, recurring or periodic repairs and maintenance activities related to property
and equipment are expensed as incurred. The cost for planned major maintenance activities, including the related acquisition or construction of assets, is
capitalized if the repair will result in future economic benefits. Interest costs incurred during the construction period of major capital projects are capitalized
until the asset is ready for its intended 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 the
respective assets, which are summarized as follows:
Asset Category
Lab equipment
Office equipment
Software and computer equipment
Leasehold improvements
Land
Building
Construction in Progress
Useful lives
5 years
5 years
3 - 5 years
Lesser of the useful life or the term of
the respective lease
Not depreciated
30 years
Not depreciated until put into service
Intangible assets
The Company’s intangible assets consist of in-licensed rights, patent costs, and software licenses, which are stated in the Company’s consolidated
balance sheets net of accumulated amortization and impairments, if applicable.
The in-licensed rights relates to agreements with BioMarin (defined in Note 3) and the University of Western Australia (“UWA”). The in-licensed
rights are being amortized on a straight-line basis over the remaining life of the related patent because the life of the related patent reflects the expected time
period that the Company will benefit from the in-licensed rights.
Patent costs consist primarily of external legal costs, filing fees incurred to file patent applications and renewal fees on proprietary technology
developed 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, which is generally 20 years.
Impairment of Long-Lived Assets
Long-lived assets held and used by the Company, intangible assets with definite lives and equity investments without a readily determinable fair
value are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. The Company
evaluates recoverability of assets to be held and used by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by
the asset. If the asset is considered to be impaired, the impairment
F-9
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 assess the fair value
of the assets based upon estimates of future cash flows that the assets are expected to generate.
Convertible Debt
The Company separately accounts for the liability and equity components of convertible debt instruments that can be settled in cash by allocating
the proceeds from issuance between the liability component and the embedded conversion option. The value of the equity component is calculated by first
measuring the fair value of the liability component, using the interest rate of a similar liability that does not have a conversion feature, as of the issuance date.
The difference between the proceeds from the convertible debt issuance and the amount measured as the liability component is recorded as the equity
component with a corresponding discount recorded on the debt. The Company recognizes the amortization of the resulting discount as interest expense using
the effective interest method. Simultaneously, the Company bought capped call options from certain counterparties to minimize the impact of potential
dilution upon conversion. The premium for the capped call options was recorded as additional paid-in capital. For additional information related to the
convertible debt transactions, please read Note 14, Indebtedness to the consolidated financial statements.
Revenue Recognition
The Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration
which the Company expects to receive in exchange for the goods or services provided. To determine revenue recognition for arrangements within the scope of
ASC Topic 606, “Revenue from Contracts with Customers”, the Company performs the following five steps: (1) identify the contracts with a customer; (2)
identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the
contract; and (5) recognize revenue when or as the Company satisfies a performance obligation. The Company only applies the five-step model to contracts
when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers or provides to the customer.
At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and
assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to
the respective performance obligation when or as the performance obligation is satisfied. For all contracts that fall into the scope of ASC Topic 606, only one
performance obligation has been identified by the Company: to timely deliver drug products to the customer’s designated warehouses.
Product revenues
The Company distributes its product principally through its Customers. The Customers subsequently resell the product to patients and health care
providers. The Company provides no right of return to the Customers except in cases of shipping error or product defect. Product revenues are recognized
when the Customers take control of the product, which typically occurs upon delivery to the Customers. For the years ended 2018, 2017 and 2016, the
majority of the revenues recognized were generated by the specialty distributor and specialty pharmacies in the U.S.
Variable Consideration
Product revenues are recorded at the net sales price (transaction price) which includes estimated reserves for variable consideration, such as
Medicaid rebates, governmental chargebacks, including PHS chargebacks, prompt payment discounts, co-pay assistance and distribution fees. These reserves
reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contracts. Additional details relating to
variable consideration follows:
•
•
•
Medicaid rebates relate to the Company’s estimated obligations to states under established reimbursement arrangements. Medicaid rebate
reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of
a liability which is included in accrued expenses.
Governmental chargebacks, including PHS chargebacks, relate to the Company’s estimated obligations resulting from contractual commitments
to sell products to qualified healthcare providers at prices lower than the list prices that the Company charges to wholesalers. The wholesaler
charges the Company for the difference between what the wholesaler pays for the products and the ultimate selling price to the qualified
healthcare providers. Chargeback reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product
revenue and accounts receivable. Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider from
the wholesaler, and the Company generally issues credits for such amounts within a few weeks of receiving notification of resale from the
wholesaler.
Prompt payment discounts relate to the Company’s estimated obligations for credits to be granted to a specialty pharmacy for remitting
payment on its purchases within established incentive periods. Reserves for prompt payment discounts are
F-10
recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable.
•
•
Co-pay assistance relates to financial assistance provided to qualified patients, whereby the Company may assist them with prescription drug
co-payments required by the patient’s insurance provider. Reserves for co-pay assistance are recorded in the same period the related revenue is
recognized, resulting in a reduction of product revenue and the establishment of a liability which is included in accrued expenses.
Distribution fees relate to fees paid to Customers in the distribution channel that provide the Company with inventory management, data and
distribution services and are generally accounted for as a reduction of revenue. To the extent that the services received are distinct from the
Company’s sale of products to the Customers, these payments are accounted for as selling, general and administrative expenses. Reserves for
distribution fees result in an increase in a liability if payments are required of the Company or a reduction of accounts receivable if no payments
are required of the Company.
Deferred revenue
As of December 31, 2018, the Company had deferred revenue of $3.3 million, which primarily represents up-front fees which it may recognize as
revenue upon settlement of certain contingencies related to an agreement with Charley’s Fund, Inc.
Research and Development
Research and development expenses consist of costs associated with research activities as well as those with the Company’s product development
efforts, conducting pre-clinical trials, clinical trials and manufacturing activities. Research and development expenses are expensed as incurred. Up-front fees
and milestones paid to third parties in connection with technologies which have not reached technological feasibility and do not have an alternative future use
are expensed when incurred. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development
activities pursuant to an executory contractual arrangement will be capitalized, and recognized as an expense as the related goods are delivered or the related
services are performed. 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,
costs incurred for consultants and other external services, such as data management and statistical analysis support and materials and supplies used in support
of clinical programs. Indirect costs of the Company’s clinical programs include salaries, stock-based compensation and an allocation of its 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 its
obligations to those third parties, including clinical trial and pharmaceutical development costs, contractual services costs and costs for supply of its drug
candidates, incurred in a given accounting period and record accruals at the end of the period. The Company bases its estimates on its 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-Based Compensation
The Company’s stock-based compensation programs include stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”),
stock appreciation rights (“SARs”) and an employee stock purchase program (“ESPP”). The Company accounts for stock-based compensation using the fair
value method.
The 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
of RSAs 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, with
consideration 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
the lower 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
values of stock purchase rights are estimated using the Black-Scholes-Merton option-pricing model. The fair value of the look-back provision with the 15%
discount is recognized on a graded-vesting basis as stock-based compensation expense over the purchase period.
F-11
In addition to stock options with service and performance conditions, the Company also granted its CEO options with service and market
conditions. A market condition relates to the achievement of a specified price of the Company’s common stock, a specified amount of intrinsic value indexed
to the Company’s common stock or a specified price of the Company’s common stock in terms of other similar equity shares. The grant date fair value for the
options with service and market conditions is determined by a lattice model with Monte Carlo simulations and is recognized as stock-based compensation
expense on a straight-line basis over the service period.
Income Taxes
The Company follows the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their
respective tax 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
those operations 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
reporting over the tax basis in its investments in foreign subsidiaries as they are considered permanent in duration.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered and settled. A valuation allowance is recorded to reduce the net deferred tax asset to zero when it is more likely than
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 likely than
not of being sustained upon an examination.
The Tax Cuts and Jobs Act (the “TCJA”) was enacted on December 22, 2017. The TCJA reduces the U.S. federal corporate tax rate from 35% to
21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes
on certain foreign sourced earnings. The Company continues to evaluate the overall impact of the TCJA on its business. There is continuing uncertainty in
the TCJA, and although changes or challenges cannot be predicted, the Company believes it has used reasonable assumptions and interpretations in applying
the TCJA. The Company continues to monitor for legislative developments, issuance of regulations and technical memorandum to provide further
clarification and/or interpretations of the TCJA and will adjust its financial statements as needed.
Rent Expense
The Company’s operating leases for its Cambridge, Andover and Burlington, Massachusetts and Dublin and Columbus, Ohio facilities provide for
scheduled annual rent increases throughout 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. Tenant improvement allowances provided by a landlord are recorded as deferred rent and amortized as reduction to rent expense
over the lease term.
For the years ended December 31, 2018, 2017 and 2016, the Company recognized rent expense and occupancy costs of $7.9 million, $4.4 million
and $5.6 million, respectively.
Commitments and Contingencies
The Company records liabilities for legal and other contingencies when information available to the Company indicates that it is probable that a
liability has been incurred and the amount of loss can be reasonably estimated. Legal costs in connection with legal and other contingencies are expensed as
costs are incurred.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “Leases (Topic 842)”, which supersedes ASC
Topic 840, “Leases”, and issued additional clarifications throughout 2018. Under the new guidance, a lessee should recognize assets and liabilities that arise
from its leases and disclose qualitative and quantitative information about its leasing arrangements. The Company expects to elect the optional transition
method to apply the standard as of the January 1, 2019 the effective date and therefore, it will not apply the standard to comparative periods. The Company
also expects to elect the available package of practical expedients in transition which would allow it to not re-assess whether existing or expired arrangements
contain a lease, the lease classification of existing or expired leases, or whether previous initial direct costs would qualify for capitalization under the new
lease standard. The Company continues to finalize the impact of the ASU on its processes, disclosures and internal controls over financial reporting. Based on
the procedures performed to date, the Company has estimated that the adoption of this ASU will result in an increase between $40.0 million and $45.0 million
in right of use assets and between $60.0 million and $65.0 million in lease liabilities.
F-12
In March 2017, the FASB issued ASU No. 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium
Amortization on Purchased Callable Debt Securities”. This new standard amends the amortization period for certain purchased callable debt securities held at
a premium by shortening the amortization period for the premium to the earliest call date. ASU No. 2017-02 will be effective for fiscal years beginning after
December 15, 2018, with early adoption permitted. As of December 31, 2018, the Company has elected to early adopt this new standard and the adoption did
not have a material impact on its financial position and results of operations.
In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based
Payment Accounting.” This ASU expands the scope of Topic 718 to include share based payment transactions for acquiring goods and services from
nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing
model and the attribution of cost. ASU No. 2018-07 will be effective for fiscal years beginning after December 15, 2018, with early adoption permitted,
although no earlier than the adoption date of Topic 606. The Company elected to early adopt this ASU in the quarter ended June 30, 2018 and determined
that the adoption of this new standard did not have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement”. This ASU removed the following disclosure requirements: (1) the amount of and reasons for transfers between
Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value
measurements. Additionally, this update added the following disclosure requirements: (1) the changes in unrealized gains and losses for the period included in
other comprehensive income and loss for recurring Level 3 fair value measurements held at the end of the reporting period; (2) the range and weighted
average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other
quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information
would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU No.
2018-13 will be effective for fiscal years beginning after December 15, 2019 with early adoption permitted. As of December 31, 2018, the Company has not
elected to early adopt this guidance but does not expect that the adoption of this guidance will have a material effect on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract”. This ASU requires a customer in a cloud
computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance contained in ASC Subtopic 350-40
to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement that
is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrange is ready for
its intended use. ASU No. 2018-15 will be effective for fiscal years beginning after December 15, 2019, with early adoption permitted. As of December 31,
2018, the Company has not elected to early adopt this guidance but believes that the adoption of this guidance will not have a material effect on its
consolidated financial statements.
3. LICENSE AND COLLABORATION AGREEMENTS
Lysogene S.A.
On October 15, 2018, the Company entered into a license and collaboration agreement (the “Lysogene License and Collaboration Agreement”) for
developing and commercializing LYS-SAF302, a gene therapy to treat Mucopolysaccharidosis type IIIA (“MPS IIIA”) with Lysogene S.A. (“Lysogene”).
Under the terms of the Lysogene License and Collaboration Agreement, Lysogene will be responsible for completion of the pivotal trial, which commenced in
the fourth quarter of 2018. The Company will have exclusive rights to commercialize LYS-SAF302 in the U.S. and all territories outside of Europe. Lysogene
will retain exclusive commercial rights to LYS-SAF302 in Europe. The Company will be responsible for global manufacturing of LYS-SAF302 and will
supply drug products to Lysogene for Europe. Lysogene also granted the Company certain option rights to an additional central nervous system targeted gene
therapy candidate.
Concurrently with the execution of the Lysogene License and Collaboration Agreement, the Company entered into an equity investment agreement
with Lysogene. Under the equity investment agreement, the Company purchased 950,606 shares of common stock issued by Lysogene, representing 8% of the
outstanding equity of Lysogene at the time of the transaction.
The Company considered whether it would have to consolidate the operations of Lysogene and concluded that, while Lysogene is a variable
interest entity, the Company is not the primary beneficiary as it does not have the power to direct the activities that would most significantly impact the
economic performance of Lysogene.
F-13
As a result of execution of the agreements, the Company made a payment of $28.0 million to Lysogene related to the up-front license fee, the
option fee, the equity investment and reimbursement of certain development activities. Additionally, the Company may be liable for up to approximately
$102.8 million in development, regulatory and sales milestones associated with the Lysogene License and Collaboration Agreement. Furthermore, the
Company may be required to make tiered royalty payments based on net sales of the LYS-SAF302 product subsequent to its commercialization.
Of the $28.0 million payment to Lysogene, $1.9 million was allocated to the equity investment in Lysogene, based on the closing price of
Lysogene’s common stock traded on the Euronext Paris Exchange on October 12, 2018, and was recorded as an other non-current asset. The remaining $26.1
million was allocated to the up-front license fee, the option fee, and reimbursement of certain development activities, and represents rights to potential future
benefits associated with ongoing research and development activities that have no alternative future use. Accordingly, this amount was recorded as research
and development expense as incurred. As of December 31, 2018, one development milestone was deemed as probable of being achieved. As a result, the
Company recorded an accrued expense of $18.7 million which was classified as research and development expense.
Changes in the fair value of the equity investment in Lysogene are recorded to other income and expense in the Company’s consolidated statements
of operations and other comprehensive loss. As of December 31, 2018, the Company recognized a loss of $0.2 million related to the change in fair market
value of the equity investment.
Lacerta Therapeutics
On August 8, 2018 (the “Effective Date”), the Company entered into a License, Development and Option Agreement (the “Lacerta License
Agreement”) with Lacerta Therapeutics, Inc. (“Lacerta”). Pursuant to the Lacerta License Agreement, the Company licensed exclusive worldwide rights to
develop, manufacture and commercialize a pre-clinical Pompe product candidate (the “Pompe License”). Lacerta also granted the Company exclusive options
to enter into exclusive license agreements to develop, manufacture and commercialize other gene therapy product candidates for Sanfilipo syndrome and L-
Amino Acid Decarboxylase Deficiency for additional consideration of $42.0 million (collectively, the “Options”) when (and if) the Options are exercised.
Additionally, the Company may be liable for up to approximately $44.0 million in development, regulatory and sales milestones associated with the Pompe
License and may be required to make a high-single-digit royalty payments based on net sales of the Pompe product subsequent to its commercialization.
Concurrently with the execution of the Lacerta License Agreement, the Company entered into a Series A Preferred Stock Purchase Agreement (the
“Purchase Agreement”) with Lacerta. Under the Purchase Agreement, the Company purchased approximately 4.5 million shares of Series A preferred stock
issued by Lacerta.
The Company considered whether it would have to consolidate the operations of Lacerta and concluded that, while Lacerta is a variable interest
entity, the Company is not the primary beneficiary as it does not have the power to direct the activities that would most significantly impact the economic
performance of Lacerta.
The Company made an up-front payment of $38.0 million to Lacerta in consideration of both the Lacerta License Agreement and the Purchase
Agreement. This payment was allocated to the fair value of the Series A preferred stock investment, the Pompe License and the Options based on their
respective relative fair values on the Effective Date. The fair value of the Options were determined using an option pricing model, whereas the Series A
preferred stock investment was determined using a cost approach corroborated by the Black-Scholes option pricing model. The fair value of the Pompe
License was determined by the income approach, using a discounted cash flow model based on projections of future cash flows that will arise from the Pompe
product candidate. Accordingly: (i) $30.0 million was allocated to the Series A preferred stock investment, (ii) $8.0 million was allocated to the Pompe
License, and (iii) no amount was allocated to the Options as they are far out of money and were determined to have a fair value of zero. The Series A
preferred stock investment was initially measured at cost and classified as an other non-current asset in the accompanying consolidated balance sheets.
Subsequently, changes in the carrying value of the investment will be reported as a component of earnings whenever there are observable price changes in
orderly transactions for identical or similar investments of Lacerta in the future. The amount allocated to the Pompe License represents rights to potential
future benefits associated with ongoing research and development activities that have no alternative future use. Accordingly, this amount has been recorded as
research and development expense in the accompanying consolidated statements of operations and comprehensive loss for the year ended December 31,
2018. As of December 31, 2018, no development milestones were deemed as probable of being achieved and, accordingly, no research and development
expense was recognized related to these development milestones.
Myonexus Therapeutics
On May 3, 2018, the Company entered into a Warrant to Purchase Common Stock Agreement (“Warrant Agreement”) with Myonexus
Therapeutics, Inc. (“Myonexus”). Pursuant to the terms of the Warrant Agreement, the Company made an up-front payment of $60.0 million to purchase an
exclusive option to acquire Myonexus for $200.0 million plus sales-related and regulatory-
F-14
related contingent payments. Prior to the exercise of the option to acquire Myonexus, the Company may be required to make additional development
milestone payments to Myonexus of up to $45.0 million over an approximately two-year evaluation period.
The Company considered whether it would have to consolidate the operations of Myonexus and concluded that, while Myonexus is a variable
interest entity, the Company is not the primary beneficiary as it does not have the power to direct the activities that would most significantly impact the
economic performance of Myonexus.
As of December 31, 2018, the Company made an up-front payment of $60.0 million and milestone payments totaling $20.0 million to Myonexus
corresponding to execution of the Warrant Agreement and achievement of two development milestones, respectively. Additionally, the third development
milestone for $5.0 million was deemed probable of being achieved as of December 31, 2018, and has been recorded as an accrued expense. Prior to regulatory
approval, all consideration paid to Myonexus represents rights to potential future benefits associated with Myonexus’s ongoing research and development
activities, which have not reached technological feasibility and have no alternative future use. Accordingly, the Company recorded $85.0 million for the year
ended December 31, 2018 as research and development expense in the accompanying consolidated statements of operations and comprehensive loss.
Nationwide Children’s Hospital
On December 29, 2016, the Company entered into an exclusive option agreement with Nationwide Children’s Hospital (“Nationwide”) from which
the Company obtained an exclusive right to acquire a worldwide license of the micro-dystrophin gene therapy technology for DMD and Becker muscular
dystrophy. On October 8, 2018, the Company exercised the option and entered into a license agreement with Nationwide (“Nationwide License Agreement”).
Pursuant to the Nationwide License Agreement, the Company licensed exclusive worldwide rights to develop, manufacture and commercialize micro-
dystrophin gene therapy product candidates. Under the agreement, the Company made an up-front payment of $1.0 million to Nationwide, which was
recorded as research and development expense in the accompanying consolidated statements of operations and comprehensive loss for the year ended
December 31, 2018. Additionally, the Company may be required to make up to $29.0 million in development, regulatory and sale milestone payments per
micro-dystrophin product and a low-single-digit royalty payments based on net sales of the micro-dystrophin products upon commercialization. As of
December 31, 2018, no development milestones were deemed as probable of being achieved and, accordingly, no research and development expense was
recognized related to these development milestones.
BioMarin Pharmaceutical, Inc.
In July 2017, the Company and UWA entered into a settlement agreement with BioMarin Leiden Holding BV, its subsidiaries BioMarin Nederlands
BV and BioMarin Technologies BV (collectively, “BioMarin”). On the same day, the Company entered into a license agreement with BioMarin and
Academisch Ziekenhuis Leiden (“AZL”) (collectively with the Company, UWA and BioMarin, the “Settlement Parties”). Under these agreements, BioMarin
agreed to provide the Company with an exclusive license to certain intellectual property with an option to convert the exclusive license into a co-exclusive
license and the Settlement Parties agreed to stop most existing efforts to continue with ongoing litigation and opposition and other administrative proceedings
concerning BioMarin’s intellectual property. Under terms of the agreements, the Company agreed to make total up-front payments of $35.0 million upon
execution of the agreements, consisting of $20.0 million under the settlement agreement and $15.0 million under the license agreement. Additionally, the
Company may be liable for up to approximately $65.0 million in regulatory and sales milestones for eteplirsen as well as exon 45 and exon 53 skipping
product candidates. BioMarin will also be eligible to receive royalty payments, ranging from 4% - 8%, for exon 51 skipping products, exon 45 skipping
products and exon 53 skipping products. The royalty terms under the license agreement will expire in December 2023 in the U.S. and September 2024 in the
EU.
In connection with the above agreements, in July 2017, the Company made a cash payment of $35.0 million to BioMarin. Of this amount, $6.6
million was recorded as an intangible asset on the Company’s consolidated balance sheets. The remaining amount of $28.4 million was expensed as incurred
as EXONDYS 51 settlement and license charges in the Company’s consolidated statements of operations and comprehensive loss.
The $6.6 million intangible asset represents the fair value of the U.S. license to BioMarin’s intellectual property related to EXONDYS 51, which
was determined by an income-based approach, and is being amortized on a straight-line basis over the remaining life of the patent. For the year ended
December 31, 2018, the Company recognized intangible asset amortization expense and royalty expense of approximately $0.9 million and $15.1 million,
respectively. For the year ended December 31, 2017, the Company recognized intangible asset amortization expense and royalty expense of approximately
$1.0 million and $4.7 million, respectively. The royalties are included in cost of sales in the Company’s consolidated statements of operations and
comprehensive loss. As of December 31, 2018, no regulatory or sales milestones were deemed as probable of being achieved and, accordingly, no additional
in-licensed rights were recognized related to these milestones.
F-15
Summit (Oxford) Ltd.
In October 2016, the Company entered into an exclusive Collaboration and License Agreement (the “Summit Collaboration Agreement”) with
Summit which grants the Company the exclusive right to commercialize products in Summit’s utrophin modulator pipeline in the EU, Switzerland, Norway,
Iceland, Turkey and the Commonwealth of Independent States (the “Licensed Territory”).
Under the terms of the Summit Collaboration Agreement, the Company made an up-front payment of $40.0 million to Summit, with additional
payments of up to $192.0 million based on achievement of certain development and regulatory milestones for ezutromid, a Summit product candidate in its
utrophin modulator pipeline. For each of Summit’s future generation small molecule utrophin modulators, the Company may be required to make up to
$290.0 million in development and regulatory milestone payments. Additionally, on a product-by-product basis, the Company may be required to make up to
$330.0 million in sales milestone payments. The Summit Collaboration Agreement also grants the Company an option to expand the Licensed Territory
(“Option Territory”). If the Company exercises this option, it will be liable for a one-time $10.0 million option fee as well as up to $7.0 million in regulatory
milestone payments. For each licensed product in the Option Territory, the Company may be liable for up to $82.5 million in sales milestone payments.
Additionally, the Company may be required to make tiered royalty payments ranging from a low to high teens percentage of net sales on a product-by-product
basis in the Licensed Territory.
Under the Summit Collaboration Agreement, a joint steering committee was established to plan, monitor and coordinate future development
activities for ezutromid and future generation small molecule utrophin modulators. Summit was solely responsible for all research and development costs for
the licensed products until December 31, 2017. Thereafter, Summit will be responsible for 55.0% of the budgeted research and development costs related to
the licensed products in the Licensed Territory, and the Company will be responsible for 45.0% of such costs. Any costs in excess of 110.0% of the budgeted
amount are borne by the party that incurred such costs. Summit is also obligated to spend a specified minimum amount on the research and development of
certain licensed products prior to the end of 2019. For the year ended December 31, 2018, the Company incurred approximately $8.6 million in collaboration
expense for ezutromid, with no similar activity in 2017 and 2016.
In June 2018, Summit announced that it is discontinuing the Phase 2 clinical trial on ezutromid. As a result, no development, regulatory or sales
milestones were deemed as probable of being achieved as of December 31, 2018. For the years ended December 31, 2017, and 2016, the Company recorded a
$22.0 million milestone payment and a $40.0 million up-front payment to Summit, respectively, as research and development expense in its consolidated
statement of operations and comprehensive loss.
University of Western Australia
In April 2013, the Company and UWA entered into an agreement under which an existing exclusive license agreement between the Company and
UWA was amended and restated (the “Amended and Restated UWA License Agreement”). The Amended and Restated UWA License Agreement grants the
Company specific rights to the treatment of DMD by inducing the skipping of certain exons. EXONDYS 51 falls under the scope of the license agreement.
Under the Amended and Restated UWA License Agreement, the Company may be required to make payments of up to $6.0 million in the aggregate to UWA
based on the successful achievement of certain development and regulatory milestones relating to EXONDYS 51 and up to five additional product candidates.
The Company may also be obligated to make payments to UWA of up to $20.0 million upon the achievement of certain sales milestones. Additionally, the
Company may be required to pay a low-single-digit percentage royalty on net sales of products covered by issued patents licensed from UWA during the term
of the Amended and Restated UWA License Agreement. However, the Company has the option to purchase future royalties up-front. Under this option, prior
to the First Amendment (defined below), the Company could elect to make a one-time royalty payment of $30.0 million to UWA.
In June 2016, the Company and UWA entered into the first amendment to the Amended and Restated UWA License Agreement (the “First
Amendment”). Under the First Amendment, the Company was obligated to make an up-front payment of $7.0 million to UWA upon execution of the
amendment. Under the terms of the First Amendment, UWA has waived certain rights and amended the timing of certain payments under the Amended and
Restated UWA License Agreement, including lowering the up-front payment that is due by the Company upon exercise of the option to purchase future
royalties up-front. Upon exercise of the option to purchase future royalties up-front, the Company will be obligated to make a $23.0 million payment to UWA.
Additionally, the Company would still be obligated to make up to $20.0 million in payments to UWA upon achievement of certain sales milestones.
For the year ended December 31, 2016, the Company recorded $7.6 million relating to the development milestone and up-front payments to UWA
as research and development expense in the consolidated statement of operations and comprehensive loss as the Amended and Restated UWA License
Agreement and its First Amendment were entered into before the FDA approval of EXONDYS 51. The Company did not incur any milestone expense for the
years ended December 31, 2018 and 2017. Additionally, corresponding to the FDA approval and the subsequent commercial sale of EXONDYS 51, the
Company recorded a $1.0 million milestone payment as an in-license right in its consolidated balance sheet in 2016. As of December 31, 2018, the in-license
right is recorded net of $0.3 million accumulated amortization on the consolidated balance sheets. The amortization of the in-licensed right is
F-16
recorded as cost of sales in the Company’s consolidated statements of operations and comprehensive loss. During the years ended December 31, 2018, 2017,
and 2016, the Company did not incur royalty expense nor did it make any royalty payments to UWA but may be obligated to make these payments in the
future.
4. GAIN FROM SALE OF PRIORITY REVIEW VOUCHER
In February 2017, the Company entered into an agreement with Gilead Sciences, Inc. (“Gilead”) to sell the Company’s Rare Pediatric Disease
Priority Review Voucher (“PRV”). The Company received the PRV when EXONDYS 51 was approved by the FDA for the treatment of patients with DMD
amenable to exon 51 skipping. Following the early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, in March 2017, the Company completed its sale of the PRV to a subsidiary of Gilead. Pursuant to the agreement, the subsidiary of Gilead
paid the Company $125.0 million, which was recorded as a gain from sale of the PRV as it did not have a carrying value at the time of the sale.
5. FAIR VALUE MEASUREMENTS
The tables below present information about the Company’s financial assets that are measured and carried at fair value and indicate the level within
the fair value hierarchy of the valuation techniques it utilizes to determine such fair value:
Assets
Money market funds
Commercial paper
Government and government agency
bonds
Corporate bonds
Strategic equity investments
Certificates of deposit
Total
Assets
Money market funds
Commercial paper
Government and government agency
bonds
Corporate bonds
Certificates of deposit
Total
Fair Value Measurement as of December 31, 2018
Total
Level 1
Level 2
Level 3
(in thousands)
42,920
125,907
$
42,920
—
$
—
125,907
$
760,235
43,468
31,739
1,001
1,005,270
$
760,235
43,468
1,739
1,001
849,363
$
—
—
—
—
125,907
$
—
—
—
—
30,000
—
30,000
Fair Value Measurement as of December 31, 2017
Total
Level 1
Level 2
Level 3
352,370
133,368
$
294,717
127,956
648
909,059
$
(in thousands)
352,370
—
$
284,745
127,956
648
765,719
$
—
133,368
$
9,972
—
—
143,340
$
—
—
—
—
—
—
$
$
$
$
The Company’s assets with fair value categorized as Level 1 within the fair value hierarchy include money market funds, government and
government agency bonds, corporate bonds, certificate of deposit, and the Company’s strategic investment in Lysogene, a publicly traded company in France,
as more fully described in Note 3, License and Collaboration Agreements. Certain of the government and government agency bonds and corporate bonds are
publicly traded fixed income securities and are presented as cash equivalents on the consolidated balance sheets.
The Company’s assets with fair value categorized as Level 2 within the fair value hierarchy consist of commercial paper and government and
government agency bonds. These assets have been initially valued at the transaction price and subsequently valued, at the end of each reporting period,
through income-based approaches utilizing market observable data.
The Company’s assets with fair value categorized as Level 3 within the fair value hierarchy consists of a strategic investment in Series A preferred
stock of Lacerta as more fully described in Note 3, License and Collaboration Agreements. The fair value of the asset is based on a cost approach
corroborated by the Black-Scholes option pricing model. The most significant assumptions in the
F-17
option pricing model include historical volatility of similar public companies, estimated term through Lacerta’s potential exit and a risk free rate based on
certain U.S. Treasury rates.
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and
revolving line of credit approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts for the
term loan approximate fair value based on market activity for other debt instruments with similar characteristics and comparable risk.
6. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The following table summarizes the Company’s financial assets with maturities of less than 90 days from the date of purchase included in cash
equivalents in the consolidated balance sheets for each of the periods indicated:
Money market funds
Corporate bonds
Government and government agency bonds
Commercial paper
Total
F-18
As of December 31
2018
2017
(in thousands)
$
$
42,920
—
111,587
14,940
169,447
$
$
352,370
16,720
49,972
—
419,062
It 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 as to maturity and investment type. The weighted average maturity of the Company’s available-for-sale securities as of December 31, 2018 and
2017 was approximately two and seven months, respectively. The following tables summarize the Company’s cash, cash equivalents and investments for each
of the periods indicated:
Cash and money market funds
Commercial paper
Government and government agency bonds
Corporate bonds
Total cash, cash equivalents and investments
As reported:
Cash and cash equivalents
Short-term investments
Total cash, cash equivalents and investments
Cash and money market funds
Commercial paper
Government and government agency bonds
Corporate bonds
Current
Non-current
Total cash, cash equivalents and investments
As reported:
Cash and cash equivalents
Short-term investments
Long-term investments
Total cash, cash equivalents and investments
Amortized
Cost
As of December 31, 2018
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
$
244,302
125,907
760,258
43,544
1,174,011
370,827
803,184
1,174,011
$
$
—
—
12
—
12
3
9
12
$
$
$
Amortized
Cost
As of December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
$
532,999
133,368
294,915
118,121
10,016
1,089,419
599,698
479,705
10,016
1,089,419
$
$
$
—
—
2
—
—
2
2
—
—
2
$
$
$
$
Fair
Market
Value
244,302
125,907
760,235
43,468
1,173,912
370,829
803,083
1,173,912
Fair
Market
Value
532,999
133,368
294,717
117,976
9,980
1,089,040
599,691
479,369
9,980
1,089,040
$
—
—
(35)
(76)
(111)
(1)
(110)
(111)
$
$
—
—
(200)
(145)
(36)
(381)
(9)
(336)
(36)
(381)
$
$
$
$
$
$
$
$
$
$
$
7. ACCOUNTS RECEIVABLE AND RESERVES FOR PRODUCT SALES
The following table summarizes the components of the Company’s accounts receivable for the periods indicated:
Product sales, net of discounts and allowances
Government contract receivables
Total accounts receivable, net
As of December 31,
2018
2017
(in thousands)
$
$
$
48,252
792
49,044 $
28,539
929
29,468
The balance for government contract receivables for both periods presented is subject to government audit and will not be collected until the
completion of the audit. The decrease in government contract receivables is related to contract finalization and subsequent collection of the EU SKIP-NMD
Agreement related to the Company’s exon 53 product candidate.
F-19
The following table summarizes an analysis of the change in reserves for discounts and allowances for the periods indicated:
Chargebacks
Rebates
Prompt Pay
(in thousands)
Other
Accruals
Total
Balance, as of December 31, 2017
Provision
Payments/credits
Balance, as of December 31, 2018
$
995 $
12,284
(11,901)
$
1,378 $
6,959 $
28,420
(11,103)
24,276 $
169 $
2,624
(2,255)
538 $
464 $
5,286
(3,432)
2,318 $
8,587
48,614
(28,691)
28,510
The following table summarizes the total reserves above included in the Company’s consolidated balance sheets for the periods indicated:
Reduction to accounts receivable
Component of accrued expenses
Total reserves
As of December 31,
2018
2017
$
(in thousands)
2,364
26,146
28,510 $
1,285
7,302
8,587
$
$
8. INVENTORY
The following table summarizes the components of the Company’s inventory for each of the periods indicated:
Raw materials
Work in progress
Finished goods
Total inventory
As of
December 31,
2018
As of
December 31,
2017
$
(in thousands)
$
71,313
47,279
6,853
$
125,445
$
53,875
27,442
2,288
83,605
9. OTHER ASSETS
The following table summarizes the Company’s other current assets for each of the periods indicated:
$
Manufacturing-related deposits and prepaids
Leasehold improvement receivable
Prepaid clinical and pre-clinical expenses
Prepaid maintenance services
Prepaid income tax
Prepaid research expenses
Interest receivable
Prepaid commercial expenses
Asset held for sale
Other prepaids
Other
Total other current assets
$
As of
December 31,
2018
As of
December 31,
2017
(in thousands)
39,036
13,474
9,706
2,994
2,130
1,932
1,918
1,573
—
3,671
1,348
77,782
$
$
18,650
—
5,175
1,711
—
2,896
709
1,589
1,501
2,726
1,554
36,511
The following table summarizes the Company’s investments and other assets for each of the periods indicated:
F-20
$
Manufacturing-related deposits
Strategic investments
Prepaid clinical expenses
Alternative minimum tax credit
Restricted investments
Long-term available-for-sale securities
Other
Total investments and other assets
$
As of
December 31,
2018
As of
December 31,
2017
(in thousands)
62,821
31,739
7,541
3,367
1,001
—
825
107,294
$
$
$
—
—
7,488
3,315
784
9,980
242
21,809
10. PROPERTY AND EQUIPMENT, NET
Property and equipment are recorded at historical cost, net of accumulated depreciation. The following table summarizes components of property
and equipment, net for each of the periods indicated:
Land
Building and improvements
Software and computer equipment
Lab equipment
Office equipment
Leasehold improvements
Construction in progress
Property and equipment, gross
Less: accumulated depreciation
Property and equipment, net
As of December 31,
2018
2017
(in thousands)
$
$
4,158
22,972
15,774
17,659
3,663
20,937
40,010
125,173
(28,149)
97,024
$
$
4,158
14,543
8,965
9,860
2,211
13,633
7,808
61,178
(18,022)
43,156
For the years ended December 31, 2018, 2017 and 2016, depreciation expense totaled $10.2 million, $6.4 million and $5.0 million, respectively.
11. INTANGIBLE ASSETS
The following table summarizes the components of the Company’s intangible assets for each of the periods indicated:
Patents
In-licensed rights
Software licenses
Total
As of
December 31,
2018
As of
December 31,
2017
$
$
(in thousands)
5,773
5,626
175
11,574
$
$
7,660
6,491
204
14,355
The in-licensed rights relate to agreements with BioMarin and UWA. Following the execution of the settlement and license agreements with
BioMarin in July 2017, the Company recorded a $6.6 million intangible asset related to EXONDYS 51 in the U.S. Additionally, as a result of the FDA
approval and the subsequent commercial sale of EXONDYS 51, the Company made a $1.0 million sales milestone to UWA and, accordingly, recorded an in-
licensed right. The in-licensed rights are being amortized on a straight-line basis over the remaining life of the related patent because the life of the related
patent reflects the expected time period that the Company will benefit from the in-licensed right. For the years ended December 31, 2018, 2017 and 2016, the
Company recorded $0.9 million, $1.1 million and less than $0.1 million, respectively, of amortization related to the in-license rights.
F-21
Patent costs consist primarily of external legal costs, filing fees incurred to file patent applications and renewal fees on proprietary technology
developed 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, which is generally 20 years. Patent amortization expense was $0.7
million, $0.6 million and $0.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. The Company also expensed the remaining net
book value of previously capitalized patents that were later abandoned of $0.1 million, $0.6 million and $0.3 million for the years ended December 31, 2018,
2017 and 2016, respectively, which were included in research and development expenses on the consolidated statements of operations and comprehensive
loss.
Additionally, the Company reviewed its patent portfolio and identified technology that the Company will no longer pursue. As a result, the
Company impaired these patent assets and recorded $3.8 million in impairment loss, which was included in research and development expense on the
consolidated statement of operations and comprehensive loss.
The following table summarizes the estimated future amortization for intangible assets for the next five years:
2019
2020
2021
2022
2023
Total
As of
December 31, 2018
(in thousands)
1,490
1,300
1,299
1,298
1,297
6,684
$
12. ACCRUED EXPENSES
The following table summarizes the Company’s accrued expenses for each of the periods indicated:
$
Product revenue related reserves
Accrued employee compensation costs
Accrued milestone expense
Accrued contract manufacturing costs
Accrued clinical and pre-clinical costs
Accrued professional fees
Accrued BioMarin royalties
Accrued property and equipment
Accrued collaboration cost sharing
Accrued research costs
Accrued interest expenses
Accrued income taxes
Other
Total accrued expenses
$
As of
December 31,
2018
As of
December 31,
2017
(in thousands)
26,146 $
24,692
24,020
15,794
11,396
11,319
8,254
5,421
2,167
1,070
1,045
301
2,470
134,095 $
7,302
14,402
—
14,019
15,975
6,794
2,846
2,525
—
401
1,291
943
2,484
68,982
13. RESTRUCTURING
In March 2016, the Company announced a long-term plan to consolidate all of the Company’s operations to Massachusetts as part of a strategic
plan to increase operational efficiency. As part of the consolidation, research activities and some employees transitioned to the Company’s facilities in
Andover and Cambridge, Massachusetts. As of December 31, 2017, the relocations and terminations were completed.
The second floor and the first floor of the Company’s facility in Corvallis, Oregon were vacated and closed and made available for sub-leasing in
December 2016 and April 2017, respectively. Using a discounted cash flow methodology and based on
F-22
monthly rent payments as well as estimated sublease income, the Company recognized a total of approximately $1.5 million and $2.3 million, in restructuring
expenses for the second and the first floor, respectively. In June 2018, the Corvallis facility was sold, and the Company entered into a rental termination
agreement with the new landlord regarding the space made available for sub-lease. As a result, we relieved the remaining $2.2 million of cease-use liability
related to this space in June 2018, which was recorded as a reduction to selling, general and administrative expenses.
For the years ended December 31, 2018, 2017 and 2016, the Company recognized $(2.2) million, $3.0 million and $4.6 million as restructuring
expenses, respectively.
Research and development
Selling, general and administrative
Total restructuring expenses
$
$
—
(2,222)
(2,222)
$
$
188
2,832
3,020
$
$
2,013
2,549
4,562
For the Year Ended December 31
2018
2017
(in thousands)
2016
The following table summarizes the restructuring reserve for each of the periods indicated:
Restructuring reserve beginning balance
Restructuring expenses incurred during the period
Amounts paid during the period
Reversal of cease-use liability
Restructuring reserve ending balance
$
$
For the Year Ended December 31
2018
2017
(in thousands)
2,933
—
(711)
(2,222)
—
$
$
1,588
3,020
(1,675)
—
2,933
14. INDEBTEDNESS
2024 Convertible Notes
On November 14, 2017, the Company issued $570.0 million senior notes due on November 15, 2024 (the “2024 Notes”). The 2024 Notes were
issued at face value and bear interest at the rate of 1.50% per annum, payable semi-annually in cash on each May 15 and November 15, commencing on May
15, 2018.
Upon conversion, the Company may pay cash, shares of its common stock or a combination of cash and stock, as determined by the Company in its
discretion. The 2024 Notes may be convertible into 7,763,552 shares of the Company’s common stock under certain circumstances prior to maturity at a
conversion rate of 13.621 shares per $1,000 principal amount of the 2024 Notes, which represents a conversion price of $73.42 per share, subject to
adjustment under certain conditions.
The Company allocated the proceeds received from issuance of the 2024 Notes between the liability component and the embedded conversion
option, or equity component. The liability component was determined by measuring the fair value of similar notes that do not include the embedded
conversion option. The Company allocated $161.1 million to the equity component, which was determined by deducting the fair value of the liability
component from the par value of the 2024 Notes. The equity component, net of allocated offering costs of $4.2 million, was recorded as an increase additional
paid-in capital. The equity component, plus $10.6 million of offering costs allocated to the liability component, represent the total debt discount on the 2024
Notes at issuance. The debt discount will be amortized under an effective interest method and recorded as additional interest expense over the life of the 2024
Notes. The effective interest rate on the liability component of the 2024 Notes for the year ended December 31, 2018 and 2017 was 6.9%.
Upon the occurrence of a “fundamental change”, which includes (1) change in beneficial ownership of the Company where any person/group
possesses more than 50% of the voting power of the Company, (2) consolidation or merger of the Company, (3) shareholder approval of a liquidation plan or
(4) the Company is delisted from NYSE or NASDAQ, the holders may require the Company to repurchase all or a portion of the 2024 Notes for cash at 100%
of the principal amount of the 2024 Notes being purchased, plus any accrued and unpaid interest. Additionally, upon the occurrence of a “make-whole
fundamental change” prior to the maturity date, the Company shall adjust the conversion rate on a sliding scale basis detailed in the agreement
F-23
To minimize the impact of potential dilution upon conversion of the 2024 Notes, the Company separately entered into capped call transactions with
certain counterparties. The capped calls have a strike price of $73.42 and a cap price of $104.88 and are exercisable when and if the 2024 Notes are
converted. If, upon conversion of the 2024 Notes, the price of the Company’s common stock is between the strike price and the cap price of the capped calls,
the counterparties will deliver shares of the Company’s common stock and/or cash with an aggregate value equal to the difference between the price of the
Company’s common stock at the conversion date and the strike price, multiplied by the number of shares of the Company’s common stock related to the
capped calls being exercised. The Company paid $50.9 million for these capped calls transactions, which was recorded as additional paid-in capital.
Term Loan and Revolving Line of Credit
In July 2017, the Company entered into an amended and restated credit agreement (the “Amended and Restated Credit and Security Agreement”)
which provides a term loan (“July 2017 Term Loan”) of $60.0 million with MidCap Financial Trust (“MidCap”). Borrowings under the Amended and
Restated Credit and Security Agreement bore interest at a rate per annum equal to 6.25%, plus the one-month London Interbank Offered Rate (“LIBOR”). In
addition to paying interest on the outstanding principal under the Amended and Restated Credit and Security Agreement, the Company paid an origination fee
equal to 0.50% of the amount of the term loan when advanced under the Amended and Restated Credit and Security Agreement and would be liable for a
final payment fee equal to 2.00% of the amount borrowed under the Amended and Restated Credit and Security Agreement when the July 2017 Term Loan
was fully repaid. Commencing on July 1, 2018, and continuing for the remaining thirty six months of the facility, the Company was required to make monthly
principal payments of approximately $0.8 million, set forth in the Amended and Restated Credit and Security Agreement, subject to certain adjustments as
described therein. The facility would mature in July 2021.
In July 2017, the Company also entered into a revolving credit and security agreement (the “Revolving Credit Agreement”) which provides an
aggregate revolving loan commitment of $40.0 million (which may be increased by an additional tranche of $20.0 million) with MidCap. Borrowings under
the Revolving Credit Agreement bore interest at a rate of 3.95%, plus the one-month LIBOR. In addition to paying interest on the outstanding principal under
the Revolving Credit Agreement, the Company paid $0.2 million of origination fees, which was 0.50% of the amount of the revolving loan. The Company
recognized this origination fee as other asset and it was amortized to interest expense over the term of the revolving loan.
In September 2018, the Company terminated both the Amended and Restated Credit and Security Agreement and the Revolving Credit Agreement
with MidCap and paid off the remaining outstanding balance of principal and accrued and unpaid interest on the July 2017 Term Loan. As a result, the
Company recorded a debt extinguishment loss of $2.3 million primarily related to the write-off of unamortized debt issuance costs and prepayment fees.
Mortgage Loans
The Company had two mortgage loans outstanding which bear interest at 4.75% with the original maturity date of February 2027 and were
collateralized by a facility in Corvallis, Oregon. At December 31, 2017, these loans had unpaid principal balances of $0.8 million and $0.5 million, for a total
indebtedness of $1.3 million, and were presented as current portion of long-term debt on the consolidated balance sheet. In connection with the sale of this
property in January 2018, the two long-term mortgage loans were paid off.
As of December 31, 2018, the Company recorded approximately $420.6 million as long-term debt on the consolidated balance sheets. For the years
ended December 31, 2018, 2017 and 2016, the Company recorded $33.7 million, $5.8 million and $1.9 million of interest expense, respectively.
The following table summarizes the Company’s debt facilities for the periods indicated:
Par value of the 2024 Notes
Unamortized discount - equity component
Unamortized discount - debt issuance costs
Net carrying value of convertible debt
Net carrying value of other debt facilities
Net carrying value of total debt facilities
Fair value of convertible debt
F-24
As of
December 31,
2018
(in thousand)
As of
December 31,
2017
(in thousand)
$
570,000
(140,206)
(9,240)
420,554
—
420,554
570,000
(158,890)
(10,449)
400,661
30,390
431,051
952,681
$
619,641
$
$
The fair value of the Company’s 2024 Notes is based on open market trades and is classified as level 1 in the fair value hierarchy.
The following table summarizes the total gross payments due under the Company’s debt arrangements:
2019
2020
2021
2022
2023
Thereafter
Total Payments
As of
December 31,
2018
(in thousands)
—
—
—
—
—
570,000
570,000
$
$
15. EQUITY FINANCING
In November 2018, the Company sold approximately 4.1 million shares of common stock through an underwritten public offering, including 0.3
million shares sold to the underwriters. The offering price was $131.00 per share. The Company received net proceeds of approximately $513.4 million from
the offering, net of commission and offering expenses of approximately $24.6 million.
In July 2017, the Company sold approximately 8.8 million shares of common stock through an underwritten public offering, including 1.2 million
shares sold to the underwriters. The offering price was $42.50 per share. The Company received net proceeds of approximately $354.0 million from the
offering, net of commission and offering expenses of approximately $20.0 million.
In September 2016, the Company sold approximately 5.8 million shares of common stock through an underwritten public offering at a price of
$59.75 per share. The Company received net proceeds of approximately $327.4 million from the offering net of commission and offering expenses of
approximately $17.6 million.
In June 2016, the Company sold approximately 2.1 million shares of common stock through an underwritten public offering at a price of $17.84
per share. The Company received net proceeds of approximately $37.3 million from the offering net of offering expense of approximately $0.2 million.
16. STOCK-BASED COMPENSATION
In June 2011, the Company’s stockholders approved the 2011 Equity Incentive Plan (“2011 Plan”). The 2011 Plan, which authorized 13.0 million
shares of common stock to be issued, allows for the grant of stock options, SARs, RSAs, RSUs, performance shares and performance units. In June 2016 and
2015, shareholders authorized the issuance of an additional 1.3 million and 1.7 million shares, respectively, of common stock under the 2011 Plan. As of
December 31, 2018, the 2011 Plan was merged into the 2018 Plan (defined below). As a result, there were no shares of common stock remaining available for
future grant under the 2011 Plan.
In June 2013, the Company’s stockholders approved the 2013 ESPP with approximately 0.3 million shares of common stock available to be issued.
In June 2016, the Company’s stockholders approved an additional approximately 0.3 million shares of common stock available to be issued to be added to the
2013 ESPP. As of December 31, 2018, 0.2 million shares of common stock remain available for future grant under the 2013 ESPP.
In September 2014, the Company initiated the 2014 Employment Commencement Incentive Plan (“2014 Plan”) with approximately 0.6 million
shares of common stock available to be issued. In October 2015, June 2017 and July 2018, the 2014 Plan was increased by 1.0 million, 3.8 million and 1.2
million shares of common stock available to be issued, respectively. As of December 31, 2018, 0.9 million shares of common stock remain available for
future grant under the 2014 Plan.
F-25
In June 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan (“2018 Plan”). The 2018 Plan, which authorized 2.9 million
shares of common stock to be issued, allows for the grant of stock options, SARs, RSAs, RSUs, performance shares and performance units. The 2011 Plan
was merged into the 2018 Plan and, as a result, all remaining shares in the 2011 Plan were transferred into the 2018 Plan. As of December 31, 2018, 4.4
million shares of common stock remain available for future grant under the 2018 Plan.
Stock Options
In 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
anniversary of the grant and 1/48th of the underlying shares vesting monthly thereafter, such that the underlying shares will be fully vested on the fourth
anniversary of the 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:
Risk-free interest rate (1)
Expected dividend yield (2)
Expected term (3)
Expected volatility (4)
For the Year Ended December 31,
2018
2.5 - 3.0%
—
5.06 years
52.4 - 60.8%
2017
1.6 - 2.1%
—
4.2 - 4.8 years
54.0 - 63.0%
2016
1.1 – 1.8%
—
4.2 – 4.8 years
78.2 – 137.1 %
(1)
(2)
(3)
(4)
The risk-free interest rate is estimated using an average of Treasury bill interest rates over a historical period commensurate with the expected term of
the option that correlates to the prevailing interest rates at the time of grant.
The expected dividend yield is zero as the Company has not paid any dividends to date and does not expect to pay dividends in the future.
The expected term is estimated using historical exercise behavior.
Upon commercialization of EXONDYS 51 in the U.S., the Company’s future risk profile changed. As a result, starting January 1, 2017, the Company
estimates expected volatility by using only implied volatility in exchange-traded options of the Company’s common stock. Prior to January 1, 2017,
the expected volatility was estimated using a blend of calculated volatility of the Company’s common stock over a historical period and implied
volatility in exchange-traded options of the Company’s common stock.
The amounts estimated according to the Black-Scholes-Merton option-pricing model may not be indicative of the actual values realized upon the
exercise of these options by the holders.
The following tables summarize the Company’s stock option activity for each of the periods indicated:
2018
For the Year Ended December 31,
2017
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
2016
Weighted
Average
Exercise
Price
Shares
Grants outstanding at beginning of
the period
Granted
Exercised
Cancelled
Grants outstanding at end of the period
Grants exercisable at end of the period
Grants vested and expected to vest at end
of the period
Shares
8,806,204
2,152,439
(2,119,306)
(448,166)
8,391,171
2,304,791
6,643,835
$
$
$
$
29.74
5,436,951
$
90.15
22.89
46.11
46.09
4,805,722 (1)
(792,845)
(643,624)
8,806,204
$
22.70
35.09
17.40
25.44
29.74
6,515,976 $
1,285,051
(1,056,821)
(1,307,255)
5,436,951 $
23.91
14.89
18.31
24.61
22.70
27.69
3,288,712
$
24.76
2,942,624 $
24.42
45.43
6,910,022
$
28.49
5,116,409 $
22.83
(1)
In June 2017, the Company granted its new CEO 3,300,000 options with service and market conditions. These options have a five-year cliff vesting
schedule. The fair value of $13.48 for these options was determined by a lattice model with Monte Carlo simulations. The remaining are service-based
options which have a four-year vesting schedule with 25% vesting on the first anniversary and 1/48 monthly thereafter.
F-26
The weighted-average grant date fair value per share of stock options granted during the years ended December 31, 2018, 2017 and 2016 was
$44.66, $14.78 and $12.46, respectively.
Aggregate
Intrinsic
Value
(in thousands)
Weighted
Average
Remaining
Contractual
Life (Years)
Options outstanding at December 31, 2018
Options exercisable at December 31, 2018
Options vested and expected to vest at December 31, 2018
$
$
$
551,131
187,693
433,681
7.7
5.5
7.4
The following table summarizes the Company’s stock options vested and exercised for each of the periods indicated:
Aggregate grant date fair value of stock options vested
Aggregate intrinsic value of stock options exercised
For the Year Ended December 31,
2018
2017
2016
$
$
16,316
158,936
(in thousands)
$
$
18,225 $
20,922 $
30,651
30,610
In February 2016, the Company granted to executives approximately 0.3 million stock options with service- and performance-based conditions
(“February 2016 Performance Grants”). Vesting is achieved based upon the FDA approval of EXONDYS 51 and submission of MAA for eteplirsen to the
EMA and continuing service over a four-year period. As a result of both milestones achieved in 2016, 50% of the February 2016 performance grants were
triggered to be vested immediately and the remaining 50% are subject to the remaining service conditions of the awards. Additionally, in June 2013, the
Company granted to executives approximately 0.4 million stock options with service- and performance-based conditions (“June 2013 Performance Grants”).
Vesting was achieved based upon various regulatory approval for EXONDYS 51 and filings of investigational new drug submissions for other drug
candidates and continuing service over a four-year period. 80% of the June 2013 Performance Grants was vested as of December 31, 2016 and the remaining
20% were forfeited.
For the years ended December 31, 2018, 2017 and 2016, the Company has recognized approximately $0.2 million, $0.9 million and $5.0 million in
stock-based compensation expense related to the options with performance-based criteria, respectively.
As of December 31, 2018, the total stock-based compensation expense related to non-vested awards with only service-vesting conditions not yet
recognized is approximately $73.0 million, those with service- and performance-based conditions approximates $0.2 million and those with market-based
conditions approximates $31.0 million.
Restricted Stock Awards
The Company grants RSAs to members of its board of directors and certain employees. The following table summarizes the Company’s RSA
activity for each of the periods indicated:
Grants outstanding at beginning of the
period
Granted
Vested
Forfeited
Grants outstanding at end of the period
2018
For the Year Ended December 31,
2017
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
2016
Weighted
Average
Exercise
Price
Shares
411,781
27,590
(187,050)
—
252,321
$
$
37.23
98.57
39.34
—
42.37
153,170
341,500
(63,264)
(19,625)
411,781
$
$
34.53
34.58
14.60
43.02
37.23
161,320
$
117,553
(59,703)
(66,000)
153,170 $
21.50
41.22
13.62
33.51
34.53
In September 2016, the Company granted certain executives RSAs with a performance condition relating to certain sales targets. If the sales targets
are achieved within the required time frame, the number of RSAs may be increased from 71,925 to 89,906 shares. In December 2017, the Company modified
the expiration date of these RSAs from June 30, 2018 to January 1, 2019. As a result of this modification, the fair value was changed from $48.94 to $54.29.
Through December 31, 2017, the Company had not recorded any stock-based compensation expense associated with these awards as the achievement of the
performance conditions was not deemed probable. However, as of December 31, 2018, the first sales target related to these RSAs was achieved and the
second
F-27
target was not deemed as probable of being achieved. Accordingly, the Company recognized approximately $3.3 million of stock-based compensation
expense during the year ended December 31, 2018, related to the achievement of the first performance condition.
Restricted Stock Units
The Company also grants RSUs to members of its board of directors and employees. The following table summarizes the Company’s RSU activity
for the periods indicated:
Grants outstanding at beginning of the period
Granted
Vested
Forfeited
Grants outstanding at end of the period
For the Year Ended December 31
2018
2017
Weighted
Average
Exercise
Price
$
$
33.72
87.95
33.23
71.45
81.21
Shares
66,552
230,736
(30,276)
(15,714)
251,298
Weighted
Average
Exercise
Price
—
33.03
32.63
32.63
33.72
Shares
—
181,029
(78,017)
(36,460)
66,552
$
$
F-28
In March 2017, the Company granted executives 156,029 RSUs with performance conditions relating to certain sales target and regulatory
milestones. The first performance condition of these RSUs was achieved in June 2017. The second performance condition was deemed as probable of being
achieved in September 2017 and was achieved in May 2018. For the years ended December 31, 2018 and 2017, the Company recognized approximately $0.2
million and $2.9 million of stock-based compensation expense, respectively, related to the performance conditions of these RSUs. The third performance
milestone was not deemed as probable of being achieved as of December 31, 2018. If and when deemed probable that the last performance milestone may be
achieved within the required time frame, the Company may recognize up to $0.7 million of stock-based compensation related to the third performance
milestone of these grants.
Stock Appreciation Rights
The Company issues SARs to employees on the same terms as options granted to employees. The grant date fair value of the SARs is determined
using the same valuation assumptions as for stock options described above. Stock-based compensation expense is recognized on a straight-line basis over the
vesting period of the SARs.
As of December 31, 2018, there were 100,000 SARs vested and outstanding. These SARs were granted to the Company’s Executive Vice President
and CFO in November 2012 and have an exercise price of $23.85 per share. The SARs are classified as equity as the agreements require settlement in shares
of stock.
The following table summarizes the Company’s SAR activity for each of the periods indicated:
2018
For the Year Ended December 31,
2017
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
2016
Weighted
Average
Exercise
Price
Shares
100,000
100,000
100,000
100,000
$
$
$
$
23.85
23.85
100,000
100,000
23.85
100,000
23.85
100,000
$
$
$
$
23.85
23.85
100,000 $
100,000 $
23.85
100,000 $
23.85
23.85
23.85
23.85
100,000 $
23.85
Aggregate
Intrinsic
Value
(in thousands)
$
8,528
Weighted
Average
Remaining
Contractual
Life (Years)
3.9
Grants outstanding at beginning of
the period
Grants outstanding at end of the period
Grants exercisable at end of the period
Grants vested and expected to vest at end of
the period
SARs outstanding, exercisable and vested
at December 31, 2018
2013 Employee Stock Purchase Plan
Under the Company’s ESPP, participating employees purchase common stock through payroll deductions. The purchase price is equal to 85% of
the lower 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-
month offering period will end between February 28, 2018 and August 31, 2019. The following table summarizes the Company’s ESPP activity for each of
the periods indicated:
Number of shares purchased
Proceeds received (in millions)
For the Year Ended December 31,
2018
75,094
2.3
$
2017
102,698
1.4 $
2016
137,113
1.6
$
F-29
Stock-based Compensation Expense
For the years ended December 31, 2018, 2017 and 2016, total stock-based compensation expense was $50.1 million, $30.5 million and $30 million,
respectively. Included in the amounts for the year ended December 31, 2017 is $2.1 million of stock-based compensation expense incurred in connection with
the resignation of the Company’s former CEO. The following table summarizes stock-based compensation expense by function included within the
consolidated statements of operations and comprehensive loss:
Research and development
Selling, general and administrative
Total stock-based compensation
2018
For the Year Ended December 31,
2017
(in thousands)
2016
$
$
14,214 $
35,913
50,127 $
8,542 $
21,923
30,465 $
9,499
20,463
29,962
The following table summarizes stock-based compensation expense by grant type included within the consolidated statements of operations and
comprehensive loss:
Stock options
Restricted stock awards/units
Employee stock purchase plan
Other
Total stock-based compensation
17. 401 (K) PLAN
2018
For the Year Ended December 31,
2017
(in thousands)
2016
$
$
37,671 $
10,632
1,824
—
50,127 $
23,416 $
5,295
1,754
—
30,465 $
26,320
872
2,380
390
29,962
The 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. Matching
contributions fully vest after one year of service for all employees. The expense related to the Plan primarily consists of the Company’s matching
contributions.
Expense related to the Plan totaled $2.1 million, $1.4 million and $1.2 million for the years ended December 31, 2018, 2017 and 2016, respectively.
18. OTHER INCOME AND LOSS
The following table summarizes other income and loss for the periods indicated:
2018
For the year ended December 31,
2017
(in thousand)
2016
Interest expense
Interest income
Amortization of investment discount (premium)
Other (loss) income
Gain from sale of Priority Review Voucher
Total other (loss) income
$
$
(33,709) $
6,810
8,573
(656)
—
(18,982) $
(5,801) $
1,809
1,401
601
125,000
123,010 $
(1,892)
507
(80)
930
—
(535)
F-30
19. INCOME TAXES
The following table summarizes the loss before the provision for income taxes by jurisdiction for the periods indicated:
Domestic
Foreign
Total
For the Year Ended December 31,
2018
2017
2016
(in thousands)
$
$
(309,294) $
(53,316)
(362,610) $
(45,686) $
(2,942)
(48,628) $
(267,265)
—
(267,265)
The following table summarizes provision for income taxes in the accompanying consolidated financial statements for the periods indicated:
Current provision
Federal
State
Foreign
Total current provision
Deferred benefit:
Federal
State
Foreign
Total deferred benefit
Total current provision
For the Year Ended December 31,
2018
2017
2016
(in thousands)
$
$
(110) $
(653)
311
(452)
—
—
(240)
(240)
(692) $
204 $
1,856
—
2,060
—
—
—
—
2,060 $
—
—
—
—
—
—
—
—
—
The following table summarizes the reconciliation between the Company’s effective tax rate and the income tax rate for each of the periods
indicated:
Federal income tax rate
State taxes
Research and development and other tax credits
Valuation allowance
Permanent differences
Sarepta International C.V. return to provision
Impact of tax reform, net of valuation allowance
Foreign rate differential
Other
Effective tax rate
For the Year Ended December 31,
2018
2017
2016
21.0 %
12.3
3.1
(45.5)
6.9
(0.1)
—
(0.9)
3.4
0.2 %
34.0 %
(27.7)
8.5
(93.2)
6.4
62.1
5.90
(0.6)
0.40
(4.2) %
34.0 %
—
1.5
(17.3)
(3.4)
—
—
(14.8)
—
— %
Permanent differences affecting the Company’s effective tax rate primarily include excess stock-based compensation tax deductions, net of non-
deductible stock-based compensation and 162(m) limitation.
In December 2012, the Company licensed certain intellectual property of Sarepta Therapeutics, Inc. to its wholly owned subsidiary, Sarepta
International C.V. The parties also entered into a contract research agreement under which Sarepta Therapeutics, Inc. performs research services for Sarepta
International C.V. In January 2016, Sarepta Therapeutics, Inc. entered into a manufacturing and distribution agreement as well as service agreement with
Sarepta International C.V. In conjunction with its recent filings, it was determined that beginning in 2016, Sarepta International C.V. is effectively connected
with the conduct of a trade or business by the entity in the U.S. and, accordingly, the 2016, 2017 and 2018 losses are subject to U.S. income taxes. For the
years ended December 31, 2018, 2017, and 2016, Sarepta International C.V. incurred losses of $67.6 million, $143.8 million, and $174.9 million, respectively.
F-31
The following table summarizes the analysis of the deferred tax assets and liabilities for each of the periods indicated:
Deferred tax assets:
Net operating loss carryforwards
Difference in depreciation and amortization
Research and development tax credits
Stock-based compensation
Deferred rent
Deferred revenue
Capitalized inventory
Other
Total deferred tax assets
Deferred tax liabilities:
Debt discount
Total deferred tax liabilities
Valuation allowance
Net deferred tax assets
As of December 31,
2018
2017
(in thousands)
$
212,342 $
55,162
67,309
15,538
4,831
888
22,943
15,727
394,740
(25,162)
(25,162)
(369,345)
$
233 $
144,897
1,210
44,306
14,392
1,210
904
22,127
4,071
233,117
(28,548)
(28,548)
(204,569)
—
The Company has evaluated the positive and negative evidence bearing upon the realizability of its U.S. net deferred tax assets, which are
comprised principally of federal and state net operating loss carryforwards, research and development tax credit carryforwards, stock-based compensation
expense, capitalized inventory and intangibles. Under the applicable accounting standards, management has considered the Company’s history of losses and
concluded that it is more likely than not that the Company will not recognize the benefits of net federal and state deferred tax assets. Accordingly, a full
valuation allowance of the U.S. net deferred tax asset had been established at December 31, 2018 and 2017. The net change in the valuation allowance for
deferred tax assets was an increase of $164.8 million and a decrease of $69.5 million for the years ended December 31, 2018 and 2017, respectively. This
increase for the year ended December 31, 2018 was primarily due to the generation of federal and state net operating losses.
The Company generated foreign deferred tax assets mainly consisting of net operating loss carryforwards, stock-based compensation and
unrealized gain/losses. Based upon the income projections in the majority of the foreign jurisdictions, the Company believes it will realize the benefit of its
future deductible differences. As such, the Company has not recorded a valuation allowance against all foreign jurisdictions except for Brazil and
Switzerland. Brazil and Switzerland generated deferred tax assets, which consist of net operating loss carryforwards and stock-based compensation
expense. A full valuation allowance has been recorded against these deferred tax assets.
As of December 31, 2018, the Company had federal and state net operating loss carryforwards of $438.5 million and $503.3 million, respectively,
available to reduce future taxable income. The federal and state net operating loss carry forwards of $240.0 million and $503.3 million will expire at various
dates between 2019 and 2038. Federal net operating loss of $198.5 million can be carried forward indefinitely. In addition, the Company had $386.3 million
of federal net operating loss carryforwards generated by its wholly-owned subsidiary, Sarepta International C.V., of which $318.7 million will expire between
2036 and 2037. $67.6 million of Sarepta International C.V.’s net operating losses can be carried forward indefinitely. Utilization of these net operating losses
could be limited under Section 382 of the Internal Revenue Code and similar state laws based on ownership changes and the value of the Company’s stock.
Additionally, the Company has $50.3 million and $20.9 million of federal and state research and development credits, respectively, available to offset future
taxable income. These federal and state research and development credits begin to expire between 2019 and 2038 and between 2019 and 2033, respectively.
The Company also has foreign net operating loss carryforwards of $55.2 million, mainly derived from the net operating loss generated by Sarepta
International Holdings GmbH, which will begin to expire in 2024.
F-32
The follow table summarizes the reconciliation of the beginning and ending amount of total unrecognized tax benefits for each of the periods
indicated:
Balance at beginning of the period
Increase related to current year tax positions
Increase related to prior year tax positions
Decrease related to prior year tax positions
Balance at end of the period
For the Year Ended December 31,
2018
2017
2016
(in thousands)
$
$
5,134 $
2,164
30,246
—
37,544 $
4,644 $
735
—
(245)
5,134 $
3,706
801
137
—
4,644
The balance of total unrecognized tax benefits at December 31, 2018, if recognized, would not affect the effective tax rate on income from
continuing operations, due to a full valuation allowance against the Company’s U.S. deferred tax assets. The Company does not expect that the amount of
unrecognized tax benefits to change significantly in the next twelve months. The Company, including its domestic subsidiaries, files consolidated U.S. federal
and state income tax returns. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. It had no
accrual for interest or penalties on its balance sheet at December 31, 2018 or 2017. No interest and/or penalties were recognized in 2017 or 2016.
20. NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding. Diluted net loss
per share 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 the
effect of common stock equivalents would be anti-dilutive and are, therefore, excluded from the diluted net loss per share calculation.
Net loss
Weighted-average number of shares of common
stock and common stock equivalents
outstanding:
Weighted-average number of shares of common
stock outstanding for computing basic loss per
share
Dilutive effect of outstanding stock
awards and stock options after application of
the treasury stock method*
Weighted-average number of shares of common
stock and dilutive common stock equivalents
outstanding for computing diluted loss per share
Net loss per share — basic and diluted
For the Year Ended December 31,
2018
2017
2016
$
(361,918) $
(50,688) $
(267,265)
(in thousands, except per share amounts)
66,250
58,818
48,697
—
—
—
$
66,250
(5.46) $
58,818
(0.86) $
48,697
(5.49)
*
For the years ended December 31, 2018 and 2017, stock options, RSAs, RSUs, SARs and ESPP to purchase approximately 9.1 million and 9.4 million
shares of common stock, respectively, were excluded from the net loss per share calculation as their effect would have been anti-dilutive. For the year
ended December 31, 2016, stock options, RSAs and SARs to purchase approximately 5.7 million shares of common stock, were excluded from the net
loss per share calculation as their effect would have been anti-dilutive. The Company accounts for the effect of the 2024 Notes on diluted net earnings
per share using the if-converted method as they may be settled in cash or shares at the Company’s option. While the closing price on December 31,
2018 exceeded the conversion price of $73.42, the potential shares issuable under the 2024 Notes were excluded from the calculation of diluted loss
per share as they were anti-dilutive using the if-converted method. In the period of conversion, the 2024 Notes will have no impact on diluted net
earnings (loss) if they are settled in cash and will have an impact on diluted earnings per share if the Notes are settled in shares upon conversion and
when the Company in an income position.
F-33
21. COMMITMENTS AND CONTINGENCIES
Lease Obligations
In June 2013, the Company entered into a lease agreement (“Cambridge lease”) for its headquarters located in Cambridge, Massachusetts. In April
and September 2018, the Company entered into the seventh and eighth amendment, respectively, to its Cambridge lease which extended the original term of
the lease to September 30, 2025 and increased the total rental space to approximately 163,842 square feet. The agreement calls for a security deposit in the
form of a letter of credit totaling $1.0 million. The Company purchased a certificate of deposit to meet the requirement and it is recorded as a long-term
restricted investment in the consolidated balance sheets as of December 31, 2018 and 2017.
In March and July of 2018, the Company entered into sublease agreements in Andover, Massachusetts, to lease a total of 23,102 square feet of
additional office space. These subleases expires in December 2020.
In November 2018, the Company entered into a sublease agreement in Burlington, Massachusetts, to lease 44,740 square feet of additional office
and lab space. The sublease expires in January 2022.
In December 2018, the Company entered into lease agreements in Dublin and Columbus, Ohio, to lease 22,600 square feet and 77,679 square feet,
respectively, of additional office and lab space. The leases expire in November 2019 and June 2026, respectively.
In August 2015 and December 2016, the Company entered into agreements to sublease 15,077 square feet and 7,461 square feet, respectively, of
office space to two unrelated third parties. The subleases expired in March and December 2017, respectively.
The Company also leased laboratory and office space in Corvallis, Oregon which would expire in December 2020. The second floor and the first
floor of the facility were vacated and closed and made available for sub-leasing in December 2016 and April 2017, respectively. The lease was terminated in
June 2018.
The following table summarizes the aggregate future minimum payments under the Company’s leases:
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
As of
December 31, 2018
(in thousands)
11,588
11,395
12,558
10,757
10,898
20,524
77,720
$
$
Royalty Obligations
The Company is obligated to pay royalties on net sales of certain of its products. The royalty rates range from the low-single-digit to high teens
percentages for both inside and outside the U.S. Under the license agreement with BioMarin signed in July 2017, the Company is required to make a mid-
single-digit percentage of royalty on the net product sales inside the U.S. and maybe required to make a high-single-digit percentage of royalty on net product
sales outside the U.S. Under the Amended and Restated License Agreement with UWA signed in April 2013, the Company may be obligated to pay a low-
single-digit percentage of royalty on the net sales of products exceeding certain amounts, which includes EXONDYS 51. For the years ended December 31,
2018 and 2017, the Company recorded $15.1 and $4.7 million, respectively, of royalty payments to BioMarin on its consolidated statements of operations and
comprehensive loss.
Milestone Obligations
The Company has collaboration and license agreements for which it could be obligated to pay up-front, development, regulatory and sales
milestones as a product candidate proceeds from the submission of an investigational new drug application through approval for commercial sale and beyond.
As of December 31, 2018, the Company may be obligated to make up to $378.8 million of future development, regulatory, up-front royalty and sales
milestone payments associated with its collaboration and license agreements. For the years ended December 31, 2018, 2017 and 2016, the Company
recognized approximately $142.4million, $22.0 million and $47.6 million relating to certain up-front and development milestone payments as research and
development expense, respectively, under these agreements. As of December 31, 2017 and 2016, the Company also recorded $6.6 million and $1.0 million as
F-34
in-licensed right assets, respectively, corresponding to the execution of the settlement and license agreements with BioMarin and the first sale of EXONDYS
51, with no similar activity as of December 31, 2018.
Other Funding Commitments
The Company has several on-going clinical trials in various clinical trial stages. Its most significant clinical trial expenditures are to contract
research organizations (“CROs”). The CRO contracts are generally cancellable at the Company’s option. As of December 31, 2018, the Company has
approximately $71.6 million in cancellable future commitments based on existing CRO contracts. For the years ended December 31, 2018, 2017 and 2016,
the Company recognized approximately $19.6 million, $13.9 million and $8.5 million, respectively, for expenditures incurred by CROs.
Manufacturing Obligations
The Company has entered into long-term contractual arrangements from time to time for the provision of goods and services.
Brammer Bio MA, LLC
In June 2018, the Company entered into a Development, Commercial Manufacturing and Supply Agreement (“Brammer Manufacturing
Agreement”), with Brammer Bio MA, LLC (“Brammer”). Pursuant to the terms of the Brammer Manufacturing Agreement, Brammer agreed to provide the
Company with access to clinical and commercial manufacturing capacity for its gene therapy programs.
As part of the Brammer Manufacturing Agreement, the Company will purchase product in batches from Brammer, subject to minimum and
maximum annual purchase requirements. Further, the Company: (i) was required to make a $20.0 million advance payment to Brammer upon execution of the
agreement, (ii) was required to make two non-refundable payments of $5.0 million each to Brammer in the third and fourth quarter of 2018 to be used in the
specification, selection, and procurement of the related process equipment to be utilized under the agreement, and (iii) is required to make a $10.0 million
quarterly capacity access fee payment to Brammer throughout the term of the agreement. However, through June 30, 2019, a reduced quarterly capacity
access fee will be in effect as Brammer works towards achieving full capacity at its facility. In addition, one-tenth of the $20.0 million advance payment will
be applied as a credit to the quarterly capacity access fees due and payable from July 1, 2019 through December 31, 2021, resulting in a net capacity access
fee of $8.0 million.
The term of the Brammer Manufacturing Agreement will continue for a period of six years following the first regulatory approval of a product
manufactured under the agreement. The term will automatically renew for successive two years unless the Company notifies Brammer of its intention not to
renew (no less than twenty-four months prior to the expiration of the term). The Company also has the ability to terminate the agreement prior to expiration
but would be required to continue remitting capacity access fees to Brammer for up to eight additional quarters.
The Company has determined that the Brammer Manufacturing Agreement does not contain an embedded lease because it does not convey the
right to control the use of the facility or related equipment. This conclusion was based on the Company’s inability or right to control physical access to
Brammer’s facility and the related equipment, and the ability of one or more parties, other than the Company, to take more than a minor amount of the output
that will be produced during the term of the agreement.
As of December 31, 2018, the Company has made payments totaling $40.0 million to Brammer under the Brammer Manufacturing Agreement
consisting of: (i) the $20.0 million advance payment made in June 2018, (ii) the two $5.0 million process equipment fees paid in July 2018 and October 2018,
and (iii) the first two reduced quarterly capacity access fee payments of $5.0 million made in July 2018 and September 2018. Of the cumulative amount paid
of $40.0 million, $5.0 million was recorded as an other current asset and $35.0 million as an other non-current asset, in the accompanying consolidated
balance sheets.
The advance payment and process equipment fees were capitalized and will be amortized over their expected economic benefit to research and
development expense, prior to regulatory approval of the related product, commencing upon the first batch delivery to the Company, which is currently
estimated to occur in July 2019. Upon regulatory approval, amortization expense will be classified to cost of inventory with the recognition in cost of sales as
the sales of product occur. Capacity access fee payments made prior to the first batch delivery to the Company will be capitalized and amortized to expense in
a manner similar to the advance payment and process equipment fees. Capacity access fee payments made subsequent to the first batch delivery to the
Company will be expensed as incurred to research and development expense, prior to regulatory approval of the related product. Upon regulatory approval,
the expense associated with capacity access fee payments will be classified to cost of inventory with the recognition in cost of sales as the sales of product
occur. In the event the Company does not expect services under the Brammer Manufacturing Agreement to be rendered, the capitalized payments will be
charged to expense.
F-35
Paragon Bioservices, Inc.
In October 2018, the Company entered into a manufacturing collaboration agreement (“Paragon Collaboration Agreement”) with Paragon
Bioservices, Inc. (“Paragon”). Pursuant to the terms of the Paragon Collaboration Agreement, Paragon agreed to provide the Company with two dedicated
clean room suites and an option to reserve two additional clean room suites (“Optional Clean Room Suites”) for its gene therapy programs.
As part of the Paragon Collaboration Agreement, the Company will purchase product in batches from Paragon subject to minimum annual
purchase requirements. Further, the Company is required to pay Paragon: (i) use fees of $1.0 million per year per clean room suite after the clean rooms are
fully qualified and validated to manufacture the Company’s materials, and (ii) clean room reservation fees, which could total up to $48.0 million if the
Company exercises the option to reserve the Optional Clean Room Suites. Additional use fees and reservation fees are required if the Company has
equipment needs beyond the basic equipment package included in the initial clean room suites. In addition, Paragon will provide the Company with a credit
of up to 100% of the clean room use fee if certain clean room capacity utilization thresholds are met.
The term of the Paragon Collaboration Agreement will continue until the earlier of: (i) the latest expiration date of any commercial supply
agreement in effect, or (ii) December 31, 2025. The Company has the ability to terminate the Paragon Collaboration Agreement prior to expiration, subject to
potential additional financial consideration.
The Company has concluded that the Paragon Collaboration Agreement contains an embedded lease as the Company has the right to operate the
clean room suites in a manner it determines while also controlling more than a minor amount of the output during the term of the agreement. The Company
also concluded that it is not the deemed owner during construction of the clean room suites nor does the agreement represent a capital lease under ASC 840,
“Leases”. As a result, the Paragon Collaboration Agreement will be accounted for as an operating lease. As of December 31, 2018, the Company has made
reservation fee payments totaling $26.0 million to Paragon, which was recorded as an other non-current asset in the accompanying consolidated balance
sheets. This amount, along with any additional reservation fee payments made, will be amortized on a straight-line basis as rent expense over the term of the
embedded lease, commencing upon the date that the Company controls the physical use of the clean room suites, currently anticipated to occur in the fourth
quarter of 2019. Use fees associated with the clean room suites are considered contingent rental payments, and will be charged to rent expense when (and if)
incurred. Rent expense recognized prior to regulatory approval of the related product will be classified to research and development expense. Upon regulatory
approval, rent expense will be classified to cost of inventory with the recognition in cost of sales as the sales of product occur.
Aldevron, LLC
In December 2018, the Company entered into a Clinical and Commercial Supply Agreement (the “CCSA”) with Aldevron LLC (“Aldevron”) for
the supply of plasmid DNA to fulfill its needs for gene therapy clinical trials and commercial supply. Pursuant to the terms of the CCSA, Aldevron agreed to
reserve a certain number of manufacturing slots (“Reserved Slots”) on a quarterly basis. The initial term of the CCSA expires on December 31, 2019. The
Company has an option to extend the CCSA to December 31, 2020 (the “2020 Option”) and other option to extend the term of the CCSA for an additional
year to December 31, 2021 (the “2021 Renewal Right”).
The Company may be required to make up to $60.0 million in prepayments associated with the CCSA should the Company exercise both the 2020
Option and the 2021 Renewal Right. The prepayments will be credited back to Sarepta, until exhausted, for each batch of product delivered by Aldevron, in
an amount equal to 50% of the batch invoice amount. The Company has determined that the CCSA does not contain an embedded lease because it does not
convey the right to control the use of Aldevron’s facility or related equipment therein. As of December 31, 2018, the Company has made a prepayment of
$10.0 million to Aldevron under the CCSA, which was recorded as an other current asset in the accompanying consolidated balance sheets. In the event the
Company does not expect services under the CCSA to be rendered to fully exhaust any prepayments made to Aldevron, the applicable balance will be
charged to expense at the time this determination is made.
F-36
The following table presents non-cancelable contractual obligations arising from long-term contractual arrangements:
2019
2020
2021
2022
2023
Thereafter
Total manufacturing commitments
As of
December 31, 2018
(in thousands)
182,352
34,000
34,000
42,000
42,000
124,000
458,352
$
$
Litigation
In the normal course of business, the Company may from time to time be named as a party to various legal claims, actions and complaints,
including matters involving securities, employment, intellectual property, effects from the use of therapeutics utilizing its technology, or others. For example,
a complaint was filed in the U.S. District Court for the District of Massachusetts on December 3, 2014 styled William Kader, Individually and on Behalf of
All Others Similarly Situated v. Sarepta Therapeutics Inc., Christopher Garabedian, and Sandesh Mahatme (Kader v. Sarepta et.al 1:14-cv-14318). On March
20, 2015, Plaintiffs filed an amended complaint asserting violations of Section 10(b) of the Exchange Act and Securities and Exchange Commission Rule
10b-5 against the Company, and Chris Garabedian and Sandy Mahatme (“Individual Defendants,” and collectively with the Company, the “Kader
Defendants”), and violations of Section 20(a) of the Exchange Act against the Individual Defendants. Plaintiffs alleged that the Kader Defendants made
material misrepresentations or omissions during the putative class period of April 21, 2014 through October 27, 2014, regarding the sufficiency of the
Company’s data for submission of an NDA for eteplirsen and the likelihood of the FDA accepting the NDA based on that data. Plaintiffs sought
compensatory damages and fees. The Kader Defendants moved to dismiss the amended complaint on May 11, 2015. On April 5, 2016, following oral
argument on March 29, 2016, the Court granted Defendants’ motion to dismiss. On April 8, 2016, Lead Plaintiffs filed a motion for leave to file an amended
complaint, which Defendants opposed. On January 6, 2017, the Court denied Plaintiffs’ motion for leave to amend and dismissed the case. Plaintiffs filed a
notice of appeal on February 3, 2017. Oral argument took place on December 4, 2017 and the First Circuit affirmed the District Court’s dismissal of this case
on April 4, 2018. The period for filing a petition with the U.S. Supreme Court for a writ of certiorari has elapsed without a filing from the plaintiffs. As such,
there is no risk of loss in connection with this litigation.
On February 5, 2015, a derivative suit was filed in the 215th Judicial District of Harris County, Texas against the Company’s Board of Directors
(David Smith, derivatively on behalf of Sarepta Therapeutics, Inc., v. Christopher Garabedian et al., No. 2015-06645). The claims alleged that Sarepta’s
directors caused Sarepta to disseminate materially false and/or misleading statements in connection with disclosures concerning the Company’s submission of
the NDA for eteplirsen. Plaintiff sought unspecified compensatory damages, actions to reform and improve corporate governance and internal procedures,
disgorgement of profits, benefits and other compensation obtained by the directors, and attorneys’ fees. On July 10, 2018, Plaintiff filed a Notice of Nonsuit
as to all causes of action asserted in the complaint. On July 11, 2018, the court accepted the Notice of Nonsuit and all causes of action asserted in the
complaint were dismissed with prejudice. As such, there is no risk of loss in connection with this litigation.
On March 16, 2016, a derivative suit was filed in the U.S. District Court for the District of Massachusetts against the Company’s Board of
Directors (Dawn Cherry, on behalf of nominal defendant Sarepta Therapeutics, Inc., v. Behrens et al., No. 16-cv-10531). The claims alleged that the
defendants authorized the Company to make materially false and misleading statements about the Company’s business prospects in connection with its
development of eteplirsen from July 10, 2013 through the date of the complaint. Plaintiffs sought unspecified damages, actions to reform and improve
corporate governance and internal procedures, and attorneys’ fees. On July 23, 2018, Plaintiffs filed a Notice of Voluntary Dismissal and dismissed their
claims without prejudice. As such, there is no risk of loss in connection with this litigation.
Additionally, on September 23, 2014, a derivative suit was filed against the Company’s Board of Directors with the Court of Chancery of the State
of Delaware (Terry McDonald, derivatively on behalf of Sarepta Therapeutics, Inc., et al. v. 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 the Company’s
former Chief Executive Officer, Christopher Garabedian, was also excessive and such fees were the basis for Mr. Garabedian’s not objecting to or stopping
the excessive fees for the non-employee directors and (iii) that the disclosure in the 2013 proxy statement was deficient. The relief sought, among others,
includes disgorgement and rescindment of allegedly excessive or unfair payments and equity grants to Mr. Garabedian and the directors, unspecified damages
plus interest, a declaration that the Company’s Amended and Restated 2011 Equity Plan at the 2013 annual meeting was ineffective and a revote for approved
amendments, correction of misleading disclosures and plaintiff’s attorney fees. The
F-37
parties agreed to a settlement, which was approved by the Delaware Court of Chancery on September 4, 2018. The Company does not believe that disposition
of the McDonald suit will have a material financial impact on the Company.
22. SUBSEQUENT EVENT
On February 27, 2019, the Company announced that it exercised the exclusive option to acquire Myonexus as more fully described in Note 3,
License and Collaboration Agreements. The final exercise price as negotiated between the Company and Myonexus was $165.0 million. The Company may
also be required to make up to $200.0 million in additional payments to the selling shareholders of Myonexus based on the achievement of certain milestones.
The Company has evaluated subsequent events from the date of the consolidated balance sheet through the date the consolidated financial
statements were issued.
23. FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
Revenues:
Product, net
Total revenues
Cost and expenses:
Cost of sales (excluding amortization of in-licensed rights)
Research and development
Selling, general and administrative
Amortization of in-licensed rights
Total cost and operating expenses
Operating loss
Other loss:
Interest expense and other, net
Total other loss
Loss before income (benefit) tax expense
Income tax (benefit) expense
Net loss
Net loss per share - basic and diluted
Weighted average number of shares of common stock used in
computing basic and diluted net loss per share
December 31
September 30
June 30
March 31
2018 for Quarter Ended
(in thousands)
$
84,415 $
84,415
78,486 $
78,486
73,529 $
73,529
64,604
64,604
13,135
146,207
64,220
216
223,778
(139,363)
(2,311)
(2,311)
(141,674)
(779)
(140,895) $
8,741
86,584
53,044
216
148,585
(70,099)
(6,968)
(6,968)
(77,067)
(674)
6,735
122,848
47,156
217
176,956
(103,427)
(5,218)
(5,218)
(108,645)
622
(76,393) $ (109,267) $
5,582
46,204
43,341
216
95,343
(30,739)
(4,485)
(4,485)
(35,224)
139
(35,363)
(2.05) $
(1.15) $
(1.67) $
(0.55)
68,653
66,209
65,484
64,631
$
$
F-38
Revenues:
Product, net
Total revenues
Cost and expenses:
Cost of sales (excluding amortization of in-licensed rights)
Research and development
Selling, general and administrative
EXONDYS 51 settlement and license charges
Amortization of in-licensed rights
Total cost and operating expenses
Operating loss
Other (loss) income:
Interest (expense) income and other, net
Gain from sale of Priority Review Voucher
Total other (loss) income
(Loss) income before income tax (benefit) expense
Income tax (benefit) expense
Net (loss) income
Net income (loss) per share:
Basic (loss) earnings per share
Diluted (loss) earnings per share
Weighted average number of shares of common stock used in
calculating:
Basic (loss) earnings per share
Diluted (loss) earnings per share
December 31
September 30
June 30
March 31
2017 for Quarter Ended
(in thousands)
$
57,277 $
57,277
45,954 $
45,954
35,011 $
35,011
16,342
16,342
3,546
44,441
32,221
—
216
80,424
(23,147)
(2,693)
—
(2,693)
(25,840)
(1,842)
(23,998) $
3,078
34,239
28,176
25,588
780
91,861
(45,907)
505
58,908
36,069
2,839
29
98,350
(63,339)
184
—
184
(45,723)
2,011
(47,734) $
184
—
184
(63,155)
(109)
(63,046) $
224
29,119
26,216
—
28
55,587
(39,245)
335
125,000
125,335
86,090
2,000
84,090
(0.37) $
(0.37) $
(0.78) $
(0.78) $
(1.15) $
(1.15) $
1.53
1.50
64,277
64,277
61,528
61,258
54,976
54,976
54,850
56,012
$
$
$
F-39
Exhibit 10.75
December 17, 2018
Mr. Douglas S. Ingram
c/o Sarepta Therapeutics, Inc.
215 First Street
Cambridge, MA 02142
Re:
Amendment to Restricted Stock Award Agreement
Dear Doug:
This letter agreement (“Letter Agreement”) amends, effective January 1, 2019, certain terms of the Restricted Stock
Award Agreement (the “Restricted Stock Agreement”), dated June 26, 2017, between you and Sarepta Therapeutics, Inc. (the
“Company”) under the Company’s 2014 Employment Commencement Incentive Plan. Capitalized terms not otherwise defined in
this Letter Agreement have the meanings set forth in the Restricted Stock Agreement. Except as expressly provided herein, the
Restricted Stock Agreement will continue in accordance with their terms.
1.
Restricted Stock Agreement is deleted and replaced in its entirety with the following:
Restricted Stock Vesting Schedule. The second paragraph under the heading “Vesting Schedule” on page one of the
“Twenty-five percent (25%) of the Restricted Stock shall vest on the one-year anniversary of the Date of Grant; twelve
and one-half percent (12.5%) of the Restricted Stock shall vest in six equal installments on each monthly anniversary of
the Date of Grant after the one-year anniversary of the Date of Grant and ending on December 31, 2018; twenty-five
percent (25%) of the Restricted Stock shall vest on December 31, 2019; twenty-five percent (25%) of the Restricted
Stock shall vest on December 31, 2020; and twelve and one-half percent (12.5%) of the Restricted Stock shall vest on
June 26, 2021, in each case, subject to the Executive’s continued service to the Company or a subsidiary thereof from the
Date of Grant through each applicable vesting date. Executive acknowledges and agrees that this vesting schedule shall
replace and supersede the vesting schedule set forth in Section 5(a) of the Employment Agreement dated June 26, 2017,
between you and the Company, as amended by letter agreement dated June 26, 2018 (the “Employment Agreement”). In
addition to being subject to the terms and
conditions in this Award Agreement and the Plan, the Restricted Stock shall be subject to Section 26 of the Employment
Agreement.”
2
2.
Miscellaneous.
(a)
Entire Understanding. This Letter Agreement sets forth the entire agreement between you and the Company
regarding the amendment of the Restricted Stock Agreement and supersedes any other discussions or agreements between you and
the Company regarding the matters addressed herein.
(b)
Severability; Counterparts. The invalidity or unenforceability of any provision of this Letter Agreement will
not affect the validity or enforceability of any other provision. If any provision of this Letter Agreement is held invalid or
unenforceable in part, the remaining portion of such provision, together with all other provisions of this Letter Agreement, will
remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law. This Letter Agreement
may be executed in several counterparts (including, without limitation, by facsimile, PDF or electronic transmission), each of
which will be deemed an original, and such counterparts will constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
To indicate your agreement with the foregoing, please sign and return this Letter Agreement to me. This Letter
Agreement will become effective as of the date on which you sign below.
Very truly yours,
SAREPTA THERAPEUTICS, INC.
3
By: /s/ David Tyronne Howton, Jr.
Name:
Title:
David Tyronne Howton, Jr.
Senior Vice President, General Counsel and
Corporate Secretary
Accepted and Agreed:
/s/ Douglas S. Ingram
Name:
Date:
Douglas S. Ingram
December 17, 2018
[Signature Page to Letter Agreement]
Name
Sarepta Securities Corp.
ST International Holdings, Inc.
ST International Holdings Two Inc.
Sarepta International Holdings GmbH
Sarepta Therapeutics, Inc.
Subsidiaries of the Registrant
Jurisdiction of Incorporation
Massachusetts, USA
Delaware, USA
Delaware, USA
Switzerland
EXHIBIT 21.1
Consent of Independent Registered Public Accounting Firm
EXHIBIT 23.1
The Board of Directors
Sarepta Therapeutics, Inc.:
We consent to the incorporation by reference in the registration statements (No. 333-209709) on Form S-3 and (Nos. 333-101826, 333-172823,
333-175031, 333-192287, 333-199037, 333-209710, 333-213022, 333-34047, 333-49994, 333-49996, 333-221271, and 333-228719) on Form S-8 of Sarepta
Therapeutics, Inc. and subsidiaries of our reports dated February 28, 2019, with respect to the consolidated balance sheets of Sarepta Therapeutics, Inc. and
subsidiaries as of December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash
flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the “consolidated financial statements”), and
the effectiveness of internal control over financial reporting as of December 31, 2018, which reports appear in the December 31, 2018 annual report on Form
10-K of Sarepta Therapeutics, Inc. and subsidiaries.
Cambridge, Massachusetts
February 28, 2019
(signed) KPMG LLP
EXHIBIT 31.1
I, Douglas S. Ingram, certify that:
1. I have reviewed this Annual Report on Form 10-K of Sarepta Therapeutics, Inc., (the “Registrant”);
CERTIFICATION
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 the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
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 the
effectiveness 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 recent
fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control
over financial reporting.
February 28, 2019
/s/ Douglas S. Ingram
Douglas S. Ingram
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
I, Sandesh Mahatme, certify that:
1. I have reviewed this Annual Report on Form 10-K of Sarepta Therapeutics, Inc., (the “Registrant”);
CERTIFICATION
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 the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
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 the
effectiveness 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 recent
fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control
over financial reporting.
February 28, 2019
/s/ Sandesh Mahatme
Sandesh Mahatme
Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
EXHIBIT 32.1
I, Douglas S. Ingram, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report of Sarepta Therapeutics, Inc. on Form 10-K for the fiscal year ended December 31, 2018, 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 28, 2019
/s/ Douglas S. Ingram
Douglas S. Ingram
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 extent
required 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 the
Exchange Act, except to the extent that Sarepta Therapeutics, Inc. specifically incorporates it by reference.
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
EXHIBIT 32.2
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 the
Annual Report of Sarepta Therapeutics, Inc. on Form 10-K for the fiscal year ended December 31, 2018, 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 28, 2019
/s/ Sandesh Mahatme
Sandesh Mahatme,
Executive 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 extent
required 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 the
Exchange Act, except to the extent that Sarepta Therapeutics, Inc. specifically incorporates it by reference.