What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-05 · 180 added, 88 removed, 480 unchanged (36% of the section changed)

3 unchanged sentences

(unaudited, in thousands, except share and per share amounts)

June 30, 2020

September 30, 2020

December 31, 2019

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Deferred revenue, net of current portion

Contingent consideration

Other non-current liabilities

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Preferred stock, $ 0.0001 par value, 3,333,333 shares authorized;

none issued and outstanding

no ne issued and

Common stock, $ 0.0001 par value, 198,000,000 shares authorized;

and 75,184,863 issued and outstanding at June 30, 2020 and

and 75,184,863 issued and outstanding at September 30, 2020 and

December 31, 2019, respectively

Additional paid-in capital

Accumulated other comprehensive income, net of tax

Accumulated other comprehensive (loss) income, net of tax

Accumulated deficit

6 unchanged sentences

For the Three Months Ended

For the Six Months Ended

September 30,

For the Nine Months Ended

September 30,

Products, net

9 unchanged sentences

Operating loss

Other income (loss):

Other (loss) income:

Gain from sale of Priority Review Voucher

Loss on contingent consideration

Other expense, net

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Balance at June 30, 2020

Exercise of options for common stock

Vest of restricted stock units, net of

cancellations

Issuance of common stock under employee

stock purchase plan

Stock-based compensation

Unrealized losses from available-for-sale

securities, net of tax

Balance at September 30, 2020

Comprehensive

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Balance at June 30, 2019

Exercise of options for common stock

Grant of restricted stock awards and vest of

restricted stock units, net of cancellations

Shares withheld for taxes

Issuance of common stock under employee

stock purchase plan

Stock-based compensation

Unrealized losses from available-for-sale

Balance at September 30, 2019

See accompanying notes to unaudited condensed consolidated financial statements.

SAREPTA THERAPEUTICS, INC.

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(unaudited, in thousands)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Cash flows from operating activities:

Adjustments to reconcile net loss to cash flows from operating activities:

Loss on contingent consideration

Gain from sale of Priority Review Voucher, net of commission

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Net increase in deferred revenue

Net (decrease) increase in accounts payable, accrued expenses and other liabilities

Net increase in accounts payable, accrued expenses and other liabilities

Net cash provided by (used in) operating activities

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Acquisition of Myonexus Therapeutics, Inc., net of cash acquired

Net cash (used in) provided by investing activities

Net cash provided by investing activities

Cash flows from financing activities:

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Proceeds from sale of common stock, net of offering costs

Proceeds from exercise of stock options and purchase of stock under the Employee Stock Purchase Program

Proceeds from exercise of stock options and purchase of stock under the Employee Stock

Purchase Program

Taxes paid related to net share settlement of equity awards

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Supplemental schedule of non-cash investing activities and financing activities:

Right of use asset and lease liability additions

Sale of available-for-sale securities included in investment receivable

Lease liabilities arising from obtaining right of use assets

Intangible assets and property and equipment included in accrued expenses

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Exon skipping is intended to promote the production of an internally truncated but functional dystrophin protein.

As of June 30, 2020, the Company had approximately $ 2,070.9 million of cash, cash equivalents and investments, consisting of $ 1,640.0 million of cash and cash equivalents, $ 421.3 million of short-term investments, and $ 9.6 million of restricted cash and investments.

As of September 30, 2020, the Company had approximately $ 1,825.7 million of cash, cash equivalents and investments, consisting of $ 1,474.6 million of cash and cash equivalents, $ 341.5 million of short-term investments, and $ 9.6 million of long-term restricted cash and investments.

The Company believes that its balance of cash, cash equivalents and investments as of the date of the issuance of this report is sufficient to fund its current operational plan for at least the next twelve months, though it may pursue raising additional cash resources through public or private debt and equity financings, seek additional government contracts and establish collaborations with or license its technology to other companies.

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The accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”), reflect the accounts of Sarepta Therapeutics, Inc.

and its wholly-owned subsidiaries.

GAAP”), reflect the accounts of Sarepta and its wholly-owned subsidiaries.

All intercompany transactions between and among its consolidated subsidiaries have been eliminated.

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discovering, developing, manufacturing and delivering therapies to patients with rare diseases.

In the opinion of the Company’s management, all adjustments of a normal recurring nature necessary for a fair presentation have been reflected.

Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2019 which are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the U.S.

Securities and Exchange Commission on February 26, 2020.

The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year.

The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year.

Estimates and Uncertainties

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Financial instruments that potentially subject the Company to concentrations of credit risk consist of accounts receivable from customers, cash held at financial institutions and cash equivalents and investments.

As of June 30, 2020, the majority of the Company’s accounts receivable arose from product sales in the U.S.

As of September 30, 2020, the majority of the Company’s accounts receivable arose from product sales in the U.S.

and all customers have standard payment terms that generally require payment within 60 to 91 days .

Outside of the U.S., the majority of the Company’s customers have payment terms ranging between 45 and 150 days .

Three individual customers accounted for 50 %, 39 % and 10 % of net product revenues for the three months ended June 30, 2020 and 47 %, 40 % and 11 % of net product revenues for the six

months ended June 30, 2020 .

Three individual customers accounted for 43 %, 43 % and 12 % of net product revenues for the three months ended June 30, 2019 and 42 %, 41 % and 14 % of net product revenues for the six months ended June 30, 2019 .

Three individual customers accounted for 46 %, 41 % and 9 % of accounts receivable from product sales as of June 30, 2020 and 45 %, 37 % and 11 % of accounts receivable from product sales as of December 31, 2019 .

Three individual customers accounted for 47 %, 38 % and 10 % of net product revenues for the three months ended September 30, 2020 and 47 %, 39 % and 11 % of net product revenues for the nine months ended September 30, 2020.

Three individual customers accounted for 43 %, 40 % and 11 % of net product revenues for the three months ended September 30, 2019 and 42 %, 41 % and 13 % of net product revenues for the nine months ended September 30, 2019.

Three individual customers accounted for 42 %, 42 % and 10 % of accounts receivable from product sales as of September 30, 2020 and 45 %, 37 % and 11 % of accounts receivable from product sales as of December 31, 2019.

The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in its customers’ credit profile.

As of June 30, 2020 , the Company believes that such customers are of high credit quality.

As of June 30, 2020, the Company’s cash was concentrated at three financial institutions in the U.S., which potentially exposes the Company to credit risks.

As of September 30, 2020, the Company believes that such customers are of high credit quality.

As of September 30, 2020, the Company’s cash was concentrated at three financial institutions in the U.S., which potentially exposes the Company to credit risks.

However, the Company does not believe that there is significant risk of non-performance by the financial institutions.

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The fixed and in-substance fixed contract consideration identified must then be allocated based on the relative standalone price to the lease and non-lease components.

However, ASC 842 provides entities with a practical expedient that allows them to make an accounting policy election to not separate lease and non-lease components by class of underlying asset.

However, ASC 842 provides entities with a practical expedient that allows an accounting policy election to not separate lease and non-lease components by class of underlying asset.

In using this expedient, entities would account for each lease component and the related non-lease component together as a single component.

For new and amended real estate leases beginning after January 1, 2019, the Company has elected to account for the lease and non-lease components together for existing classes of underlying assets and allocates the contract consideration to the lease component only.

For new and amended real estate leases beginning after January 1, 2019, the Company elected to account for the lease and non-lease components together for existing classes of underlying assets and allocates the contract consideration to the lease component only.

In contrast, the Company does not apply the practical expedient for embedded leases in manufacturing and supply agreements with certain of its contract manufacturing organizations and has instead allocated contract consideration between the lease and non-lease components based on their relative standalone price.

There have not been any other material changes to the Company’s accounting policies through June 30, 2020.

Contingent Consideration

Certain of the Company’s license and collaboration agreements include future payments that are contingent upon the occurrence of a certain regulatory-related event or events.

The Company has concluded that these contingent payments represent embedded derivatives.

The Company records a liability for such contingent payments at fair value on the date the agreements are effective.

The Company estimates the fair value of contingent consideration derivatives through a valuation model that includes an income approach based on the probability-weighted expected cash flows that incorporated industry-based probability adjusted assumptions relating to the achievement of the milestone and thus the likelihood of making the payments.

Changes in the fair value of the contingent consideration derivatives can result from changes to one or multiple assumptions, including adjustments to the discount rates, the assumed development timeline and the probability of achievement of certain regulatory milestones.

The Company revalues its contingent consideration derivatives upon a material change to one or more of the assumptions discussed above.

Changes in the fair value of the Company’s contingent consideration derivatives are recognized in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

Discount rates in the Company’s valuation models represent a measure of the credit risk associated with settling the liability.

The period over which the Company discounts its contingent obligations is based on the current development stage of the product candidates, the Company’s specific development plan for that product candidate adjusted for the probability of completing the development step and when the contingent payments would be triggered.

In estimating the probability of success, the Company utilizes data regarding similar milestone events from several sources, including industry studies and its own experience.

These fair value measurements are based on significant inputs not observable in the market.

Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period.

There have not been any other material changes to the Company’s accounting policies through September 30, 2020.

Recent Accounting Pronouncements

Not yet adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, “ Income Taxes (Topic 740):

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, “ Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity.” This ASU simplifies the complexity associated with applying U.S.

GAAP for certain financial instruments with characteristics of liabilities and equity.

More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity.

This guidance will be effective beginning January 1, 2022 on a prospective basis.

As of September 30, 2020, the Company is continuing to evaluate the potential impact this ASU may have on its financial position and results of operations upon adoption.

In December 2019, the FASB issued ASU 2019-12, “ Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes”, which is intended to simplify the accounting for income taxes.

This ASU removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application.

The new standard will be effective beginning January 1, 2021.

As of June 30, 2020, the Company is continuing to evaluate the potential impact this ASU may have on its financial position and results of operations upon adoption.

Recently adopted

The new guidance will be effective beginning January 1, 2021.

As of September 30, 2020, the Company is continuing to evaluate the potential impact this ASU may have on its financial position and results of operations upon adoption.

Recently a dopted

In August 2018, the FASB issued ASU No.

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This ASU requires that credit losses for financial instruments measured at amortized cost be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks.

For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment.

For available-for-sale debt securities with unrealized losses, this standard requires allowances to be recorded instead of reducing the amortized cost of the investment.

ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases.

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The Company monitors the creditworthiness of its customers and payments such that it can properly assess and respond to changes in the customers’ credit profile or any specific issues.

Upon adoption and as of June 30, 2020, the Company believes that such customers are of high credit quality and the expected credit losses are insignificant.

Upon adoption and as of September 30, 2020, the Company believes that such customers are of high credit quality and the expected credit losses are insignificant.

In November 2018, the FASB issued ASU 2018-18, “ Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606” .

(i) clarif ies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer , (ii) provides guidance specifying that a distinct good or service is the unit of account for evaluating whether a transaction is with a customer, and (iii) precludes a company from presenting transactions with a collaborative arrangement participant that are not in the scope of ASC 606 together with revenue from contracts with customers .

(i) clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer, (ii) provides guidance specifying that a distinct good or service is the unit of account for evaluating whether a transaction is with a customer, and (iii) precludes a company from presenting transactions with a collaborative arrangement participant that are not in the scope of ASC 606 together with revenue from contracts with customers.

The new standard was effective beginning January 1, 2020.

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If expired, the related transaction price will be recognized immediately.

Through June 30, 2020, no options have been exercised or expired.

Through September 30, 2020, no options have been exercised or expired.

The $348.7 million allocated to the Combined Performance Obligation was determined using the residual approach because the standalone selling price is uncertain.

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The Company classifies all revenues recognized under the Roche Agreement as collaboration revenues within the unaudited condensed consolidated statements of operations and comprehensive loss.

For the three and six months ended June 30, 2020, the Company recognized $ 26.0 million and $ 39.2 million of collaboration revenue, respectively, the majority of which relates to the Combined Performance Obligation.

As of June 30, 2020, the Company has total deferred revenue of $ 797.7 million associated with the Roche Agreement, of which $ 89.2 million is classified as current.

The portion of deferred revenue related to the separate material rights for the Options was $ 485.0 million as of June 30, 2020.

For the three and nine months ended September 30, 2020, the Company recognized $ 22.5 million and $ 61.7 million of collaboration revenue, respectively, the majority of which relates to the Combined Performance Obligation.

As of September 30, 2020, the Company has total deferred revenue of $ 775.2 million associated with the Roche Agreement, of which $ 89.2 million is classified as current.

The portion of deferred revenue related to the separate material rights for the Options was $ 485.0 million as of September 30, 2020.

The costs associated with co-development activities performed under the Roche Agreement are included in research and development expenses, with any reimbursement of costs by Roche reflected as a reduction of such expenses when the related expense is incurred.

For the three and six months ended June 30, 2020, costs reimbursable by Roche and reflected as a reduction to research and development expenses were $ 8.9 million and $ 25.4 million, respectively, and $ 8.9 million is included in accounts receivable as of June 30, 2020.

For the three and nine months ended September 30, 2020, costs reimbursable by Roche and reflected as a reduction to operating expenses were $ 16.9 million and $ 42.2 million, respectively, and $ 16.9 million is included in accounts receivable as of September 30, 2020.

Research and Option Agreements

During the three months ended June 30, 2020, the Company entered into multiple research and option agreements with third parties in order to develop various technologies and biologics that may be used in the administration of the Company’s genetic therapeutics, with aggregate up-front payments made by the Company of $ 12.0 million, which were recorded as research and development expense in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss for the three months ended June 30, 2020 .

During the three and nine months ended September 30, 2020, the Company entered into multiple research and option agreements with third parties in order to develop various technologies and biologics that may be used in the administration of the Company’s genetic therapeutics, with aggregate up-front payments made by the Company of $ 1.1 million and $ 13.1 million, respectively, which were recorded as research and development expense in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

The agreements generally provide for research services related to preclinical development programs, and options to license the technology for clinical development.

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Under these agreements, there are $ 135.5 million in potential option payments to be made by the Company upon the determination to exercise the options.

Additionally, if the options for each agreement are executed, the Company would incur additional contingent obligations and may be required to make development, regulatory, and sales milestone payments and low-single-digit royalty payments based on the sales of the developed products upon commercialization.

As of June 30, 2020, the Company has not exercised any options nor have any research milestone payments become probable of occurring.

Additionally, if the options for each agreement are executed, the Company would incur additional contingent obligations and may be required to make development, regulatory, and sales milestone payments and tiered royalty payments based on the sales of the developed products upon commercialization.

As of September 30, 2020, the Company has not exercised any options nor have any research milestone payments become probable of occurring.

Milestone Obligations

The Company has license and collaboration agreements in place for which it could be obligated to pay, in addition to the payment of up-front fees upon execution of the agreements, certain milestone payments as a product candidate proceeds from the submission of an investigational new drug application through approval for commercial sale and beyond.

As of June 30, 2020, the Company may be obligated to make up to $ 3.2 billion in future development, regulatory, commercial and up-front royalty milestone payments associated with its license and collaboration agreements.

These obligations exclude potential future option and milestone payments for options that have yet to be exercised within agreements entered into by the Company as of June 30, 2020, which are discussed above.

For the three and six months ended June 30, 2020, the Company recognized up-front, development milestone, and other expenses of $ 12.8 million and $ 21.3 million, respectively, as research and development expense in the accompanying unaudited condensed consolidated statement of operations and comprehensive loss.

For the three and six months ended June 30, 2019, the Company recognized up-front, development milestone, and other expenses of $ 14.4 million and $ 15.5 million, respectively, as research and development expense in the accompanying unaudited condensed consolidated statement of operations and comprehensive loss.

As of September 30, 2020, the Company may be obligated to make up to $ 3.7 billion in future development, regulatory, commercial and up-front royalty milestone payments associated with its license and collaboration agreements.

These obligations exclude potential future option and milestone payments for options that have yet to be exercised within agreements entered into by the Company as of September 30, 2020, which are discussed above.

For the three and nine months ended September 30, 2020, the Company recognized up-front, development milestone, and other expenses of $ 15.4 million and $ 36.7 million, respectively, as research and development expense in the accompanying unaudited condensed consolidated statement of operations and comprehensive loss.

For the three and nine months ended September 30, 2019, the Company recognized up-front, development milestone, and other expenses of $ 10.2 million and $ 25.7 million, respectively, as research and development expense in the accompanying unaudited condensed consolidated statement of operations and comprehensive loss.

GAIN FROM SALE OF PRIORITY REVIEW VOUCHER

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to sell the rare pediatric disease Priority Review Voucher (“PRV”) it received from the FDA in connection with the approval of VYONDYS 53.

Following the early

termination of the applicable waiting period under the Hart -Scott-Rodino Antitrust Improvements Act of 1976, as amended, in March 20 20 , the Company completed its sale of the PR V and received proceeds of $ 108.1 million , net of commission , which was recorded as a gain from sale of the PRV as it did not have a carrying value at the time of the sale .

Following the early termination of the applicable waiting period under the Hart -Scott-Rodino Antitrust Improvements Act of 1976, as amended, in March 2020, the Company completed its sale of the PRV and received proceeds of $ 108.1 million, net of commission, which was recorded as a gain from sale of the PRV as it did not have a carrying value at the time of the sale.

FAIR VALUE MEASUREMENTS

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The tables below present information about the Company’s financial assets and liabilities that are measured and carried at fair value and indicate the level within the fair value hierarchy of valuation techniques it utilizes to determine such fair value:

Fair Value Measurement as of June 30, 2020

Fair Value Measurement as of September 30, 2020

(in thousands)

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and certificates of deposit.

Certain of the government and government agency bonds are publicly traded fixed income securities and are presented as cash equivalents on the unaudited condensed consolidated balance sheets as of June 30, 2020.

The Company’s asset with fair value categorized as Level 3 within the fair value hierarchy consists of a strategic investment in Series A preferred stock of Lacerta Therapeutics, Inc.

(“Lacerta”) .

For more information related to Lacerta, please read Note 3, License and Collaboration Agreements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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At the end of each reporting period, the fair value will be adjusted if Lacerta issues similar or identical equity securities or when there is a triggering event for impairment.

There were no changes in the fair value of the Lacerta strategic investment during the six months ended June 30, 2020 .

There were no changes in the fair value of the Lacerta strategic investment during the nine months ended September 30, 2020.

The Company’s contingent consideration liability with fair value categorized as Level 3 within the fair value hierarchy relate to the regulatory-related contingent payments to Myonexus Therapeutics, Inc.

(“Myonexus”) selling shareholders as well as to an academic institution under a separate license agreement that meet the definition on a derivative.

(“Myonexus”) selling shareholders as well as to an academic institution under separate license agreements that meet the definition of a derivative.

For more information related to Myonexus, please read Note 3, License and Collaboration Agreements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 .

This amount was estimated through an income approach based on the probability-weighted expected cash flows that incorporated industry-based probability adjusted assumptions relating to the achievement of the milestone and thus the likelihood of making the payments.

The contingent consideration liability was estimated using an income approach based on the probability-weighted expected cash flows that incorporated industry-based probability adjusted assumptions relating to the achievement of the milestone and thus the likelihood of making the payments.

This fair value measurement was based upon significant inputs not observable in the market and therefore represented a Level 3 measurement.

Significant changes which increase or decrease the probabilities of achieving the milestone or shorten or lengthen the time required to achieve the milestone would result in a corresponding increase or decrease in the fair value of the liability.

At the end of each reporting period, the fair value is adjusted to reflect the most current assumptions through earnings.

There were no changes in the fair value of the contingent consideration during the six months ended June 30, 2020.

As of June 30, 2020, the contingent consideration was recorded as a non-current liability on the Company’s unaudited condensed consolidated balance sheets.

There were no transfers between levels 1, 2 and 3 during the three and nine months ended September 30, 2020.

The following table represents a roll-forward of the fair value of level 3 financial liabilities:

For the Nine Months Ended

September 30, 2020

(in thousands)

Fair value as of December 31, 2019

Additions of contingent consideration

Changes in estimated fair value

Fair value as of September 30, 2020

An increase of $ 0.3 million was recorded during the three months ended September 30, 2020 to account for a new contingent consideration liability associated with a new license agreement with an academic institution that meets the definition of a derivative.

An increase of $ 45.0 million was recorded during the three months ended September 30, 2020 to account for the change in fair value of existing contingent consideration liabilities.

This change, which is recorded through earnings, was a result of updates made to certain inputs and assumptions impacting the probability-weighted expected cash flows, principally the probability of success of the underlying programs, the estimate of the amount of payments to be ultimately made, and the estimate of the year that the payments are expected to be made.

As of September 30, 2020, the contingent consideration was recorded as a non-current liability on the Company’s unaudited condensed consolidated balance sheets.

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximated fair value because of the short-term maturity of these financial instruments.

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The following table summarizes the Company’s financial assets with maturities of less than 90 days from the date of purchase included in cash equivalents in the unaudited condensed consolidated balance sheets for each of the periods indicated:

September 30,

(in thousands)

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It is the Company’s policy to mitigate credit risk in its financial assets by maintaining a well-diversified portfolio that limits the amount of exposure as to maturity and investment type.

The weighted average maturity of the Company’s available-for-sale securities as of June 30, 2020 and December 31, 2019 was approximately two months .

The weighted average maturity of the Company’s available-for-sale securities as of September 30, 2020 and December 31, 2019 was approximately one and two months , respectively.

The following tables summarize the Company’s cash, cash equivalents and short-term investments for each of the periods indicated:

As of June 30, 2020

As of September 30, 2020

(in thousands)

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The following table summarizes the components of the Company’s accounts receivable for the periods indicated:

September 30,

(in thousands)

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Collaboration receivable

Government contract receivables

Government contract receivable

Total accounts receivable, net

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Payments/credits

Balance, as of June 30, 2020

Balance, as of September 30, 2020

Other Accruals

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Payments/credits

Balance, as of June 30, 2019

Balance, as of September 30, 2019

The following table summarizes the total reserves included in the Company’s unaudited condensed consolidated balance sheets for the periods indicated:

September 30,

(in thousands)

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The following table summarizes the components of the Company’s inventory for the periods indicated:

September 30,

(in thousands)

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The following table summarizes the Company’s other current assets for each of the periods indicated:

September 30,

(in thousands)

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Prepaid clinical and pre-clinical expenses

Prepaid insurance

Prepaid research expenses

Prepaid income tax

Prepaid maintenance services

Prepaid research expenses

Leasehold improvement receivable

Prepaid insurance

Total other current assets

The following table summarizes the Company’s other non-current assets for each of the periods indicated:

September 30,

(in thousands)

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The following table summarizes the Company’s accrued expenses for each of the periods indicated:

September 30,

(in thousands)

Product revenue related reserves

Accrued employee compensation costs

Accrued contract manufacturing costs

Accrued employee compensation costs

Accrued clinical and pre-clinical costs

Accrued milestone expense

Accrued professional fees

Accrued milestone expense

Accrued property and equipment

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The following table summarizes the Company’s stock awards granted for each of the periods indicated:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Stock options

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Stock-based Compensation Expense

For the three months ended June 30, 2020 and 2019, total stock-based compensation expense was $ 27.6 million and $ 19.8 million, respectively.

For the six months ended June 30, 2020 and 2019, total stock-based compensation expense was $ 51.6 million and $ 35.9 million, respectively.

For the three months ended September 30, 2020 and 2019, total stock-based compensation expense was $ 26.9 million and $ 20.6 million, respectively.

For the nine months ended September 30, 2020 and 2019, total stock-based compensation expense was $ 78.5 million and $ 56.5 million, respectively.

The following table summarizes stock-based compensation expense by function included within the unaudited condensed consolidated statements of operations and comprehensive loss:

For the Three Months Ended

For the Six Months Ended

September 30,

For the Nine Months Ended

September 30,

(in thousands)

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For the Three Months Ended

For the Six Months Ended

September 30,

For the Nine Months Ended

September 30,

(in thousands)

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For the Three Months Ended

For the Six Months Ended

September 30,

For the Nine Months Ended

September 30,

(in thousands)

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Amortization of investment discount

Gain from sale of Priority Review Voucher

Other (expense) income

Total other (loss) income, net

Gain from sale of Priority Review

Loss on contingent consideration*

Other expense, net

Total other (loss) income

The loss on contingent consideration is related to the fair value adjustment of the regulatory-related contingent payments that are accounted for as derivatives.

Please see Note 5.

Fair Value Measurements for further details.

The Company has real estate operating leases in Cambridge, Andover and Burlington, Massachusetts and Dublin and Columbus, Ohio that provide for scheduled annual rent increases throughout each lease’s term.

There have been no significant changes to the real estate leases in the six months ended June 30, 2020.

There have been no significant changes to the real estate leases in the nine months ended September 30, 2020.

The Company has also identified embedded leases in its manufacturing and supply agreements with Catalent, Inc.

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The non-lease component was determined using the residual estimation approach as the standalone price of the gene therapy manufacturing and supply services provided by both Catalent and Thermo is highly variable.

Consequently, during the six months ended June 30, 2020, the Company recorded aggregate right of use (“ROU”) assets of $ 39.8 million and aggregate lease liabilities of $ 35.5 million relating to the dedicated clean room suites at both Catalent and Thermo.

The ROU assets and lease liabilities were based on the present value of estimated future payments associated with the lease component of the Catalent and Thermo clean room suites at discount rates of 8.0 % and 7.5 %, respectively, representing the rate at which the Company could borrow on a collateralized basis the amount of the lease payments in a similar term.

Consequently, as of the nine months ended September 30, 2020, the Company had aggregate right of use (“ROU”) assets of $ 36.3 million and aggregate lease liabilities of $ 32.2 million relating to the dedicated clean room suites at both Catalent and Thermo.

The initial ROU assets and lease liabilities recorded were based on the present value of estimated future payments associated with the lease component of the Catalent and Thermo clean room suites at discount rates of 8.0 % and 7.5 %, respectively, representing the rate at which the Company could borrow on a collateralized basis the amount of the lease payments in a similar term.

The difference between the ROU assets and the lease liabilities results from certain prepayments made to Catalent and Thermo by the Company prior to the commencement of the leases.

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The total lease liability payments are expected to be paid in equal installments through the five-year and eight-year terms of the Catalent and Thermo agreements, respectively.

The leases on the remaining two clean room suites at Catalent and four clean room suites at Thermo have not commenced as of June 30, 2020 because these clean room suites are not yet available for use by the Company.

Accordingly, cumulative payments totaling $ 18.0 million and $ 43.1 million made to Catalent and Thermo, respectively, relating to the remaining clean room suites which have not become available to the Company have been recorded as other assets in the accompanying unaudited condensed consolidated balance sheets, a portion of which will be considered in the initial measurement of the cost of the ROU asset at the lease commencement date, currently anticipated to occur in the fourth quarter of 2020.

For the three and six months ended June 30, 2020, the Company recorded aggregate operating lease costs of $ 2.0 million and $ 2.8 million related to the Catalent and Thermo embedded leases, respectively.

For the three and six months ended June 30, 2020, the Company recorded aggregate variable lease costs of $ 3.6 million and $ 4.5 million, respectively.

The leases on the remaining two clean room suites at Catalent and four clean room suites at Thermo have not commenced as of September 30, 2020 because these clean room suites are not yet available for use by the Company.

Accordingly, cumulative payments totaling $ 24.0 million and $ 47.9 million made to Catalent and Thermo, respectively, relating to the remaining clean room suites which have not become available to the Company have been recorded as other assets in the accompanying unaudited condensed consolidated balance sheets, a portion of which will be considered in the initial measurement of the cost of the ROU asset at the lease commencement date, currently anticipated to occur in the fourth quarter of 2020 for Catalent and the first half of 2021 for Thermo.

For the three and nine months ended September 30, 2020, the Company recorded aggregate operating lease costs of $ 2.2 million and $ 5.0 million related to the Catalent and Thermo embedded leases, respectively.

For the three and nine months ended September 30, 2020, the Company recorded aggregate variable lease costs of $ 3.0 million and $ 7.5 million, respectively.

The operating lease costs and variable lease costs of the Thermo and Catalent embedded leases were included in research and development expense in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

2 unchanged sentences

Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding.

For the three and six months ended June 30, 2020 and 2019, there were no differences between basic and diluted net loss per share since the effect of common stock equivalents would be anti-dilutive due to the net loss position and, therefore, would be excluded from the diluted net loss per share calculation.

For the three and nine months ended September 30, 2020 and 2019, there were no differences between basic and diluted net loss per share since the effect of common stock equivalents would be anti-dilutive due to the net loss position and, therefore, would be excluded from the diluted net loss per share calculation.

For the Three Months Ended

For the Six Months Ended

September 30,

For the Nine Months Ended

September 30,

(in thousands, except per share amounts)

3 unchanged sentences

Net loss per share - basic and diluted

For the three and six months ended June 30, 2020 and 2019, stock options, RSAs, RSUs, and ESPP to purchase 10.0 million and 9.7 million shares of the Company’s common stock, respectively, were excluded from the diluted net loss per share calculation as their effect would have been anti-dilutive.

For both the three and nine months ended September 30, 2020 and 2019, stock options, RSAs, RSUs, and ESPP to purchase 9.6 million shares of the Company’s common stock were excluded from the diluted net loss per share calculation as their effect would have been anti-dilutive.

The Company accounts for the effect of the 2024 Notes on diluted net earnings per share using the if-converted method as they may be settled in cash or shares at the Company’s option.

While the closing price on June 30, 2020 exceeded the conversion price of $ 73.42 , the potential shares issuable under the 2024 Notes were excluded from the calculation of diluted loss per share as they were anti-dilutive using the if-converted method.

While the closing price on September 30, 2020 exceeded the conversion price of $ 73.42 , the potential shares issuable under the 2024 Notes were excluded from the calculation of diluted loss per share as they were anti-dilutive using the if-converted method.

In the period of conversion, the 2024 Notes will have no impact on diluted net earnings (loss) if they are settled in cash and will have an impact on diluted earnings per share if the Notes are settled in shares upon conversion and when the Company is in an income position.

2 unchanged sentences

The following table summarizes the aggregate non-cancelable contractual obligations arising from the Company’s manufacturing obligations:

June 30, 2020

September 30, 2020

(in thousands)

2020 (July - December)

2020 (October - December)

Total manufacturing commitments*

Total manufacturing commitments include both Catalent and Thermo Agreements.

Related to the embedded leases at Catalent and Thermo that have commenced during the six months ended June 30, 2020, the Company recorded an ROU asset and a lease liability.

Related to the embedded leases at Catalent and Thermo that have commenced during the nine months ended September 30, 2020, the Company recorded an ROU asset and a lease liability.

Please see Note 13.

16 unchanged sentences

On April 7, 2020, the plaintiff filed a Notice of Voluntary Dismissal of his claims against all Defendants, and the court closed the case.

On September 15, 2020, REGENXBIO INC.

(“RegenX”) and the Trustees of the University of Pennsylvania filed a lawsuit against the Company and Sarepta Therapeutics Three, LLC (together, “Sarepta”), in the U.S.

District Court for the District of Delaware.

The plaintiffs assert patent infringement of U.S.

10,526,617 (“the ‘617 Patent”) under 35 U.S.C.§§ 271(a)-(c) based on Sarepta’s alleged direct or indirect manufacture and use of cultured host cell technology to make adeno-associated virus (“AAV”) gene therapy products, including SRP-9001.

Specifically, the Complaint essentially includes the allegation that Sarepta’s use, and the use by its contract manufacturers on its behalf, of a host cell containing a recombinant acid molecule that encodes a capsid protein having at least 95% amino acid identity to AAVrh10 infringes upon the ‘617 Patent asserted by RegenX.

Plaintiffs seek injunctive relief, a judgment of infringement, an unspecified amount of damages that is no less than a reasonable royalty, a judgment of willful infringement, attorneys’ fees and costs, and such other relief as the court deems just and proper.

On September 30, 2020, the Court endorsed a stipulation filed by the parties extending Sarepta’s time to respond to the complaint to and including November 6, 2020.

On November 4, 2020, Sarepta moved to dismiss the case pursuant to Federal Rule of Civil Procedure 12(b)(6) based on the Safe Harbor provision of non-infringement contained in 35 U.S.C.

We are unable to provide an estimate of possible loss or range of possible loss.

SUBSEQUENT EVENT

On December 13, 2019, the Company entered into a loan agreement (the “Loan Agreement”) which provides a term loan (“2019 Term Loan”) of $ 500.0 million with Biopharma Credit PLC and Biopharma Credit Investments V (Master) LP (collectively, the “Lenders”).

The 2019 Term Loan has two tranches:

A and B, each of which has a loan amount of $ 250.0 million.

On December 20, 2019, Sarepta drew down tranche A of the 2019 Term Loan and has the option of draw down tranche B of the loan no later than December 31, 2020, subject to certain conditions.

The 2019 Term Loan matures on December 20, 2023 , when the principal amount of the loan will become due.

On September 24, 2020, the Company entered into its first amendment to the Loan Agreement (the “Amendment”).

The Amendment increases the aggregate principal amount of the tranche B loan from $250.0 million to $ 300.0 million.

In addition, the Amendment extends the maturity date for the tranche B loan to December 31, 2024 and increases the funding fee payable to each Lender to 2.95 %.

On November 2, 2020, the Company drew down the $ 300.0 million tranche B loan.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements