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, 2024 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 Duchenne gene therapy 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 Duchenne gene therapy 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 2025 and beyond, including submitting a SRP-9003 BLA in the second half of 2025; • 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 legislation and competing products on the commercial success of our products and our product candidates and our ability to compete against such products; • our ability to enter into research, development or commercialization alliances with universities, hospitals, independent research centers, non-profit organizations, pharmaceutical and biotechnology companies and other entities for specific molecular targets or selected disease indications and our ability to selectively pursue opportunities to access certain intellectual property rights that complement our internal portfolio through license agreements or other arrangements; • our expectations regarding the potential benefits of the partnership, licensing and/or collaboration arrangements and other strategic arrangements and transactions we have entered into or may enter into in the future; our plans and ability to file and progress to issue additional patent applications to enhance and protect our new and existing technologies and programs; • the potential benefits of our technologies and programs, including those with strategic partners; • our estimates regarding how long our currently available cash and cash equivalents will be sufficient to finance our operations and business plans and statements about our future capital needs; 22 • 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. 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 that have been approved 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 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), an AAV-based gene therapy, was approved by the FDA on June 20, 2024 for the treatment of ambulatory patients at least four years old with Duchenne with a confirmed mutation in the Duchenne gene as well as 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. Our pipeline includes programs at various stages of discovery, pre-clinical and clinical development. Through our collaborations with our strategic partners, we are expanding into adjacent therapeutic areas. Our pipeline reflects our aspiration to apply our multifaceted approach and expertise in precision genetic medicine to make a profound difference in the lives of patients suffering from rare diseases. A summary description of our key product candidates, including those in collaboration with our strategic partners, is as follows: 23 • SRP-9003 (LGMD, gene therapy program). We are developing gene therapy programs for various forms of LGMD. The most advanced of our LGMD product candidates, SRP-9003, aims to treat LGMD2E, also known as beta-sarcoglycanopathy, a severe and debilitating form of LGMD characterized by progressive muscle fiber loss, inflammation and muscle fiber replacement with fat and fibrotic tissue. SRP-9003 is designed to transfect a gene that codes for and restores beta-sarcoglycan protein with the goal of restoring the dystrophin associated protein complex. SRP-9003 has generated positive pre-clinical safety and efficacy data utilizing the AAVrh.74 vector, the same vector used in our SRP-9001 gene therapy program. A Phase 1/2a trial of SRP-9003 commenced in the fourth quarter of 2018. 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 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 December 2024, we announced that we had completed enrollment and dosing in EMERGENE (Study SRP-9003-301), a Phase 3 clinical trial of SRP-9003 (bidridistrogene xeboparvovec). We expect to file a BLA in the second half of 2025. 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 Inc. (“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 the 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 precommercial 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. 24 Cash, Cash Equivalents, Restricted Cash and Investments As of March 31, 2025, we had $647.5 million of cash, cash equivalents, restricted cash and investments, consisting of $240.9 million of cash and cash equivalents, $391.0 million of investments and $15.6 million of non-current restricted cash. We believe that our balance of cash, cash equivalents and investments, along with cash inflows from operations and availability under our Revolving Credit Facility (defined below), 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, 2024. 25 Results of Operations for the Three Months Ended March 31, 2025 and 2024 The following tables set forth selected unaudited condensed consolidated statements of (loss) income data for each of the periods indicated: For the Three Months Ended March 31, 2025 2024 Change Change (in thousands, except per share amounts) $ % Revenues: Products, net $ 611,523 $ 359,484 $ 252,039 70 % Collaboration and other 133,333 53,980 79,353 147 % Total revenues 744,856 413,464 331,392 80 % Cost and expenses: Cost of sales (excluding amortization of in-licensed rights) 137,564 50,559 87,005 172 % Research and development 773,448 200,396 573,052 286 % Selling, general and administrative 133,629 127,003 6,626 5 % Amortization of in-licensed rights 601 601 — (— )% Total cost and expenses 1,045,242 378,559 666,683 176 % Operating (loss) income (300,386 ) 34,905 (335,291 ) NM* Other (loss) income, net: Other (expense) income, net (83,132 ) 6,543 (89,675 ) NM* (Loss) income before income tax expense (383,518 ) 41,448 (424,966 ) NM* Income tax expense 63,990 5,329 58,661 NM* Net (loss) income $ (447,508 ) $ 36,119 $ (483,627 ) NM* (Loss) earnings per share Basic $ (4.60 ) $ 0.38 $ (4.98 ) NM* Diluted $ (4.60 ) $ 0.37 $ (4.97 ) 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, 2025 2024 Change Change (in thousands) $ % ELEVIDYS $ 374,985 $ 133,936 $ 241,049 180 % PMO Products 236,538 225,548 10,990 5 % Products, net $ 611,523 $ 359,484 $ 252,039 70 % Net product revenues for our products for the three months ended March 31, 2025 increased by $252.0 million compared with the three months ended March 31, 2024. The increase primarily reflects an increase in net product revenues of ELEVIDYS of $241.0 million in the three months ended March 31, 2025 as a result of its expanded label approval in June 2024. The following table summarizes the components of our collaboration and other revenues for the periods indicated: 26 For the Three Months Ended March 31, 2025 2024 Change Change (in thousands) $ % Collaboration revenue $ 112,000 $ 48,000 $ 64,000 133 % Contract manufacturing 17,379 5,807 11,572 199 % Royalty revenue 3,954 173 3,781 NM* Total collaboration and other $ 133,333 $ 53,980 $ 79,353 147 % * NM: not meaningful Collaboration and other revenues primarily relate to our collaboration arrangement (the “Roche Collaboration Agreement”) with F. Hoffman-La Roche Ltd. (“Roche”). For the three months ended March 31, 2025 and 2024, we recognized $133.3 million and $54.0 million of collaboration and other revenues, respectively. The increase is primarily due to the $112.0 million of collaboration revenue recognized in the three months ended March 31, 2025 related to the expiration of an option for a certain program, as compared to $48.0 million collaboration revenue in 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 Roche Collaboration Agreement. In addition, in accordance with the Roche 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 “Roche Supply Agreement”). Roche utilizes the supply for sales of ELEVIDYS in territories outside of the U.S. where Roche has received certain approvals for ELEVIDYS. We are eligible to receive royalties on these sales. While the Roche Supply Agreement is in the process of being negotiated, we delivered commercial ELEVIDYS supply to Roche that was agreed upon on a purchase order-by-purchase order basis. For the three months ended March 31, 2025 and 2024, we recognized $17.4 million and $5.8 million of contract manufacturing revenue, respectively, which is related to these Roche shipments. In addition, we recognized $4.0 million and approximately $0.2 million of royalty revenue from sales of ELEVIDYS by Roche for the three months ended March 31, 2025 and 2024, respectively. 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 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 months ended March 31, 2025 and 2024. For ELEVIDYS sold in the three months ended March 31, 2025, a portion of related manufacturing costs incurred had previously been expensed as research and development expenses. 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 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 Roche Collaboration Agreement, would have been $13.7 million and $23.8 million higher for the three months ended March 31, 2025 and 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 March 31, 2025 2024 Change Change (in thousands) $ % Inventory costs related to products sold (excluding products sold to Roche**) $ 109,758 $ 37,699 $ 72,059 191 % Royalty payments 15,663 11,206 4,457 40 % Inventory costs related to products sold to Roche** 12,143 1,654 10,489 NM* Total cost of sales (excluding amortization of in-licensed rights) $ 137,564 $ 50,559 $ 87,005 172 % * NM: not meaningful ** See above for further details regarding product supply sold to Roche via contract manufacturing under the Roche Collaboration Agreement . The cost of sales (excluding amortization of in-licensed rights) for the three months ended March 31, 2025 increased by $87.0 million, or 172%, compared with the same period in 2024. The change primarily reflects an increase in cost of sales related to 27 ELEVIDYS as we consume previously expensed inventory, an increase in demand following ELEVIDYS’s expanded label approval in June 2024 as well as an increase in cost of sales related to products sold to Roche under the Roche Collaboration Agreement, partially offset by a decrease in the write-offs of certain batches of our products not meeting our quality specifications for the three months ended March 31, 2025, as compared to the same period of 2024. 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, 2025 2024 Change Change (in thousands) $ % Up-front and milestone expenses $ 583,787 $ — $ 583,787 NM* SRP-9001 68,857 71,400 (2,543 ) (4 )% LGMD platform 27,655 16,954 10,701 63 % Other gene therapies 12,381 8,610 3,771 44 % Eteplirsen (exon 51) 10,340 18,830 (8,490 ) (45 )% Casimersen (exon 45) 4,166 5,246 (1,080 ) (21 )% Gene editing 2,899 3,678 (779 ) (21 )% Golodirsen (exon 53) 2,220 2,453 (233 ) (9 )% PPMO platform 536 12,511 (11,975 ) (96 )% Other projects 2,691 4,140 (1,449 ) (35 )% Internal research and development expenses 86,176 78,046 8,130 10 % Roche collaboration reimbursement (28,260 ) (21,472 ) (6,788 ) 32 % Total research and development expenses $ 773,448 $ 200,396 $ 573,052 286 % * NM: not meaningful The following table summarizes our research and development expenses by category for each of the periods indicated: For the Three Months Ended March 31, 2025 2024 Change Change (in thousands) $ % Up-front and milestone expenses $ 583,787 $ — $ 583,787 NM* Manufacturing expenses 67,465 69,700 (2,235 ) (3 )% Compensation and other personnel expenses 47,299 41,535 5,764 14 % Clinical trial expenses 33,147 44,147 (11,000 ) (25 )% Facility- and technology-related expenses 24,222 21,365 2,857 13 % Stock-based compensation 17,317 16,273 1,044 6 % Professional services 9,570 6,534 3,036 46 % Pre-clinical expenses 1,762 3,449 (1,687 ) (49 )% Research and other 17,139 18,865 (1,726 ) (9 )% Roche collaboration reimbursement (28,260 ) (21,472 ) (6,788 ) 32 % Total research and development expenses $ 773,448 $ 200,396 $ 573,052 286 % * NM: not meaningful 28 Research and development expenses for the three months ended March 31, 2025 increased by $573.1 million compared with the three months ended March 31, 2024. The increase was primarily driven by the following: • $583.8 million increase in up-front and milestone expenses primarily due to the $583.6 million in payments allocated to the up-front license fee associated with our exclusive global licensing and collaboration agreement and stock purchase agreement (collectively, the “Arrowhead Agreement”) with Arrowhead Pharmaceuticals, Inc. (“Arrowhead”); • $2.2 million decrease in manufacturing expenses primarily due to timing of production activity across our programs; • $5.8 million increase in compensation and other personnel expenses primarily due to changes in headcount; • $11.0 million decrease in clinical trial expenses primarily due to our decision to discontinue our PPMO programs; • $2.9 million increase in facility- and technology-related expenses primarily due to our continuing expansion efforts; • $1.0 million increase in stock-based compensation expense primarily due to changes in headcount; • $3.0 million increase in professional services primarily due to an increase in reliance on third-party research and development contractors for clinical programs; • $1.7 million decrease in pre-clinical expenses primarily due to decreased activity across our gene therapy programs; • $1.7 million decrease in research and other expenses primarily due to a decrease in collaboration cost-sharing expenses related to our license and collaboration agreement with Genethon, partially offset by $2.3 million of reimbursable development costs incurred by Arrowhead during the three months ended March 31, 2025; and • $6.8 million increase in the offset to expense associated with a collaboration reimbursement from Roche due to continuing development of our SRP-9001 gene therapy program. 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, 2025 2024 Change Change (in thousands) $ % Compensation and other personnel expenses $ 45,785 $ 42,052 $ 3,733 9 % Professional services 42,230 39,665 2,565 6 % Stock-based compensation 24,111 24,419 (308 ) (1 )% Facility- and technology-related expenses 12,812 11,756 1,056 9 % Other 8,912 9,297 (385 ) (4 )% Roche collaboration reimbursement (221 ) (186 ) (35 ) 19 % Total selling, general and administrative expenses $ 133,629 $ 127,003 $ 6,626 5 % Selling, general and administrative expenses for the three months ended March 31, 2025 increased by $6.6 million, or 5%, compared with the three months ended March 31, 2024. This increase was primarily driven by the following: • $3.7 million increase in compensation and other personnel expenses primarily due to changes in headcount; • $2.6 million increase in professional service expenses primarily related to our continuing efforts to commercialize ELEVIDYS, partially offset by a decrease in expenses related to ongoing litigation matters; and • $1.1 million increase in facility- and technology-related expenses primarily due to our continuing expansion efforts. 29 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 both the three months ended March 31, 2025 and 2024, we recorded amortization of in-licensed rights of approximately $0.6 million. Other (expense) income, net Other (expense) income, net primarily consists of the unrealized gain or loss from our investments in our strategic equity investments, interest expense on our 1.25% convertible senior notes due on September 15, 2027 (the “2027 Notes”), interest income on our cash, cash equivalents and investments, accretion of investment discount and the change 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 March 31, 2025, other (expense) income, net decreased by $89.7 million compared with the three months ended March 31, 2024. The change is primarily due to a $91.7 million increase in the loss on our strategic investments, which includes the recurring fair value adjustments of investments in publicly-traded companies, including Arrowhead. Income tax expense Income tax expense for the three months ended March 31, 2025 and 2024 was $64.0 million and $5.3 million, respectively. Income tax expense for both periods presented primarily relates to state, federal and foreign income taxes for which available tax losses or credits were not available to offset. As of March 31, 2025, 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 or debt arrangements as reported in our Annual Report on Form 10-K for the year ended December 31, 2024, except for the five-year $600.0 million senior secured revolving credit facility entered into in February 2025 (the “Revolving Credit Facility”), as discussed in Note 13, Revolving Credit Facility . The following table summarizes our financial condition for each of the periods indicated: As of March 31, 2025 As of December 31, 2024 Change Change (in thousands) $ % Financial assets: Cash and cash equivalents $ 240,867 $ 1,103,010 $ (862,143 ) (78 )% Short-term investments 281,895 251,782 30,113 12 % Non-current investments 109,125 133,163 (24,038 ) (18 )% Restricted cash 15,579 15,579 — (— )% Total cash, cash equivalents and investments $ 647,466 $ 1,503,534 $ (856,068 ) (57 )% Borrowings: Convertible debt $ 1,138,289 $ 1,137,124 $ 1,165 (— )% Total borrowings $ 1,138,289 $ 1,137,124 $ 1,165 (— )% Working capital Current assets $ 2,432,533 $ 3,073,463 $ (640,930 ) (21 )% Current liabilities 605,588 731,684 (126,096 ) (17 )% Total working capital $ 1,826,945 $ 2,341,779 $ (514,834 ) (22 )% 30 For the periods ended March 31, 2025 and December 31, 2024, our principal sources of liquidity were primarily derived from the sales of our products, our collaboration arrangement with Roche and proceeds from the settlement of capped call options associated with our convertible senior notes due on November 15, 2024. Our principal uses of cash are our $583.6 million up-front payment to Arrowhead and $241.4 million equity investment in Arrowhead's common stock (collectively, the “Arrowhead Payments”), research and development expenses, manufacturing costs, selling, general and administrative expenses, investments, capital expenditures, settlement of long-term debt and other working capital requirements. The changes in our working capital primarily reflect use of cash in operating activities, as well as a reduction in our cash, cash equivalents and investments to fund the Arrowhead Payments, offset by an increase in ELEVIDYS inventory manufacturing to meet increased demand. 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, 2026, 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 associated with repurchases of our common stock under our $500.0 million share repurchase program, approved by our Board of Directors in November 2024 and effective for 18 months; • 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 Arrowhead, Myonexus Therapeutics, Inc.'s selling shareholders, BioMarin, Nationwide, UWA and other institutions; • the timing and repayment of future borrowings on our Revolving Credit Facility; • obligations to holders of our 2027 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 and availability under our Revolving Credit Facility will be sufficient to meet the capital requirements of our operations for the next 12 months and foreseeable future. Additional information regarding our Revolving Credit Facility is provided in Note 13, Revolving Credit Facility to the unaudited condensed consolidated financial statements contained in Item 1. 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 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 debt or leasing arrangements as reported in our Annual Report on Form 10-K for the year ended December 31, 2024. 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 $12.6 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, 2025, such contingencies have not been recorded in our unaudited condensed 31 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, 2025 2024 Change Change (in thousands) $ % Cash (used in) provided by Operating activities $ (583,437 ) $ (242,076 ) $ (341,361 ) 141 % Investing activities (291,177 ) 218,796 (509,973 ) NM* Financing activities 12,471 22,140 (9,669 ) (44 )% Decrease in cash and cash equivalents $ (862,143 ) $ (1,140 ) $ (861,003 ) NM* * NM: not meaningful Operating Activities Cash used in operating activities, which consists of our net (loss) income adjusted for non-cash items and changes in net operating assets and liabilities, totaled $583.4 million and $242.1 million for the three months ended March 31, 2025 and 2024, respectively. Cash used in operating activities for the three months ended March 31, 2025 was primarily driven by the net loss of $447.5 million, adjusted for the following: • $90.7 million loss on strategic investments; • $41.4 million in stock-based compensation expense; • $10.0 million in depreciation and amortization expense; and • $5.6 million in other non-cash items. These non-cash charges were partially offset by $1.9 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: • $177.4 million increase in inventory primarily due to a ramp-up of manufacturing corresponding to an increase in demand for ELEVIDYS; • $85.4 million decrease in deferred revenue primarily related to our collaboration with Roche; • $57.4 million increase in accounts receivable, net primarily due to an increase in demand for ELEVIDYS; • $17.7 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; and • $71.1 million decrease in manufacturing-related deposits and prepaids primarily due to timing of prepaid raw materials with Catalent. 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; • $10.1 million non-cash change in the fair value of contingent consideration; • $8.7 million in depreciation and amortization expense; 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: 32 • $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. Investing Activities Cash used in investing activities was $291.2 million for the three months ended March 31, 2025, compared to $218.8 million of cash provided in the three months ended March 31, 2024. Cash used in investing activities for the three months ended March 31, 2025 primarily consisted of $241.4 million in the acquisition of strategic investments related to Arrowhead, $44.7 million of purchases of available-for-sale securities and $43.7 million of purchases of property and equipment, partially offset by $40.8 million from the maturity of available-for-sale securities. Cash provided by investing activities for the three months ended 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. Financing Activities Cash provided by financing activities was $12.5 million and $22.1 million for the three months ended March 31, 2025 and 2024, respectively. Cash provided by financing activities for the three months ended March 31, 2025 consisted of $15.7 million in proceeds from exercise of options and purchase of stock under our Employee Stock Purchase Program, partially offset by the $3.2 million in arrangement and up-front fees related to the Revolving Credit Facility. 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. Item 3. Quantitative and Qualitat ive Disclosures about Market Risk Interest-Rate-Sensitive Financial Instruments 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, 2025, we had $647.5 million of cash, cash equivalents, restricted cash and investments, comprised of $240.9 million of cash and cash equivalents, $391.0 million of 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. Our future investment income may fluctuate due to changes in interest rates or we may suffer losses in principal if we sell securities that decline in market value due to changes in 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, 2025, we estimate that such hypothetical adverse 10 basis point movement would result in a hypothetical loss in fair value of approximately $0.2 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 therefore are not subject to fluctuations in market interest rates. Market-Price-Sensitive Financial Instruments Our strategic investment portfolio includes investments in equity securities of certain publicly traded biotechnology companies as a result of certain business development transactions. While we are holding such securities, we are subject to equity price risk and this may increase the volatility of our income in future periods due to changes in the fair value of strategic equity investments. As of March 31, 2025, strategic equity investments with a fair value of $151.9 million were subject to a contractual sale restriction that expires in August 2025. Changes in the fair value of these equity securities are impacted by the volatility of the stock 33 market and changes in general economic conditions, among other factors. The potential change in fair value for market-price-sensitive instruments has been assessed on a hypothetical 10.0% adverse movement. As of March 31, 2025, we estimate that such hypothetical adverse 10.0% movement would result in a hypothetical loss in fair value of approximately $15.3 million to our market-price-sensitive financial instruments.