Sarepta Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The purpose of Management's Discussion and Analysis of Financial Condition and Results of Operations is to provide an understanding of the financial condition, changes in financial condition and results of operations of Sarepta Therapeutics, Inc. This section should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the section contained in our Annual Report on Form 10-K for the year ended December 31, 2023 under the caption “Part II-Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations”. This Quarterly Report on Form 10-Q contains certain forward-looking statements, which 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 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: • our belief that our proprietary technology platforms and collaborations can be used to develop potential therapeutic candidates to treat a broad range of diseases; • our expectation that our partnerships with manufacturers will support our clinical and commercial manufacturing capacity for our Duchenne muscular dystrophy gene therapy programs and Limb-girdle muscular dystrophy programs, while also acting as a manufacturing platform for potential future gene therapy programs, and our belief that our current network of manufacturing partners is able to fulfill the requirements of our commercial plan; • our expectation that our partnerships with Thermo Fisher Scientific Inc. (“Thermo”) and Catalent, Inc. (“Catalent”) will support our clinical and commercial manufacturing demand for our SRP-9001 Duchenne program and LGMD programs, while also acting as a manufacturing platform for potential future gene therapy programs; • our expectation that Aldevron LLC (“Aldevron”) will provide Good Manufacturing Processes (“GMP")-grade plasmid for our SRP-9001 Duchenne program and LGMD programs, as well as plasmid source material for future gene therapy programs; • the possible impact of regulations and regulatory decisions by the Food and Drug Administration (the “FDA”) and other regulatory agencies on our business as well as the development of our product candidates and our financial and contractual obligations; • estimated timelines and milestones for the remainder of 2024 and beyond, including meeting with the FDA in the second half of 2024 with respect to SRP-5051, and the efficacy supplement review goal date of June 21, 2024 for ELEVIDYS; • our engagement with regulatory authorities outside of the U.S. including the European Medicines Agency (“EMA”); • our plan to continue building out our network for commercial distribution in jurisdictions in which our products are approved; • our plan to expand our pipeline through internal research and development and through strategic transactions; • the timely completion and satisfactory outcome of our post-marketing requirements and commitments, including verification of a clinical benefit for our products in confirmatory trials; • our ability to further secure long-term supply of our commercial products and our product candidates to satisfy our planned commercial, early access programs (“EAP”) and clinical needs; • the possible impact of any competing products on the commercial success of our products and our product candidates and our ability to compete against such products; • 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; 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 estimates regarding our cash runway 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; 20 • our expectation regarding the impact of environmental laws and regulations on our business; 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 Quarterly Report on Form 10-Q after the date of this report, except as required by law or the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). We caution readers not to place undue reliance on forward-looking statements. Our actual results could differ materially from those discussed in this Quarterly Report on Form 10-Q. The forward-looking statements contained in this Quarterly Report on Form 10-Q, and other written and oral forward-looking statements made by us from time to time, are subject to certain 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 Quarterly Report on Form 10-Q. 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 have developed multiple approved products for the treatment of Duchenne muscular dystrophy (“Duchenne”) and are developing potential therapeutic candidates for a broad range of diseases and disorders, including Duchenne, Limb-girdle muscular dystrophies (“LGMDs”), and other neuromuscular and central nervous system related disorders. We commercialized four products, all of which were granted accelerated approval by the FDA: • EXONDYS 51 (eteplirsen) Injection (“EXONDYS 51”), approved by the FDA on September 19, 2016, is indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin 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. • VYONDYS 53 (golodirsen) Injection (“VYONDYS 53”), approved by the FDA on December 12, 2019, is indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin gene that is amenable to exon 53 skipping. VYONDYS 53 uses our PMO chemistry and exon-skipping technology to skip exon 53 of the dystrophin gene. • AMONDYS 45 (casimersen) Injection (“AMONDYS 45”), approved by the FDA on February 25, 2021, is indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin gene that is amenable to exon 45 skipping. AMONDYS 45 uses our PMO chemistry and exon-skipping technology to skip exon 45 of the dystrophin gene. • ELEVIDYS (delandistrogene moxeparvovec-rokl), approved by the FDA on June 22, 2023, is an adeno-associated virus based gene therapy for the treatment of ambulatory pediatric patients aged 4 through 5 years with Duchenne with a confirmed mutation in the Duchenne gene. ELEVIDYS is contraindicated in patients with any deletion in exon 8 and/or exon 9 in the Duchenne gene. We are in the process of conducting various clinical trials for our approved products, including studies that are required to comply with our post-marketing FDA requirements/commitments to verify and describe the clinical benefit of these products. A summary description of our key product candidates, including those in collaboration with our strategic partners, is as follows: • SRP-5051 uses our next-generation chemistry platform, cell-penetrating peptide-conjugated PPMO, and our exon-skipping technology to skip exon 51 of the dystrophin 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 commenced a first-in-human, single ascending dose, study for the treatment of Duchenne in patients who are amenable to exon 51 skipping. In 2019, we commenced Study 5051-201. In December 2020, we announced an interim analysis on clinical results from the 10 mg/kg and 20 mg/kg dose cohorts of Part A of Study 5051-201. In May 2021, we announced results from the 30 mg/kg cohort of Part A of Study 5051-201. We initiated Part B of Study 5051-201 in the fourth quarter of 2021. In July 2022, the FDA placed Study 5051-201 on clinical hold following a serious adverse event of hypomagnesemia. The clinical hold was lifted in August 2022. We completed enrollment of Part B of Study 5051-201 in the first quarter of 2023. In 21 January 2024, we announced results from Part B of Study 5051-201. We plan to meet with FDA to discuss next steps in the second half of 2024. • SRP-9003 (LGMD, gene therapy program). We are developing gene therapy programs for various forms of LGMDs. The most advanced of our LGMD product candidates, SRP-9003, 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 our SRP-9001 gene therapy program. A Phase 1/2a trial of SRP-9003 was commenced in the fourth quarter of 2018. In February 2019, we announced positive two-month biopsy data from the first three-patient low-dose cohort dosed in the SRP-9003 trial, and in October 2019, we announced positive nine-month functional data from these three patients. We have dosed one additional cohort of three patients at a higher dose per the study protocol. In June 2020, we announced safety and expression results from three clinical trial participants in the high-dose cohort measured at 60 days, and one-year functional data from three clinical trial participants in the low-dose cohort. In September 2020, we announced six-month functional data from three clinical trial participants in the high-dose cohort, and eighteen-month functional data from three clinical trial participants in the low-dose cohort. In March 2021, we announced 24-month functional and expression data from the three clinical trial participants in the low-dose cohort and twelve-month functional data from the three clinical trial participants in the high-dose cohort. In March 2022, we announced 36-month functional data from three clinical trial participants in the low-dose cohort and 24-month functional data from two clinical trial participants in the high-dose cohort. In January 2024, we announced that we had begun screening in Study SRP-9003-301, a Phase 3, multi-national, open-label study of SRP-9003. We are conducting various clinical trials for ELEVIDYS and announced our submission of an efficacy supplement to the biologics license application (“BLA”) for ELEVIDYS to expand its label indication to remove age and ambulatory restrictions from the approved indication on December 22, 2023. We also submitted our postmarketing requirements related to the Phase 3 SRP-9001-301 confirmatory study for ELEVIDYS requesting conversion from accelerated approval to traditional approval during December 2023. The FDA granted priority review with a review goal date of June 21, 2024. Our pipeline includes more than 40 programs in various stages of pre-clinical and clinical development, reflecting our multifaceted approach and expertise in precision genetic medicine to make a profound difference in the lives of patients suffering from rare diseases. Manufacturing, Supply and Distribution We have developed proprietary state-of-the-art Chemistry, Manufacturing and Controls (“CMC”) capabilities that allow manufacturing and testing of our products and product candidates to support both clinical development as well as commercialization. We continue to refine and optimize our manufacturing processes and test methods. 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. We have also opened facilities over the past several years that significantly enhanced our internal research and development capabilities. However, we currently do not have internal Good Manufacturing Practices (“GMP”) manufacturing capabilities to produce our products 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”), drug product and finished goods for our products and product candidates for both commercial and clinical use. All of our CMO partners have extensive technical expertise, GMP experience and experience manufacturing our specific technology. For our commercial Duchenne PMO program, we have worked with our existing CMOs to increase production capacity from mid-scale to large-scale. While there is 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 our commercial products, based on our diligence to date, we believe our current network of CMOs is able to fulfill these requirements, and is capable of expanding capacity as needed. Additionally, we have evaluated, and will continue to evaluate further relationships with additional suppliers to increase overall capacity as well as further reduce risks associated with relying on a limited number of suppliers for manufacturing. Our gene therapy manufacturing capabilities have been greatly enhanced through partnerships with Thermo Fisher Scientific Inc. (“Thermo”), Catalent, Inc. (“Catalent”) and Aldevron LLC (“Aldevron”). We have adopted a hybrid development and manufacturing strategy in which we have built internal expertise relative to all aspects of AAV-based manufacturing, including gene therapy and gene editing, while closely partnering with experienced manufacturing partners to expedite development and commercialization of our gene therapy programs. We have secured manufacturing capacity at Thermo and Catalent to support our clinical and commercial manufacturing demand for ELEVIDYS and our LGMD programs, while also acting as a manufacturing platform for potential future gene therapy programs. The collaboration integrates process development, clinical and commercial production and testing. Aldevron provides GMP-grade plasmid for ELEVIDYS and is expected to provide plasmid source material for our LGMD programs and future gene therapy programs. 22 Manufacturers and suppliers of our commercial products and product candidates are subject to the current GMP (“cGMP”) requirements and other rules and regulations prescribed by FDA and other foreign regulatory authorities. We depend on our third-party partners for continued compliance with cGMP requirements and applicable foreign standards. Our PMO commercial products are 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 our products to hospitals and hospital outpatient clinics. With respect to the pre-commercial distribution of our products to patients outside of the U.S., we have contracted with third party distributors and service providers to distribute our products in certain countries through our EAPs. We plan to continue building out our network for commercial distribution in jurisdictions in which our products are approved. The U.S. distribution model for ELEVIDYS employs multiple distribution partners that include third-party logistics providers, as well as a limited network of specialty pharmacy providers that provide the medication to hospitals for infusion. Cash, Cash Equivalents, Restricted Cash and Investments As of March 31, 2024, we had approximately $1,440.3 million of cash, cash equivalents, restricted cash and investments, consisting of $427.3 million of cash and cash equivalents, $963.5 million of short-term investments, $33.9 million of non-current investments and $15.6 million of non-current restricted cash. 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, the risks associated with government sponsored reimbursement programs and the complex regulatory environment in which we operate. Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements included elsewhere in this report. The preparation of our unaudited condensed 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 unaudited condensed consolidated financial statements will be affected. Although we believe that our judgments and 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 unaudited condensed consolidated financial statements: • inventory; and • income tax. There have been no changes to our critical accounting policies and significant estimates as detailed in our Annual Report on Form 10-K for the year ended December 31, 2023. 23 Results of Operations for the Three Months Ended March 31, 2024 and 2023 The following tables set forth selected unaudited condensed consolidated statements of income (loss) data for each of the periods indicated: For the Three Months Ended March 31, 2024 2023 Change Change (in thousands, except per share amounts) $ % Revenues: Products, net $ 359,484 $ 231,495 $ 127,989 55 % Collaboration and other 53,980 22,005 31,975 145 % Total revenues 413,464 253,500 159,964 63 % Cost and expenses: Cost of sales (excluding amortization of in-licensed rights) 50,559 35,017 15,542 44 % Research and development 200,396 245,679 (45,283 ) (18 )% Selling, general and administrative 127,003 110,714 16,289 15 % Amortization of in-licensed rights 601 178 423 NM* Total cost and expenses 378,559 391,588 (13,029 ) (3 )% Operating income (loss) 34,905 (138,088 ) 172,993 125 % Other income (loss), net: Loss on debt extinguishment — (387,329 ) 387,329 NM* Other income, net 6,543 12,707 (6,164 ) (49 )% Total other income (loss), net 6,543 (374,622 ) 381,165 102 % Income (loss) before income tax expense 41,448 (512,710 ) 554,158 108 % Income tax expense 5,329 4,045 1,284 32 % Net income (loss) $ 36,119 $ (516,755 ) $ 552,874 107 % Earnings (loss) per share Basic $ 0.38 $ (5.86 ) $ 6.24 NM* Diluted $ 0.37 $ (5.86 ) $ 6.23 NM* * NM: not meaningful Revenues Revenues from product sales are recorded at the time of sale at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from rebates, governmental chargebacks including Public Health Services chargebacks, prompt pay discounts, patient assistance programs 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). Our estimates take into consideration current contractual and statutory requirements. Actual amounts of consideration ultimately received or paid may differ from our estimates. The following table summarizes the components of our net product revenues, by product, for each of the periods indicated: For the Three Months Ended March 31, 2024 2023 Change Change (in thousands) $ % ELEVIDYS $ 133,936 $ — $ 133,936 NM* EXONDYS 51 120,171 132,571 (12,400 ) (9 )% AMONDYS 45 71,923 65,912 6,011 9 % VYONDYS 53 33,454 33,012 442 1 % Products, net $ 359,484 $ 231,495 $ 127,989 55 % * NM: not meaningful Net product revenues for our products for the three months ended March 31, 2024 increased by $128.0 million compared with the three months ended March 31, 2023. The increase primarily reflects $133.9 million of net product revenues associated with sales of ELEVIDYS during the three months ended March 31, 2024 after its launch in June 2023. 24 The following table summarizes the components of our collaboration and other revenues for the periods indicated: For the Three Months Ended March 31, 2024 2023 Change Change (in thousands) $ % Amortization of performance obligations** $ 48,000 $ 22,005 $ 25,995 118 % Contract manufacturing and other 5,980 — 5,980 NM* Total collaboration and other $ 53,980 $ 22,005 $ 31,975 145 % * NM: not meaningful ** Related to the recognition of previously deferred revenue under the Roche collaboration agreement as the Company satisfies its performance obligations under the contract. For more information, please read Note 3, License and Collaboration Agreements . Collaboration and other revenues primarily relate to our collaboration arrangement with F. Hoffman-La Roche Ltd. (“Roche”). For the three months ended March 31, 2024 and 2023, we recognized $54.0 million and $22.0 million of collaboration and other revenues, respectively. The increase is primarily due to the $48.0 million of collaboration revenue recognized in the three months ended March 31, 2024 related to Roche’s declined option to acquire the ex-US rights to a certain external, early stage Duchenne development program. Please refer to Note 3, License and Collaboration Agreements for further discussion of the Collaboration Agreement with Roche (the “Collaboration Agreement”). In addition, in accordance with the Collaboration Agreement, the parties agreed to enter into a supply agreement in order for Sarepta to supply Roche with clinical and commercial batches of ELEVIDYS (the “Supply Agreement”). While the Supply Agreement is in the process of being negotiated, we delivered batches of commercial ELEVIDYS supply to Roche that were agreed upon on a purchase order-by-purchase order basis. For the three months ended March 31, 2024, we recognized $6.0 million of contract manufacturing and other revenues, which is primarily related to these Roche shipments, with no similar activity for the three months ended March 31, 2023. Cost of sales (excluding amortization of in-licensed rights) Our cost of sales (excluding amortization of in-licensed rights) consists of inventory costs that relate to sales of our products and the related overhead costs and royalty payments primarily to BioMarin Pharmaceuticals, Inc. (“BioMarin”) and the University of Western Australia (“UWA”) for EXONDYS 51, AMONDYS 45 and VYONDYS 53 (collectively, the “PMO Products”) and to Nationwide Children’s Hospital (“Nationwide”) for ELEVIDYS. Prior to receiving regulatory approval for EXONDYS 51, VYONDYS 53, AMONDYS 45 and ELEVIDYS by the FDA in September 2016, December 2019, February 2021 and June 2023, respectively, we expensed such manufacturing and material costs as research and development expenses. For the PMO Products, all previously expensed manufacturing costs had been fully consumed prior to the three months ended March 31, 2024 and 2023. For ELEVIDYS sold in the three months ended March 31, 2024, 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 the product. 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 ELEVIDYS sold, including products sold to Roche under the Collaboration Agreement, would have been approximately $23.8 million higher for the three months ended March 31, 2024. The following table summarizes the components of our cost of sales (excluding amortization of in-licensed rights) for each of the periods indicated: For the Three Months Ended March 31, 2024 2023 Change Change (in thousands) $ % Inventory costs related to products sold (excluding products sold to Roche**) $ 37,699 $ 26,634 $ 11,065 42 % Royalty payments 11,206 8,383 2,823 34 % Inventory costs related to products sold to Roche** 1,654 — 1,654 NM* Total cost of sales (excluding amortization of in-licensed rights) $ 50,559 $ 35,017 $ 15,542 44 % * NM: not meaningful ** See above for further details regarding product supply sold to Roche via contract manufacturing under our Collaboration Agreement . The cost of sales (excluding amortization of in-licensed rights) for the three months ended March 31, 2024 increased by $15.5 million, or 44%, compared with the same period in 2023. The change primarily reflects increasing demand for our products and 25 an increase in royalty payments related to ELEVIDYS sales, as well as an increase in the write-offs of certain batches of our products not meeting our quality specifications for the three months ended March 31, 2024, as compared to the same period of 2023. Research and development expenses Research and development expenses consist of costs associated with research activities as well as those 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 programs include salaries, stock-based compensation and allocation of our facility- and technology-related 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: For the Three Months Ended March 31, 2024 2023 Change Change (in thousands) $ % SRP-9001 $ 71,400 $ 104,619 $ (33,219 ) (32 )% Eteplirsen (exon 51) 18,830 22,614 (3,784 ) (17 )% LGMD platform 16,954 15,911 1,043 7 % PPMO platform 12,511 15,096 (2,585 ) (17 )% Other gene therapies 8,610 3,990 4,620 116 % Casimersen (exon 45) 5,246 7,663 (2,417 ) (32 )% Gene editing 3,678 3,188 490 15 % Golodirsen (exon 53) 2,453 5,515 (3,062 ) (56 )% Other projects 4,140 2,602 1,538 59 % Internal research and development expenses 78,046 84,604 (6,558 ) (8 )% Roche collaboration reimbursement (21,472 ) (20,123 ) (1,349 ) 7 % Total research and development expenses $ 200,396 $ 245,679 $ (45,283 ) (18 )% The following table summarizes our research and development expenses by category for each of the periods indicated: For the Three Months Ended March 31, 2024 2023 Change Change (in thousands) $ % Manufacturing expenses* $ 69,700 $ 118,462 $ (48,762 ) (41 )% Clinical trial expenses 44,147 40,892 3,255 8 % Compensation and other personnel expenses 41,535 42,153 (618 ) (1 )% Facility- and technology-related expenses 21,365 21,082 283 1 % Stock-based compensation 16,273 16,413 (140 ) (1 )% Professional services 6,534 6,266 268 (— )% Pre-clinical expenses 3,449 3,463 (14 ) (— )% Research and other 18,865 17,071 1,794 11 % Roche collaboration reimbursement (21,472 ) (20,123 ) (1,349 ) 7 % Total research and development expenses $ 200,396 $ 245,679 $ (45,283 ) (18 )% *Beginning in the period ended March 31, 2024, we implemented an updated manufacturing absorption methodology that allocates the absorption of indirect manufacturing costs to their respective originating categories. Research and development expenses by category, specifically manufacturing expenses, compensation and other personnel expenses, facility- and technology-related expenses and professional services have been reclassified for the period ended March 31, 2023 for comparability. This reallocation has no impact to the total research and development expenses recognized. 26 Research and development expenses for the three months ended March 31, 2024 decreased by $45.3 million, or 18%, compared with the three months ended March 31, 2023. The decrease was primarily driven by the following: • $48.8 million decrease in manufacturing expenses primarily due to the capitalization of commercial batches of ELEVIDYS manufactured after its approval in June 2023; • $3.3 million increase in clinical trial expenses primarily due to an increased patient enrollment and site activation for our MOMENTUM and MIS51ON programs; • $1.8 million increase in research and other expenses primarily driven by an increase in collaboration cost-sharing expenses related to Genethon's micro-dystrophin drug candidate and an increase in sponsored research with academic institutions during the three months ended March 31, 2024; and • $1.3 million increase in the offset to expense associated with a collaboration reimbursement from Roche due to continuing development of our SRP-9001 gene therapy programs. 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- and technology-related costs and professional fees for legal, consulting and accounting services. The following table summarizes our selling, general and administrative expenses by category for each of the periods indicated: For the Three Months Ended March 31, 2024 2023 Change Change (in thousands) $ % Compensation and other personnel expenses $ 42,052 $ 38,467 $ 3,585 9 % Professional services 39,665 35,091 4,574 13 % Stock-based compensation 24,419 24,837 (418 ) (2 )% Facility- and technology-related expenses 11,756 9,850 1,906 19 % Other 9,297 2,626 6,671 254 % Roche collaboration reimbursement (186 ) (157 ) (29 ) 18 % Total selling, general and administrative expenses $ 127,003 $ 110,714 $ 16,289 15 % Selling, general and administrative expenses for the three months ended March 31, 2024 increased by $16.3 million, or 15%, compared with the three months ended March 31, 2023. This increase was primarily driven by the following: • $3.6 million increase in compensation and other personnel expenses primarily due to changes in headcount; • $4.6 million increase in professional service expenses primarily related to ongoing litigation matters; • $1.9 million increase in facility- and technology-related expenses primarily due to our continuing expansion efforts; and • $6.7 million increase in other expenses primarily due to timing of charitable contribution activity. Amortization of in-licensed rights Amortization of in-licensed rights relates to the agreements we entered into with UWA, Nationwide, BioMarin and Parent Project Muscular Dystrophy in April 2013, December 2016, July 2017 and May 2018, respectively. Each in-licensed right is being amortized on a straight-line basis over the remaining life of the relevant patent from the date the related fee was incurred, either the regulatory approval or the first commercial sale of the applicable product. For the three months ended March 31, 2024 and 2023, we recorded amortization of in-licensed rights of approximately $0.6 million and $0.2 million, respectively. Other income, net Other income, net primarily consists of interest expense on our debt facilities, interest income on our cash, cash equivalents and investments, amortization of investment premium or accretion of investment discount and change in the fair value of contingent consideration related to regulatory-related contingent payments meeting the definition of a derivative. Interest expense primarily 27 includes interest accrued on our convertible notes. Our cash equivalents and investments consist of money market funds, corporate bonds, commercial paper, government and government agency debt securities and certificates of deposit. For the three months ended March 31, 2024, other income, net decreased by approximately $6.2 million compared with the three months ended March 31, 2023. The decrease is primarily due to a $10.1 million increase in the fair value of contingent consideration, partially offset by a $2.8 million increase in accretion of investment discount, net due to an increase in interest rates, as well as a $2.2 million reduction of interest expense incurred as a result of the partial debt extinguishment of our senior convertible notes due on November 15, 2024 (the “2024 Notes”) in March 2023. Income tax expense Income tax expense for the three months ended March 31, 2024 and 2023 was approximately $5.3 million and $4.0 million, respectively. Income tax expense for all periods presented primarily relates to federal and state income taxes. Liquidity and Capital Resources There have been no material changes to our obligations under lease or debt arrangements as reported in our Annual Report on Form 10-K for the year ended December 31, 2023. The following table summarizes our financial condition for each of the periods indicated: As of March 31, 2024 As of December 31, 2023 Change Change (in thousands) $ % Financial assets: Cash and cash equivalents $ 427,290 $ 428,430 $ (1,140 ) (— )% Short-term investments 963,453 1,247,820 (284,367 ) (23 )% Non-current investments 33,919 — 33,919 NM* Restricted cash 15,579 15,579 — (— )% Total cash, cash equivalents and investments $ 1,440,241 $ 1,691,829 $ (251,588 ) (15 )% Borrowings: Convertible debt $ 1,239,246 $ 1,237,998 $ 1,248 (— )% Total borrowings $ 1,239,246 $ 1,237,998 $ 1,248 (— )% Working capital Current assets $ 2,464,865 $ 2,579,331 $ (114,466 ) (4 )% Current liabilities 608,709 653,659 (44,950 ) (7 )% Total working capital $ 1,856,156 $ 1,925,672 $ (69,516 ) (4 )% * NM: not meaningful For the periods ended March 31, 2024 and December 31, 2023, our principal sources of liquidity were primarily derived from sales of our products, net proceeds from sale of the ELEVIDYS priority review voucher, net proceeds from our offering of 1.25% convertible senior notes due on September 15, 2027 (“2027 Notes”), proceeds from the partial settlement of capped call options associated with the exchange of a portion of the 2024 Notes for shares of our common stock and our collaboration arrangement with Roche. Our principal uses of cash are research and development expenses, manufacturing costs, selling, general and administrative expenses, investments, capital expenditures, business development transactions, settlement of long-term debt and other working capital requirements. The changes in our working capital primarily reflect use of cash in operating activities. While our contractual obligations, commitments and debt service requirements over the next several years are significant, we intend to continue to fund our short-term financing needs and working capital requirements from cash flows of operating activities as well as cash on hand, and such sources are anticipated to be adequate to fund working capital requirements for at least twelve months from the date these unaudited condensed consolidated financial statements were issued. Beyond March 31, 2025, our cash requirements will depend extensively on our ability to advance our research, development and commercialization of product candidates. We may 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, and entering into additional government contracts and/or funded research and development agreements. Our future expenditures and long-term capital requirements may be substantial and will depend on many factors, including but not limited to the following: 28 • our ability to continue to generate revenues from sales of commercial products and potential future products; • the timing and costs associated with our expansion efforts; • the timing and costs of building out our manufacturing capabilities; • the timing of payments related to our future inventory commitments and manufacturing obligations; • the timing and costs associated with our existing lease obligations and new obligations expected to be entered into in future years; • 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 Therapeutics, Inc.'s selling shareholders, BioMarin, Nationwide, UWA and other institutions; • obligations to holders of our convertible notes; and • the costs of filing, prosecuting, defending and enforcing patent claims and our other intellectual property rights. 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. We believe that existing cash and cash equivalents, along with future cash generated from operations will be sufficient to meet the capital requirements of our operations for the next 12 months and foreseeable future. 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. Additional information regarding our obligations under manufacturing arrangements is provided in Note 14, Commitments and Contingencies to the unaudited condensed consolidated financial statements contained in Item 1. There have been no material changes to our obligations under debt or leasing arrangements as reported in our Annual Report on Form 10-K for the year ended December 31, 2023. For products and product candidates that are currently approved or are in various research and development stages, we may be obligated to make up to $3.2 billion of future development, regulatory, up-front royalty and sales milestone payments associated with our license and collaboration agreements. Payments under these agreements generally become due and payable upon achievement of certain development, regulatory or commercial milestones. Because the achievement of these milestones is not probable, and payment is not required as of March 31, 2024, such contingencies have not been recorded in our unaudited condensed 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 commercial milestones. Cash Flows The following table summarizes our cash flow activity for each of the periods indicated: For the Three Months Ended March 31, 2024 2023 Change Change (in thousands) $ % Cash (used in) provided by Operating activities $ (242,076 ) $ (209,396 ) $ (32,680 ) 16 % Investing activities 218,796 12,492 206,304 NM* Financing activities 22,140 101,795 (79,655 ) (78 )% Decrease in cash and cash equivalents $ (1,140 ) $ (95,109 ) $ 93,969 (99 )% * NM: not meaningful Operating Activities Cash used in operating activities, which consists of our net income (loss) adjusted for non-cash items and changes in net operating assets and liabilities, totaled $242.1 million and $209.4 million for the three months ended March 31, 2024 and 2023, 29 respectively. Cash used in operating activities for the three months ended March 31, 2024 was primarily driven by the net income of $36.1 million, adjusted for the following: • $40.7 million in stock-based compensation expense; • $8.7 million in depreciation and amortization expense; • $10.1 million non-cash change in the fair value of contingent consideration; and • $4.3 million in other non-cash items. These non-cash charges were partially offset by the $12.4 million in accretion of investment discount, net. The net cash outflow from changes in our operating assets and liabilities was primarily driven by the following: • $145.0 million increase in manufacturing-related deposits and prepaids primarily due to an increase in prepaid raw materials with Catalent; • $92.8 million decrease in accounts payable, accrued expenses, lease liabilities and other liabilities, primarily due to the timing and invoicing of payments with our contract research organizations and contract manufacturing organizations and payments on accrued employee compensation costs; • $60.5 million increase in inventory primarily due to capitalized inventory related to ELEVIDYS; • $50.4 million decrease in deferred revenue primarily related to the collaboration with Roche; and • $21.5 million decrease in accounts receivable, net primarily due to a reduction in payment terms for product sales related to ELEVIDYS. Cash used in operating activities for the three months ended March 31, 2023 was primarily driven by the net loss of $516.8 million, adjusted for the following: • $387.3 million in loss on debt extinguishment related to the exchange of 2024 Notes; • $41.3 million in stock-based compensation expense; • $11.3 million in depreciation and amortization expense; and • $5.2 million in other non-cash items. These non-cash charges were partially offset by the $8.7 million in accretion of investment discount, net. The net cash outflow from changes in our operating assets and liabilities was primarily driven by the following: • $67.5 million decrease in accounts payable, accrued expenses, lease liabilities and other liabilities, primarily due to the $54.0 million shortfall payment to Thermo made during the three months ended March 31, 2023 and the timing and invoicing of payments; • $22.0 million decrease in deferred revenue related to the collaboration with Roche; • $22.5 million increase in other assets primarily due to the Roche collaboration receivable outstanding as of three months ended March 31, 2023; • $9.2 million increase in accounts receivable, net due to an increase in the demand of our PMO products; and • $7.5 million increase in manufacturing-related deposits and prepaids as we ramped up production of SRP-9001 prior to ELEVIDYS approval. Investing Activities Cash provided by investing activities was $218.8 million for the three months ended March 31, 2024, compared to $12.5 million of cash provided in the three months ended March 31, 2023. Cash provided by investing activities for the three months ended 30 March 31, 2024 primarily consisted of $477.7 million from the maturity of available-for-sale securities, partially offset by $216.5 million of purchases of available-for-sale securities and $32.4 million of purchases of property and equipment. Cash provided by investing activities for the three months ended March 31, 2023 primarily consisted of $448.8 million from the maturity and sale of available-for-sale securities, partially offset by $426.8 million of purchases of available-for-sale securities and $9.5 million of purchases of property and equipment. Financing Activities Cash provided by financing activities was $22.1 million and $101.8 million for the three months ended March 31, 2024 and 2023, respectively. Cash provided by financing activities for the three months ended March 31, 2024 consisted of $22.1 million in proceeds from exercise of options and purchase of stock under our Employee Stock Purchase Program. Cash provided by financing activities for the three months ended March 31, 2023 consisted of $80.6 million in partial settlement of capped call share options for the 2024 Notes and $28.0 million in proceeds from exercise of options and purchase of stock under our Employee Stock Purchase Program, partially offset by $6.9 million in third-party debt conversion costs related to the partial debt extinguishment of the 2024 Notes in March 2023. Item 3. Quantitative and Qualitat ive Disclosures about Market Risk Our current investment policy is to maintain a diversified investment portfolio consisting of money market investments, commercial paper, certificates of deposit, government and government agency bonds and high-grade corporate bonds with maturities of 24 months or less. Our cash is primarily deposited in and invested through highly rated financial institutions in the U.S. As of March 31, 2024, we had approximately $1,440.3 million of cash, cash equivalents, restricted cash and investments, comprised of $427.3 million of cash and cash equivalents, $963.5 million of short-term investments, $33.9 million of non-current investments and $15.6 million non-current restricted cash. The Company only holds debt securities classified as available-for-sale. The fair value of cash equivalents and 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. As of March 31, 2024, we estimate that such hypothetical adverse 10 basis point movement would result in a hypothetical loss in fair value of approximately $0.4 million to our interest rate sensitive instruments. Our $1,150.0 million aggregate principal amount of our 2027 Notes has a fixed interest rate of 1.25% per annum, payable semi-annually in cash on each March 15 and September 15 and our $105.8 million aggregate principal amount of our 2024 Notes has a fixed interest rate of 1.5% per annum, payable semi-annually in cash on each May 15 and November 15, and therefore are not subject to fluctuations in market interest rates.