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 (“Duchenne”) gene therapy programs and Limb-girdle muscular dystrophy (“LGMD”) 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 partnership with 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; • our engagement with regulatory authorities outside of the U.S. including the European Medicines Agency (the “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; • 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. 24 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 and are developing potential therapeutic candidates for a broad range of diseases and disorders, including Duchenne, LGMDs, and other neuromuscular and central nervous system related disorders. We commercialized four products, all of which were granted accelerated approval or traditional approval by the FDA: • The PMO Products: o EXONDYS 51 (eteplirsen) Injection (“EXONDYS 51”), granted accelerated approval 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. o VYONDYS 53 (golodirsen) Injection (“VYONDYS 53”), granted accelerated approval 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. o AMONDYS 45 (casimersen) Injection (“AMONDYS 45”), granted accelerated approval 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 20, 2024, is an adeno-associated virus-based (“AAV”) gene therapy for the treatment of ambulatory patients at least four years old with Duchenne with a confirmed mutation in the Duchenne gene. ELEVIDYS is also approved for non-ambulatory patients under the accelerated approval pathway. ELEVIDYS was previously granted accelerated approval by the FDA on June 22, 2023 for the treatment of ambulatory patients aged four through five 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-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 25 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. • 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. In 2019, we commenced Study 5051-201. In November 2024, we announced that we discontinued development of SRP-5051 and our PPMO program for treatment of Duchenne. 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 and 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 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 Aldevron and Catalent. 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 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. 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. 26 Cash, Cash Equivalents, Restricted Cash and Investments As of September 30, 2024, we had approximately $1,395.8 million of cash, cash equivalents, restricted cash and investments, consisting of $197.9 million of cash and cash equivalents, $1,182.3 million of investments, and $15.6 million of 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 not been significant 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, apart from additional monitoring of our valuation allowance, as noted below. Income Taxes We follow the asset and liability method of accounting for income taxes, which requires the recognition of deferred tax assets and liabilities for expected future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. 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. As of September 30, 2024, we continued to maintain a full valuation allowance against all of our deferred tax assets, with the exception of deferred tax assets in certain foreign jurisdictions, based on management's evaluation of all available evidence, including our earnings history. We will continue to monitor the realizability of our deferred tax assets in future periods. We may release all or a portion of the valuation allowance in the near-term; however, the release of the valuation allowance, as well as the exact timing and the amount of such release, continue to be subject to, among other things, our level of profitability, revenue growth and expectations regarding future profitability. If and when we determine the valuation allowance should be released or reduced, the adjustment would result in a benefit to income tax expense for the period the release is recorded, which could have a material impact on net earnings. We recognize 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 (or amount of reduction in our deferred tax assets from net operating loss carryover and research credit carryover) resulting from uncertain tax positions can involve significant judgment. Further, the calculation may involve the application of complex tax regulations in a foreign jurisdiction. Any significant impact as a result of changes in underlying facts, law, tax rates, tax audit, or review could lead to adjustments to our deferred tax asset, income tax expense, our effective tax rate, and/or our cash flow. 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. 27 Results of Operations for the Three and Nine Months Ended September 30, 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 September 30, 2024 2023 Change Change (in thousands, except per share amounts) $ % Revenues: Products, net $ 429,771 $ 309,322 $ 120,449 39 % Collaboration and other 37,401 22,495 14,906 66 % Total revenues 467,172 331,817 135,355 41 % Cost and expenses: Cost of sales (excluding amortization of in-licensed rights) 91,691 37,026 54,665 148 % Research and development 224,483 194,301 30,182 16 % Selling, general and administrative 128,200 120,893 7,307 6 % Amortization of in-licensed rights 602 439 163 37 % Total cost and expenses 444,976 352,659 92,317 26 % Operating income (loss) 22,196 (20,842 ) 43,038 NM* Other income (loss), net: Other income (expense), net 11,810 (12,332 ) 24,142 NM* Total other income (loss), net 11,810 (12,332 ) 24,142 NM* Income (loss) before income tax expense 34,006 (33,174 ) 67,180 NM* Income tax expense 395 7,763 (7,368 ) (95 )% Net income (loss) $ 33,611 $ (40,937 ) $ 74,548 NM* Earnings (loss) per share: Basic $ 0.35 $ (0.46 ) $ 0.81 NM* Diluted $ 0.34 $ (0.46 ) $ 0.80 NM* 28 For the Nine Months Ended September 30, 2024 2023 Change Change (in thousands, except per share amounts) $ % Revenues: Products, net $ 1,149,803 $ 779,805 $ 369,998 47 % Collaboration and other 93,764 66,750 27,014 40 % Total revenues 1,243,567 846,555 397,012 47 % Cost and expenses: Cost of sales (excluding amortization of in-licensed rights) 186,795 106,167 80,628 76 % Research and development 604,569 681,870 (77,301 ) (11 )% Selling, general and administrative 393,999 350,171 43,828 13 % Amortization of in-licensed rights 1,804 796 1,008 127 % Total cost and expenses 1,187,167 1,139,004 48,163 4 % Operating income (loss) 56,400 (292,449 ) 348,849 NM* Other income (loss), net: Other income, net 32,631 17,309 15,322 89 % Gain from sale of Priority Review Voucher — 102,000 (102,000 ) (100 )% Loss on debt extinguishment — (387,329 ) 387,329 (100 )% Total other income (loss), net 32,631 (268,020 ) 300,651 NM* Income (loss) before income tax expense 89,031 (560,469 ) 649,500 NM* Income tax expense 12,841 21,163 (8,322 ) (39 )% Net income (loss) $ 76,190 $ (581,632 ) $ 657,822 NM* Earnings (loss) per share: Basic $ 0.80 $ (6.56 ) $ 7.36 NM* Diluted $ 0.78 $ (6.56 ) $ 7.34 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 tables summarize the components of our net product revenues, by product, for each of the periods indicated: For the Three Months Ended September 30, 2024 2023 Change Change (in thousands) $ % PMO Products $ 248,788 $ 240,214 $ 8,574 4 % ELEVIDYS 180,983 69,108 111,875 162 % Products, net $ 429,771 $ 309,322 $ 120,449 39 % For the Nine Months Ended September 30, 2024 2023 Change Change (in thousands) $ % PMO Products $ 713,163 $ 710,697 $ 2,466 (— )% ELEVIDYS 436,640 69,108 367,532 NM* Products, net $ 1,149,803 $ 779,805 $ 369,998 47 % 29 * NM: not meaningful Net product revenues for our products for the three and nine months ended September 30, 2024 increased by $120.4 million and $370.0 million, respectively, compared with the three and nine months ended September 30, 2023. The increases primarily reflect additional net product revenues of $111.9 million and $367.5 million, respectively, associated with sales of ELEVIDYS during the three and nine months ended September 30, 2024 due to an increase in demand following its June 2023 FDA approval and launch and expanded label in June 2024. The following tables summarize the components of our collaboration and other revenues for the periods indicated: For the Three Months Ended September 30, 2024 2023 Change Change (in thousands) $ % Contract manufacturing $ 27,891 $ — $ 27,891 NM* Royalty revenue 9,510 — 9,510 NM* Amortization of performance obligations** — 22,495 (22,495 ) (100 )% Total collaboration and other $ 37,401 $ 22,495 $ 14,906 66 % For the Nine Months Ended September 30, 2024 2023 Change Change (in thousands) $ % Amortization of performance obligations** $ 48,000 $ 66,750 $ (18,750 ) (28 )% Contract manufacturing 33,698 — 33,698 NM* Royalty revenue 12,066 — 12,066 NM* Total collaboration and other $ 93,764 $ 66,750 $ 27,014 40 % * 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 September 30, 2024 and 2023, we recognized $37.4 million and $22.5 million of collaboration and other revenues, respectively. In accordance with the Collaboration Agreement with Roche (the “Collaboration Agreement”), the parties agreed to enter into a supply agreement in order for us 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 September 30, 2024, we recognized $27.9 million of contract manufacturing revenue, which is related to these Roche shipments, with no similar activity during the three months ended September 30, 2023. In addition, we recognized $9.5 million of royalty revenue from sales of ELEVIDYS by Roche, with no similar activity for the three months ended September 30, 2023. This was partially offset by the amortization of the single, combined performance obligation under the Collaboration Agreement during the three months ended September 30, 2023, which was fully amortized as of December 31, 2023. Please refer to Note 3, License and Collaboration Agreements for further discussion of the Collaboration Agreement. For the nine months ended September 30, 2024 and 2023, we recognized $93.8 million and $66.8 million of collaboration and other revenues, respectively. The increase is primarily due to $33.7 million of contract manufacturing revenue related to shipments of ELEVIDYS to Roche and $12.1 million of royalty revenue from sales of ELEVIDYS by Roche recognized in the nine months ended September 30, 2024, with no similar activity for the nine months ended September 30, 2023. This was partially offset by an $18.8 million decrease in collaboration revenue recognized in the nine months ended September 30, 2024. This decrease was due to the amortization of the single, combined performance obligation under the Collaboration Agreement recognized during the nine months ended September 30, 2023, which was fully amortized as of December 31, 2023, partially offset by Roche’s declined option to acquire the ex-US rights to a certain external, early stage Duchenne development program during the nine months ended September 30, 2024. 30 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 our PMO Products and to Nationwide Children’s Hospital (“Nationwide”) for ELEVIDYS. Prior to receiving regulatory approval for our products, we expensed 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 and nine months ended September 30, 2024 and 2023. For ELEVIDYS sold in the three and nine months ended September 30, 2024, a portion of related manufacturing costs incurred had previously been expensed as research and development expenses, as such costs were incurred prior to FDA approval of the product. For ELEVIDYS sold in the three and nine months ended September 30, 2023, the majority of related manufacturing costs incurred had previously been expensed as research and development expenses, as such costs were incurred prior to 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 $29.1 million and $68.8 million for the three and nine months ended September 30, 2024, respectively. 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 September 30, 2024 2023 Change Change (in thousands) $ % Inventory costs related to products sold (excluding products sold to Roche**) $ 65,781 $ 26,525 $ 39,256 148 % Inventory costs related to products sold to Roche** 13,725 — 13,725 NM* Royalty payments 12,185 10,501 1,684 16 % Total cost of sales (excluding amortization of in-licensed rights) $ 91,691 $ 37,026 $ 54,665 148 % For the Nine Months Ended September 30, 2024 2023 Change Change (in thousands) $ % Inventory costs related to products sold (excluding products sold to Roche**) $ 140,294 $ 78,700 $ 61,594 78 % Royalty payments 31,122 27,467 3,655 13 % Inventory costs related to products sold to Roche** 15,379 — 15,379 NM* Total cost of sales (excluding amortization of in-licensed rights) $ 186,795 $ 106,167 $ 80,628 76 % * 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 and nine months ended September 30, 2024 increased by $54.7 million and $80.6 million, respectively, compared with the same periods in 2023. The changes primarily reflect an increase in cost of sales related to ELEVIDYS due to an increase in demand following its June 2023 FDA approval and expanded label in June 2024, as well as increases in the write-offs of certain batches of our products not meeting our quality specifications. For the three and nine months ended September 30, 2024, we recognized $13.7 million and $15.4 million, respectively, of cost of sales related to products sold to Roche under the Collaboration Agreement, with no similar activity for the same periods in 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 31 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 tables summarize our research and development expenses by project for each of the periods indicated: For the Three Months Ended September 30, 2024 2023 Change Change (in thousands) $ % SRP-9001 $ 148,081 $ 45,478 $ 102,603 NM* LGMD platform 16,502 13,390 3,112 23 % Eteplirsen (exon 51) 9,859 24,616 (14,757 ) (60 )% Other gene therapies 8,457 7,069 1,388 20 % PPMO platform 6,156 22,100 (15,944 ) (72 )% Gene editing 3,878 3,216 662 21 % Golodirsen (exon 53) 1,703 3,569 (1,866 ) (52 )% Casimersen (exon 45) 1,571 4,414 (2,843 ) (64 )% Other projects 451 8,930 (8,479 ) (95 )% Internal research and development expenses 89,149 96,254 (7,105 ) (7 )% Roche collaboration reimbursement (61,324 ) (34,735 ) (26,589 ) 77 % Total research and development expenses $ 224,483 $ 194,301 $ 30,182 16 % For the Nine Months Ended September 30, 2024 2023 Change Change (in thousands) $ % SRP-9001 $ 260,935 $ 238,578 $ 22,357 9 % LGMD platform 54,420 42,198 12,222 29 % Eteplirsen (exon 51) 48,681 76,588 (27,907 ) (36 )% Other gene therapies 24,986 18,553 6,433 35 % PPMO platform 24,488 54,641 (30,153 ) (55 )% Casimersen (exon 45) 12,629 17,444 (4,815 ) (28 )% Gene editing 11,869 9,364 2,505 27 % Golodirsen (exon 53) 6,685 11,974 (5,289 ) (44 )% Other projects 8,556 22,870 (14,314 ) (63 )% Internal research and development expenses 251,835 272,390 (20,555 ) (8 )% Roche collaboration reimbursement (100,515 ) (82,730 ) (17,785 ) 21 % Total research and development expenses $ 604,569 $ 681,870 $ (77,301 ) (11 )% * NM: not meaningful The following tables summarize our research and development expenses by category for each of the periods indicated: For the Three Months Ended September 30, 2024 2023 Change Change (in thousands) $ % Manufacturing expenses* $ 136,612 $ 63,083 $ 73,529 117 % Clinical trial expenses 41,723 51,180 (9,457 ) (18 )% Compensation and other personnel expenses 39,266 38,731 535 1 % Facility- and technology-related expenses 23,529 22,821 708 3 % Stock-based compensation 18,034 22,325 (4,291 ) (19 )% Professional services 7,976 6,130 1,846 30 % Pre-clinical expenses 774 2,738 (1,964 ) (72 )% Research and other 17,893 22,028 (4,135 ) (19 )% Roche collaboration reimbursement (61,324 ) (34,735 ) (26,589 ) 77 % Total research and development expenses $ 224,483 $ 194,301 $ 30,182 16 % 32 *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 September 30, 2023 for comparability. This reallocation has no impact on the total research and development expenses recognized. Research and development expenses for the three months ended September 30, 2024 increased by $30.2 million, or 16%, compared with the three months ended September 30, 2023. The increase was primarily driven by the following: • $73.5 million increase in manufacturing expenses primarily due to $91.9 million of costs associated with the termination of the development, commercial manufacturing and supply agreement (the “Thermo Agreement”) related to Brammer Bio MA, LLC, an affiliate of Thermo Fisher Scientific, Inc. (“Thermo”) in August 2024, partially offset by a decrease in activity for our PPMO platform and a decrease in clinical batches for our Eteplirsen program. Please refer to Note 16, Commitments and Contingencies for further discussion of the Thermo Agreement; • $9.5 million decrease in clinical trial expenses primarily due to a decrease in activity for our PPMO platform and a ramp-down of the ESSENCE studies for AMONDYS 45 and VYONDYS 53; • $4.3 million decrease in stock-based compensation expense primarily due to an increase in indirect manufacturing costs absorption offset as a result of ELEVIDYS approval in June 2023 and expanded label in June 2024, partially offset by changes in headcount; • $1.8 million increase in professional services primarily due to an increase in reliance on third-party research and development contractors for clinical programs; • $2.0 million decrease in pre-clinical expenses primarily due to a decrease in toxicology study activity in our PPMO platform; • $4.1 million decrease in research and other expenses primarily due to milestone achievements in certain research and license agreements during the three months ended September 30, 2023, with no similar milestone activity for the three months ended September 30, 2024; and • $26.6 million increase in the offset to expense associated with a collaboration reimbursement from Roche, primarily due to reimbursable costs associated with the termination of the Thermo Agreement during the three months ended September 30, 2024, with no similar activity for the three months ended September 30, 2023. This was partially offset by a decrease in clinical supply costs due to timing for our SRP-9001 gene therapy programs. For the Nine Months Ended September 30, 2024 2023 Change Change (in thousands) $ % Manufacturing expenses* $ 256,971 $ 290,176 $ (33,205 ) (11 )% Clinical trial expenses 125,731 134,580 (8,849 ) (7 )% Compensation and other personnel expenses 118,208 120,696 (2,488 ) (2 )% Facility- and technology-related expenses 66,924 65,458 1,466 2 % Stock-based compensation 54,113 60,315 (6,202 ) (10 )% Professional services 22,256 19,815 2,441 12 % Pre-clinical expenses 5,666 8,927 (3,261 ) (37 )% Research and other 55,215 64,633 (9,418 ) (15 )% Roche collaboration reimbursement (100,515 ) (82,730 ) (17,785 ) 21 % Total research and development expenses $ 604,569 $ 681,870 $ (77,301 ) (11 )% 33 *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 September 30, 2023 for comparability. This reallocation has no impact on the total research and development expenses recognized. Research and development expenses for the nine months ended September 30, 2024 decreased by $77.3 million, or 11%, compared with the nine months ended September 30, 2023. The decrease was primarily driven by the following: • $33.2 million decrease in manufacturing expenses primarily due to the capitalization of commercial batches of ELEVIDYS manufactured upon its approval in June 2023, a decrease in clinical batches for our Eteplirsen program and a decrease in activity for our PPMO platform, partially offset by $91.9 million of costs associated with the termination of the Thermo Agreement. Please refer to Note 16, Commitments and Contingencies for further discussion of the Thermo Agreement; • $8.8 million decrease in clinical trial expenses primarily due to a ramp-down of the ESSENCE studies for AMONDYS 45 and VYONDYS 53 and our EMBARK study, partially offset by an increased patient enrollment and site activation for our EXPEDITION and EMERGENE studies during the nine months ended September 30, 2024; • $2.5 million decrease in compensation and other personnel expenses primarily due to an increase in indirect manufacturing costs absorption offset as a result of ELEVIDYS approval in June 2023 and expanded label in June 2024, partially offset by changes in headcount; • $1.5 million increase in facility- and technology-related expenses primarily due to our continuing expansion efforts, partially offset by an increase in indirect manufacturing costs absorption offset as a result of ELEVIDYS approval in June 2023 and expanded label in June 2024; • $6.2 million decrease in stock-based compensation expense primarily due to an increase in indirect manufacturing costs absorption offset as a result of ELEVIDYS approval in June 2023 and expanded label in June 2024, partially offset by the achievement of performance conditions related to certain restricted stock units with performance conditions (“PSUs”) during the nine months ended September 30, 2024 and changes in headcount; • $2.4 million increase in professional services primarily due to an increase in reliance on third-party research and development contractors for clinical programs, partially offset by a decrease in regulatory-related consulting services subsequent to ELEVIDYS approval in June 2023 and expanded label in June 2024; • $3.3 million decrease in pre-clinical expenses primarily due to a decrease in toxicology study activity in our PPMO platform, partially offset by an increase in toxicology study activity in our LGMD gene therapy programs; • $9.4 million decrease in research and other expenses primarily due to timing of achievement of certain up-front and milestone payments, partially offset by an increase in sponsored research with certain institutions during the nine months ended September 30, 2024; and • $17.8 million increase in the offset to expense associated with a collaboration reimbursement from Roche due to reimbursable costs associated with the termination of the Thermo Agreement during the nine months ended September 30, 2024, with no similar activity for the nine months ended September 30, 2023. This was partially offset by a decrease in clinical supply costs due to timing for 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. 34 The following tables summarize our selling, general and administrative expenses by category for each of the periods indicated: For the Three Months Ended September 30, 2024 2023 Change Change (in thousands) $ % Professional services $ 41,643 $ 39,162 $ 2,481 6 % Compensation and other personnel expenses 40,545 37,618 2,927 8 % Stock-based compensation 25,416 25,736 (320 ) (1 )% Facility- and technology-related expenses 13,531 11,923 1,608 13 % Other 7,267 6,601 666 10 % Roche collaboration reimbursement (202 ) (147 ) (55 ) 37 % Total selling, general and administrative expenses $ 128,200 $ 120,893 $ 7,307 6 % Selling, general and administrative expenses for the three months ended September 30, 2024 increased by $7.3 million, or 6%, compared with the three months ended September 30, 2023. This increase was primarily driven by the following: • $2.5 million increase in professional service expenses primarily related to the continued efforts to commercialize ELEVIDYS, partially offset by lower expenses related to ongoing litigation matters; • $2.9 million increase in compensation and other personnel expenses primarily due to changes in headcount; and • $1.6 million increase in facility- and technology-related expenses primarily due to our continuing expansion efforts. For the Nine Months Ended September 30, 2024 2023 Change Change (in thousands) $ % Professional services $ 125,341 $ 112,050 $ 13,291 12 % Compensation and other personnel expenses 122,725 114,414 8,311 7 % Stock-based compensation 80,511 76,373 4,138 5 % Facility- and technology-related expenses 38,026 32,189 5,837 18 % Other 28,005 15,777 12,228 78 % Roche collaboration reimbursement (609 ) (632 ) 23 (4 )% Total selling, general and administrative expenses $ 393,999 $ 350,171 $ 43,828 13 % Selling, general and administrative expenses for the nine months ended September 30, 2024 increased by $43.8 million, or 13%, compared with the nine months ended September 30, 2023. This increase was primarily driven by the following: • $13.3 million increase in professional service expenses primarily related to the continued efforts to commercialize ELEVIDYS and ongoing litigation matters; • $8.3 million increase in compensation and other personnel expenses primarily due to changes in headcount; • $4.1 million increase in stock-based compensation expense primarily related to the achievement of performance conditions related to certain PSUs during the nine months ended September 30, 2024; • $5.8 million increase in facility- and technology-related expenses primarily due to our continuing expansion efforts; and • $12.2 million increase in other expenses primarily due to the 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 of or the first commercial sale of the applicable product. For the three and nine months ended September 30, 2024, we recorded amortization of in-licensed rights of approximately $0.6 million and $1.8 million, respectively. For the three and nine months ended September 30, 2023, we recorded amortization of in-licensed rights of approximately $0.4 million and $0.8 million, respectively. 35 Other income (expense), net Other income (expense), net primarily consists of interest expense on our debt instruments, interest income on our cash, cash equivalents and investments, amortization of investment premium or accretion of investment discount, unrealized gain or loss from our investment in our strategic investments, the changes in the fair value of the derivative assets associated with the capped call options for our $570.0 million aggregate principal amount of senior convertible notes due on November 15, 2024 (the “2024 Notes”) and the changes in the fair value of contingent consideration related to regulatory-related contingent payments meeting the definition of a derivative liability. 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 September 30, 2024, other income, net, was $11.8 million and for the three months ended September 30, 2023, other expense, net was $12.3 million. The change is primarily due to the impairment of a strategic investment during the three months ended September 30, 2023, with no similar activity during the three months ended September 30, 2024. For the nine months ended September 30, 2024 and 2023, other income, net was $32.6 million and $17.3 million, respectively. The change is primarily due to the impairment of a strategic investment during the nine months ended September 30, 2023, with no similar activity during the nine months ended September 30, 2024. This change was partially offset by a decrease in interest income due to the investment mix of our investment portfolio and an increase in the fair value of derivatives, primarily related to contingent consideration. Income tax expense Income tax expense for the three and nine months ended September 30, 2024 was approximately $0.4 million and $12.8 million, respectively. Income tax expense for the three and nine months ended September 30, 2023 was approximately $7.8 million and $21.2 million, respectively. Income tax expense for the three and nine months ended September 30, 2024 and 2023 relates to state, federal and foreign income taxes for which available tax losses or credits were not available to offset. As of September 30, 2024, we continued to maintain a full valuation allowance against our deferred tax assets, with the exception of deferred tax assets in certain foreign jurisdictions. We continue to monitor the available evidence relative to recovery of our deferred tax assets and whether such evidence would be sufficient to conclude that it is more likely than not that such deferred tax assets may be partially or fully recoverable. If we were to remove our valuation allowance in part or full, any such adjustment could have a material impact on our effective tax rate in the applicable period and beyond. Liquidity and Capital Resources There have been no material changes to our obligations under lease 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 September 30, 2024 As of December 31, 2023 Change Change (in thousands) $ % Financial assets: Cash and cash equivalents $ 197,855 $ 428,430 $ (230,575 ) (54 )% Short-term investments 1,000,534 1,247,820 (247,286 ) (20 )% Non-current investments 181,770 — 181,770 NM* Restricted cash 15,579 15,579 — (— )% Total cash, cash equivalents and investments $ 1,395,738 $ 1,691,829 $ (296,091 ) (18 )% Borrowings: Convertible debt $ 1,227,560 $ 1,237,998 $ (10,438 ) (1 )% Total borrowings $ 1,227,560 $ 1,237,998 $ (10,438 ) (1 )% Working capital Current assets $ 2,685,369 $ 2,579,331 $ 106,038 4 % Current liabilities 699,489 653,659 45,830 7 % Total working capital $ 1,985,880 $ 1,925,672 $ 60,208 3 % * NM: not meaningful 36 For the periods ended September 30, 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 the 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 September 30, 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: • 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 the 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 debt, lease and manufacturing arrangements are provided in Note 10, Indebtedness , Note 13, Leases and Note 16, Commitments and Contingencies to the unaudited condensed consolidated financial statements contained in Item 1. There have been no material changes to our obligations under leasing arrangements as reported in our Annual Report on Form 10-K for the year ended December 31, 2023. 37 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 $2.7 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 the achievement of certain development, regulatory or commercial milestones. Because the achievement of these milestones is not probable, and payment is not required as of September 30, 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 Nine Months Ended September 30, 2024 2023 Change Change (in thousands) $ % Cash (used in) provided by Operating activities $ (297,833 ) $ (446,336 ) $ 148,503 (33 )% Investing activities (8,557 ) (101,445 ) 92,888 (92 )% Financing activities 75,815 123,061 (47,246 ) (38 )% Decrease in cash, cash equivalents and restricted cash $ (230,575 ) $ (424,720 ) $ 194,145 (46 )% 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 $297.8 million and $446.3 million for the nine months ended September 30, 2024 and 2023, respectively. Cash used in operating activities for the nine months ended September 30, 2024 was primarily driven by the net income of $76.2 million, adjusted for the following non-cash items: • $134.6 million in stock-based compensation expense; • $62.7 million in non-cash termination charges as a result of the Thermo Agreement termination; • $27.3 million in depreciation and amortization expense; • $12.3 million reduction in the carrying amount of the right of use assets; • $8.6 million charge related to the change in the fair value of derivatives; and • $5.6 million in other items. These amounts were partially offset by $33.5 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: • $235.5 million increase in manufacturing-related deposits and prepaids primarily due to an increase in prepaid raw materials and batch fees with Catalent; • $233.5 million increase in inventory primarily due to capitalized inventory related to ELEVIDYS; • $39.4 million increase in other assets primarily due to an increase in the collaboration receivable related to Roche; • $35.4 million decrease in deferred revenue primarily related to the collaboration with Roche; • $34.2 million increase in accounts receivable due to an increase in payment terms for product sales related to the PMO Products; and • $13.6 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. Cash used in operating activities for the nine months ended September 30, 2023 was primarily driven by the net loss of $581.6 million, adjusted for the following non-cash items: • $387.3 million in loss on debt extinguishment related to the exchange of 2024 Notes; 38 • $136.7 million in stock-based compensation expense; • $33.0 million in depreciation and amortization expense; • $27.8 million in impairments associated with our strategic investments; and • $16.1 million in other non-cash items. These amounts were partially offset by the gain of $102.0 million recorded from the sale of the ELEVIDYS Priority Review Voucher and $32.8 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: • $111.2 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 nine months ended September 30, 2023, payments to Catalent for raw materials and the overall timing and invoicing of payments; • $104.2 million increase in accounts receivable due to sales of ELEVIDYS and an increase in the demand of our PMO Products; • $66.8 million decrease in deferred revenue related to the collaboration with Roche; and • $53.6 million increase in inventory due to the addition of capitalized inventory after the approval of ELEVIDYS in June 2023. These amounts were partially offset by a $7.9 million decrease in manufacturing-related deposits and prepaids primarily due to the timing and usage of manufacturing prepaids. Investing Activities Cash used in investing activities was $8.6 million and $101.4 million for the nine months ended September 30, 2024 and 2023, respectively. Cash used in investing activities for the nine months ended September 30, 2024 primarily consisted of $936.7 million of purchases of available-for-sale securities, $98.9 million of purchases of property and equipment and $10.0 million of purchases of intangible assets, partially offset by $1,037.0 million from the maturity and sale of available-for-sale securities. Cash used in investing activities for the nine months ended September 30, 2023 primarily consisted of $1,475.4 million of purchases of available-for-sale securities, $57.1 million of purchases of property and equipment and $11.2 million of purchases of intangible assets, partially offset by $102.0 million of net proceeds related to the sale of the ELEVIDYS Priority Review Voucher and $1,340.3 million from the maturity of available-for-sale securities. Financing Activities Cash provided by financing activities was $75.8 million and $123.1 million for the nine months ended September 30, 2024 and 2023, respectively. Cash provided by financing activities for the nine months ended September 30, 2024 consisted of $75.8 million in proceeds from exercise of options and purchase of stock under our Employee Stock Purchase Program. Cash provided by financing activities for the nine months ended September 30, 2023 consisted of $80.6 million in partial settlement of capped call share options for the 2024 Notes and $49.3 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 exchange of 2024 Notes. 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 September 30, 2024, we had approximately $1,395.8 million of cash, cash equivalents, restricted cash and investments, comprised of $197.9 million of cash and cash equivalents, $1,182.3 million of investments, and $15.6 million of restricted cash. 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. As of September 30, 2024, we estimate that 39 such hypothetical 10 basis point adverse movement would result in a hypothetical loss in fair value of approximately $0.6 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 $91.6 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.