What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-05 · 122 added, 109 removed, 380 unchanged (38% of the section changed)

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our plan to continue building out our network for commercial distribution in jurisdictions in which our products are approved;

estimated timelines and milestones for 2020 and beyond, including having safety and dosing insights for SRP-5051 in the second half of 2020, commencing a trial evaluating SRP-9001 using commercial supply in 2020, pending regulatory feedback, and completing Good Manufacturing Practices runs for SRP-9003 by the end of 2020 ;

estimated timelines and milestones for 2020 and beyond, including the regulatory action date of February 25, 2021 for casimersen, having safety and dosing insights for SRP-5051 in the fourth quarter of 2020, commencing a trial evaluating SRP-9001 using commercial process manufacturing material (Study 103) in the fourth quarter of 2020, releasing results from Study 102 in the first quarter of 2021, completing the production of Good Manufacturing Practices material for SRP-9003 by the end of 2020 and having it available for use in clinical trials in the first quarter of 2021;

our plan to expand our pipeline through internal research and development and through strategic transactions;

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We are a commercial-stage biopharmaceutical company focused on helping patients through the discovery and development of unique RNA-targeted therapeutics, gene therapy and other genetic therapeutic modalities for the treatment of rare diseases.

Applying our proprietary, highly-differentiated and innovative technologies, and through collaborations with our strategic partners, we are developing potential therapeutic candidates for a broad range of diseases and disorders, including Duchenne muscular dystrophy (“DMD”), Limb-girdle muscular dystrophies (“LGMDs”), Mucopolysaccharidosis type IIIA (“MPS IIIA”) and other neuromuscular and central nervous system (“CNS”) related disorders.

Applying our proprietary, highly-differentiated and innovative technologies, and through collaborations with our strategic partners, we are developing potential therapeutic candidates for a broad range of diseases and disorders, including Duchenne muscular dystrophy (“DMD”), Limb-girdle muscular dystrophies (“LGMDs”), and other neuromuscular and central nervous system (“CNS”) related disorders.

Our first commercial product, EXONDYS 51 (eteplirsen) Injection (“EXONDYS 51”), was granted accelerated approval by the U.S.

Food and Drug Administration (“FDA”) on September 19, 2016.

Food and Drug Administration (the “FDA”) on September 19, 2016.

EXONDYS 51 is indicated for the treatment of DMD in patients who have a confirmed mutation of the DMD gene that is amenable to exon 51 skipping.

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In June 2020, we completed the submission of a rolling new drug application (“NDA”) to the FDA seeking accelerated approval for casimersen.

In August 2020, the FDA accepted our NDA and provided a regulatory action date of February 25, 2021.

The FDA indicated it does not currently plan to hold an advisory committee to discuss the application.

SRP-5051 uses our next-generation chemistry platform, PPMO, and our exon-skipping technology to skip exon 51 of the dystrophin gene.

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In the fourth quarter of 2017, we commenced a first-in-human, single ascending dose, study for the treatment of DMD in patients who are amenable to exon 51 skipping.

In 2019, we commenced a multiple ascending dose study for the treatment of DMD with SRP-5051 in patients who are amenable to exon 51 skipping, and we expect to have safety and dosing insights in the second half of 2020.

SRP-9001 (DMD, micro-dystrophin gene therapy program), aims to express micro-dystrophin – a smaller but still functional version of dystrophin.

SRP-9001 (DMD, micro-dystrophin gene therapy program), aims to express micro-dystrophin – a smaller but functional version of dystrophin.

A unique, engineered micro-dystrophin is used because naturally-occurring dystrophin is too large to fit in an AAV vector.

In the fourth quarter of 2017, an investigational new drug (“ IND ”) application for the micro-dystrophin gene therapy program was cleared by the FDA, and a Phase 1/2a clinical trial in individuals with DMD was initiated.

On October 3, 2018, Nationwide Children’s Hospital (“Nationwide”) presented what we believe to be positive results from the Phase 1/2a clinical trial in four individuals with DMD enrolled in the trial.

On March 25, 2019, we presented nine-month functional and CK data from baseline from these four individuals, and twelve-month CK data from baseline from one of these individuals.

In October 2018, Nationwide Children’s Hospital (“Nationwide”) presented results from the Phase 1/2a clinical trial in four individuals with DMD enrolled in the trial.

In March 2019, we presented nine-month functional and creatine kinase (“ CK ”) data from baseline from these four individuals, and twelve-month CK data from baseline from one of these individuals.

In June 2020, we announced that functional, safety and tolerability data at twelve-months from baseline from these four individuals had been published in JAMA Neurology.

In the fourth quarter of 2018, we commenced a randomized, double-blind, placebo-controlled trial of SRP-9001 with the goal to establish the functional benefits of micro-dystrophin expressions.

We have dosed all 41 participants in that trial and have begun dosing participants in the crossover phase of the study.

We plan to commence a trial evaluating SRP-9001 using commercial supply in 2020, pending regulatory feedback .

In September 2020, we presented functional, safety and tolerability data at 24 months from these four individuals .

In the fourth quarter of 2018, we commenced a randomized, double-blind, placebo-controlled trial of SRP-9001 with the goal to establish the functional benefits of micro-dystrophin expressions (Study 102) .

We have dosed all 41 participants in that trial and are dosing participants in the crossover phase of the study.

We plan to release r esults from this study in the first quarter of 2021.

In addition, w e plan to commence a trial evaluating SRP-9001 using commercial process manufactured material ( S tudy 103) in the fourth quarter of 2020 .

SRP-9003 (LGMD, gene therapy program).

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The most advanced of our LGMD product candidates, SRP-9003, is designed to transfer a gene that codes for and restores beta-sarcoglycan protein with the goal of restoring the dystrophin associated protein complex.

It utilizes the AAVrh.74 vector system, the same vector used in the micro-dystrophin gene therapy program we are developing with Nationwide.

It utilizes the AAVrh.74 vector system, the same vector used in the micro-dystrophin gene therapy program.

A Phase 1/2a trial of SRP-9003 was commenced in the fourth quarter of 2018.

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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.

We expect to complete Good Manufacturing Practices (“GMP”) runs for SRP-9003 by the end of 2020.

In September 2020, we announced six-month functional data from three clinical trial participants in the high-dose cohort, and eighteen-month functional data from three clinical trial participants in the low-dose cohort.

We expect to complete the production of Good Manufacturing Practices (“GMP”) material for SRP-9003 by the end of 2020 and have it available for use in clinical trials in the first quarter of 2021.

LYS-SAF 302 .

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On June 5, 2020, Lysogene announced that the FDA issued a clinical hold for this trial.

Our pipeline includes more than 40 programs in various stages of pre-clinical and clinical development, reflecting our aspiration to apply our multifaceted approach and expertise in precision genetic medicine to make a profound difference in the lives of patients suffering from rare diseases.

Our pipeline includes more than 40 programs in various stages of pre-clinical and clinical development, reflecting our multifaceted approach and expertise in precision genetic medicine to make a profound difference in the lives of patients suffering from rare diseases.

Manufacturing, Supply and Distribution

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All of our CMO partners have extensive technical expertise, GMP experience and experience manufacturing our specific technology.

For our commercial DMD program, we have commenced work with our existing manufacturers to scale-up our process and increase our capacity.

For our commercial DMD program, we have worked with our existing manufacturers to scale-up our process and increase our capacity.

While there are a limited number of companies that can produce raw materials and APIs in the quantities and with the quality and purity that we require for our commercial products, based on our diligence to date, we believe our current network of manufacturing partners are able to fulfill these requirements, and are capable of expanding capacity as needed.

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We have adopted a hybrid development and manufacturing strategy in which we are building internal manufacturing expertise relative to all aspects of AAV-based manufacturing, including gene therapy and gene editing supply, while closely partnering with first-in-class manufacturing partners to expedite development and commercialization of our gene therapy programs.

We expect that our partnerships with Thermo and Catalent will support our clinical and commercial manufacturing capacity for our micro-dystrophin DMD gene therapy programs and LGMD programs, while also acting as a manufacturing platform for potential future gene therapy programs.

We expect that our partnerships with Thermo and Catalent will support our clinical and commercial manufacturing capacity for our micro-dystrophin DMD gene therapy and LGMD programs, while also acting as a manufacturing platform for potential future gene therapy programs.

The collaboration integrates process development, clinical production and testing, and commercial manufacturing.

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Cash, Cash Equivalents and Investments

As of June 30, 2020, we 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 of short-term investments, and $9.6 million of long-term restricted cash and investments.

As of September 30, 2020, we 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 of short-term investments, and $9.6 million of long-term restricted cash and investments.

We believe that our balance of cash, cash equivalents and investments is sufficient to fund our current operational plan for at least the next twelve months.

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COVID-19 Pandemic

In December 2019, an outbreak of a novel strain of coronavirus (“COVID-19”) originated in Wuhan, China and has since spread to a number of other countries, including the U.S.

On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic.

The COVID-19 pandemic has presented a substantial public health and economic challenge around the world.

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Clinical Trials :

With respect to our active gene therapy trials, all dosing for the 48-week analysis in our placebo controlled, blinded study to evaluate the safety and efficacy of SRP-9001 (Study 102) and in our high-dose arm for SRP-9003 to treat LGMD2E has occurred and we are working within the FDA guidance on clinical trial conduct during the pandemic to avoid or minimize delays in trial follow-up visits.

For trials that involve weekly or monthly dosing, we have adapted protocols to allow for virtual interactions, while remaining compliant with Good Clinical Practice and continuing to advance these investigational treatments.

The response to COVID-19 by healthcare providers is expected to delay site initiation, delay the completion of post-marketing requirements and commitments, slow down enrollment, and make the ongoing collection of data for patients enrolled in studies more difficult or intermittent.

For example, with respect to our planned trial evaluating SRP-9001 using commercial supply (Study 301), COVID-19 is expected to delay some necessary site initiation visits.

However, we still intend to commence Study 301 in the second half of 2020.

With respect to our active gene therapy trials, all dosing for the 48-week analysis in our placebo controlled, double blinded study to evaluate the safety and efficacy of SRP-9001 (Study 102) and in our high-dose arm for SRP-9003 to treat LGMD2E has occurred and we are working within the FDA guidance on clinical trial conduct during the pandemic.

For trials that involve weekly or monthly dosing, we have adapted protocols, where needed, to allow for virtual interactions, where possible, while remaining compliant with Good Clinical Practice and continuing to advance these investigational treatments.

The recent responses to COVID-19 by healthcare providers and regulatory agencies could delay the commencement of trials, site initiation, the completion of trials, including the completion of post-marketing requirements and commitments, slow down enrollment, and make the ongoing collection of data for patients enrolled in studies more difficult or intermittent.

We are implementing certain technology in an attempt to mitigate this risk in the event of subsequent outbreaks.

We are operating under guidance from federal agencies, including the FDA and Centers for Disease Control and Prevention (“CDC”), which designate healthcare companies as “critical infrastructure” with a special responsibility to maintain normal work schedules.

Our partners and suppliers share these special responsibilities to maintain operations and ensure the integrity of the supply chain.

To protect the health of our employees, their families, and our communities, and in accordance with direction from state and local government authorities, we have taken temporary precautionary measures, including the institution of mandatory work-from-home for all employees and contingent workers, other than those who are facility-dependent.

To protect the health of our employees, their families, and our communities, and in accordance with direction from state and local government authorities, we have taken precautionary measures, including the institution of mandatory work-from-home for all employees and contingent workers, other than those who are facility-dependent.

To date, our remote working arrangements have not impacted our ability to maintain critical business operations.

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Variable consideration, consisting of development and regulatory milestones, will be included in the transaction price only if we expect to receive such consideration and if it is probable that the inclusion of the variable consideration will not result in a significant reversal in the cumulative amount of revenue recognized under the arrangement.

Sales-based royalty and milestone payments are

excluded from the transaction price we expect to receive until the underlying sales occur because the license to our intellectual property is deemed to be the predominant item to which the royalties or milestones relate as it is the primary driver of value in its collaboration arrangement.

Sales-based royalty and milestone payments are excluded from

the transaction price we expect to receive until the underlying sales occur because the license to our intellectual property is deemed to be the predominant item to which the royalties or milestones relate as it is the primary driver of value in its collaboration arrangement.

For the recognition of revenue associated with each performance obligation, if we determine ASC 606 is not appropriate to apply by analogy, we will apply a reasonable, rational, and consistently applied accounting policy election to faithfully depict the transfer of services to the collaboration partner over the estimated performance period.

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Other than revenue recognition, 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, 2019.

Results of Operations for the Three and Six Months Ended June 30, 2020 and 201 9

Results of Operations for the Three and Nine Months Ended September 30, 2020 and 201 9

The following tables set forth selected unaudited condensed consolidated statements of operations data for each of the periods indicated:

For the Three Months Ended

September 30,

(in thousands, except per share amounts)

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Selling, general and administrative

Acquired in-process research and development

Amortization of in-licensed rights

1 unchanged sentence

Operating loss

Loss on contingent consideration

Other expense, net

3 unchanged sentences

Net loss per share - basic and diluted

For the Six Months Ended

For the Nine Months Ended

September 30,

(in thousands, except per share amounts)

12 unchanged sentences

Gain from sale of Priority Review Voucher

Loss on contingent consideration

Other expense, net

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If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and net loss in the period such variances become known.

Net product revenues for our products for the three and six months ended June 30, 2020 increased by $16.7 million and $30.1 million, respectively, compared with the three and six months ended June 30, 2019.

Net product revenues for our products for the three and nine months ended September 30, 2020 increased by $22.4 million and $52.5 million, respectively, compared with the three and nine months ended September 30, 2019.

These increases primarily reflect increasing demand for our products in the U.S.

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Of that amount, $348.7 million is being recognized as revenue on a straight-line basis over the performance period, estimated to be through the fourth quarter of 2023.

For the three and six months ended June 30, 2020, we recognized $26.0 million and $39.2 million of collaboration revenue, respectively.

For the three and nine months ended September 30, 2020, we recognized $22.5 million and $61.7 million of collaboration revenue, respectively.

For more information, please read Note 3, Collaboration and License Agreements .

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Prior to receiving regulatory approval for EXONDYS 51 and VYONDYS 53 by the FDA in September 2016 and December 2019, respectively, we expensed such manufacturing and material costs as research and development expenses.

For VYONDYS 53 sold in the three and six months ended June 30, 2020, the majority of related manufacturing costs incurred had previously been expensed as research and development expenses, as such costs were incurred prior to the FDA approval of the products.

For EXONDYS 51 sold in the three and six months ended June 30, 2020 and 2019, only part of the related manufacturing costs incurred had previously been expensed as research and development expenses.

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 our products sold would have been approximately $11.4 million and $5.1 million for the six months ended June 30, 2020 and 2019, respectively.

For VYONDYS 53 sold in the three and nine months ended September 30, 2020, the majority of related manufacturing costs incurred had previously been expensed as research and development expenses, as such costs were incurred prior to the FDA approval of the products.

For EXONDYS 51 sold in the three and nine months ended September 30, 2020 and 2019, only part of the related manufacturing costs incurred had previously been expensed as research and development expenses.

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 our products sold would have been approximately $19.3 million and $8.8 million for the nine months ended September 30, 2020 and 2019, respectively.

The following table summarizes the components of our cost of sales for each of the periods indicated:

For the Three Months Ended

September 30,

(in thousands)

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Total cost of sales

The cost of sales for the three months ended June 30, 2020 decreased by $2.6 million, or 16%, compared with the same period in 2019.

The decrease was primarily driven by the following:

$3.8 million decrease in inventory costs related to products sold primarily as a result of the write-offs of certain batches of EXONDYS 51 not meeting our quality specifications for the three months ended June 30, 2019, with no similar activity for the three months ended June 30, 2020, partially offset by increasing demand for our products;

The cost of sales for the three months ended September 30, 2020 increased by $2.0 million, or 15%, compared with the same period in 2019.

The increase was primarily driven by the following:

$0.5 million increase in inventory costs related to products sold primarily as a result of increasing demand for our products, partially offset by the write-offs of certain batches of EXONDYS 51 not meeting our quality specifications for the three months ended September 30, 2019, with no similar activity for the three months ended September 30, 2020;

$1.5 million increase in royalty payments to BioMarin and UWA reflects increasing demand for our products.

For the Six Months Ended

For the Nine Months Ended

September 30,

(in thousands)

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Total cost of sales

The cost of sales for the six months ended June 30, 2020 decreased by $ 2.0 million , or 7 %, compared with the same period in 201 9 .

The decrease was primarily driven by the following:

$5.2 million decrease in inventory costs related to products sold primarily as a result of the write-offs of certain batches of EXONDYS 51 not meeting our quality specifications for the six months ended June 30, 2019, with no similar activity for the six months ended June 30, 2020, partially offset by increasing demand for our products;

The cost of sales for the nine months ended September 30, 2020 remained relatively consistent when compared with the same period in 201 9 .

Th e changes were primarily driven by the following:

$4.7 million decrease in inventory costs related to products sold primarily as a result of the write-offs of certain batches of EXONDYS 51 not meeting our quality specifications for the nine months ended September 30, 2019, with no similar activity for the nine months ended September 30, 2020, partially offset by increasing demand for our products;

$4.6 million increase in royalty payments to BioMarin and UWA reflects increasing demand for our products.

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For the Three Months Ended

September 30,

(in thousands)

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Other gene therapies

Casimersen (exon 45)

Up-front, milestone, and other expenses

PPMO platform

Eteplirsen (exon 51)

Golodirsen (exon 53)

Other projects

Casimersen (exon 45)

PPMO platform

Collaboration cost-sharing

Other projects

Internal research and development expenses

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Total research and development expenses

For the Six Months Ended

For the Nine Months Ended

September 30,

(in thousands)

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NM = Not Meaningful

The following table s summarize our research and development expenses by category for each of the periods indicated:

The following tables summarize our research and development expenses by category for each of the periods indicated:

For the Three Months Ended

September 30,

(in thousands)

Manufacturing expenses

Compensation and other personnel expenses

Clinical expenses

Facility- and technology-related expenses

Compensation and other personnel expenses

Up-front, milestone, and other expenses

Facility- and technology-related expenses

Stock-based compensation

Collaboration cost-sharing

Professional services

Pre-clinical expenses

Collaboration cost-sharing

Research and other

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NM = Not Meaningful

Research and development expenses for the three months ended June 30, 2020 increased by $75.3 million, or 66%, compared with the three months ended June 30, 2019.

Research and development expenses for the three months ended September 30, 2020 increased by $56.5 million, or 42%, compared with the three months ended September 30, 2019.

The increase was primarily driven by the following:

$81.6 million increase in manufacturing expenses primarily due to a continuing ramp-up of our micro-dystrophin program;

$42.5 million increase in manufacturing expenses primarily due to a continuing ramp-up of our gene therapy programs;

$11.2 million increase in clinical trial expenses primarily due to increased patient enrollment for our ESSENCE program as well as certain start-up activities for our micro-dystrophin program;

$4.2 million increase in compensation and other personnel expenses primarily due to a net increase in headcount;

$6.5 million decrease in clinical trial expenses primarily due to a ramp-down of the PROMOVI trial in EXONDYS 51 and the Phase 1/2 trial in golodirsen.

The decreases were offset by increased patient enrollment for our ESSENCE program as well as certain start-up activities for our micro-dystrophin program;

$3.2 million increase in up-front, milestone and other expenses primarily due to $15.1 million of up-front payments as a result of the execution of certain research, option, and license agreements during the third quarter of 2020, offset primarily by $10.0 million of similar activity during the third quarter of 2019;

$2.2 million increase in facility- and technology-related expenses due to our continuing global expansion efforts;

$2.3 million decrease in up-front, milestone and other expenses primarily due to $12.0 million of up-front payments as a result of the execution of certain research and license agreements during the second quarter of 2020, offset by $14.4 million of similar activity during the second quarter of 2019;

$3.7 million increase in stock-based compensation expense primarily driven by increases in headcount and stock price;

$5.6 million increase in collaboration cost sharing with Genethon on its micro-dystrophin drug candidates and Lysogene on its MPS IIIA drug candidate;

$2.1 million decrease in professional service expenses primarily due to a decrease in reliance on third-party research and development contractors as a result of an increase in hiring and headcount;

$0.2 million decrease in pre-clinical expenses primarily due to completion of certain toxicology studies in our PPMO platform;

$1.5 million increase in collaboration cost sharing with Genethon on its micro-dystrophin drug candidates and Lysogene S.A on its MPS IIIA drug candidates;

$8.8 million offset to expense incurred in the second quarter of 2020 associated with a collaboration reimbursement from Roche.

For the Six Months Ended

$1.0 million increase in pre-clinical expenses primarily due to an increase of toxicology studies in our gene therapy platforms during the third quarter of 2020, offset by the completion of certain toxicology studies in our PPMO platform;

$16.7 million offset to expense incurred in the third quarter of 2020 associated with a collaboration reimbursement from Roche.

For the Nine Months Ended

September 30,

(in thousands)

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NM = Not Meaningful

Research and development expenses for the six months ended June 30, 2020 increased by $120.8 million, or 59%, compared with the six months ended June 30, 2019.

Research and development expenses for the nine months ended September 30, 2020 increased by $177.3 million, or 53%, compared with the nine months ended September 30, 2019.

The increase was primarily driven by the following:

$123.3 million increase in manufacturing expenses primarily due to a continuing ramp-up of our micro-dystrophin program;

$165.8 million increase in manufacturing expenses primarily due to a continuing ramp-up of our gene therapy programs;

$15.3 million increase in compensation and other personnel expenses primarily due to a net increase in headcount;

$4.9 million decrease in clinical trial expenses primarily due to a ramp-down of the PROMOVI trial in EXONDYS 51 and the Phase 1/2 trial in golodirsen.

The decreases were offset by increased patient enrollment for our ESSENCE program as well as certain start-up activities for our micro-dystrophin program;

$6.3 million increase in clinical trial expenses primarily due to increased patient enrollment for our ESSENCE program as well as certain start-up activities for our micro-dystrophin program;

$6.2 million increase in facility- and technology-related expenses due to our continuing global expansion efforts;

$5.1 million increase in up-front, milestone and other expenses primarily due to $8.8 million of milestone expense related to payments accrued to an academic institution and $12.0 million of up-front payments as a result of the execution of certain research and license agreements during the six months ended June 30, 2020, offset by $15.5 million of up-front payments as a result of license agreements executed during the same period of 2019 ;

$8.3 million increase in up-front, milestone and other expenses primarily due to $9.3 million of milestone expense related to payments accrued to an academic institution and $27.1 million of up-front payments as a result of the execution of certain research, option and license agreements during the nine months ended September 30, 2020, offset primarily by $25.5 million of up-front payments as a result of license agreements executed during the same period of 2019 ;

$12.1 million increase in stock-based compensation expense primarily driven by increases in headcount and stock price;

$3.2 million decrease in professional service expenses primarily due to a decrease in reliance on third-party research and development contractors as a result of an increase in hiring and headcount;

$3.9 million increase in collaboration cost sharing with Genethon on its micro-dystrophin drug candidates and Lysogene S.A on its MPS IIIA drug candidates;

$4.8 million decrease in pre-clinical expenses primarily due to completion of certain toxicology studies in our PPMO platform;

$1.2 million increase in research and other primarily driven by an increase in sponsored research with academic institutions during the six months ended June 30, 2020;

$25.2 million offset to expense associated with a collaboration reimbursement from Roche during the six months ended June 30, 2020.

$9.5 million increase in collaboration cost sharing with Genethon on its micro-dystrophin drug candidates and Lysogene on its MPS IIIA drug candidate;

$3.8 million decrease in pre-clinical expenses primarily due to completion of certain toxicology studies in our PPMO platform, offset by an increase of toxicology studies in our gene therapy platforms;

$2.7 million increase in research and other primarily driven by an increase in sponsored research with academic institutions during the nine months ended September 30, 2020;

$41.9 million offset to expense associated with a collaboration reimbursement from Roche during the nine months ended September 30, 2020.

Selling, General and Administrative Expenses

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For the Three Months Ended

September 30,

(in thousands)

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NM = Not Meaningful

Selling, general and administrative expenses for the three months ended June 30, 2020 increased by $6.3 million, or 9%, compared with the three months ended June 30, 2019.

This was primarily driven by the following:

$0.9 million increase in compensation and other personnel expenses primarily due to a net increase in headcount;

Selling, general and administrative expenses for the three months ended September 30, 2020 remained relatively consistent when compared with the three months ended September 30, 2019.

The changes were primarily driven by the following:

$3.0 million decrease in professional services primarily due to a decrease in reliance on third-party contractors as a result of an increase in hiring and headcount;

$2.6 million increase in stock-based compensation primarily due to increases in headcount and stock price.

For the Six Months Ended

For the Nine Months Ended

September 30,

(in thousands)

6 unchanged sentences

NM = Not Meaningful

Selling, general and administrative expenses for the six months ended June 30, 2020 increased by $28.5 million, or 22%, compared with the six months ended June 30, 2019.

Selling, general and administrative expenses for the nine months ended September 30, 2020 increased by $28.4 million, or 14%, compared with the nine months ended September 30, 2019.

This was primarily driven by the following:

$2.8 million increase in compensation and other personnel expenses primarily due to a net increase in headcount;

$14.3 million increase in professional services primarily due to a transaction fee for the Roche transaction and continuing global expansion;

$11.3 million increase in professional services primarily due to a transaction fee for the Roche transaction;

$10.0 million increase in stock-based compensation primarily due to increases in headcount and stock price;

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Acquired In-process Research and Development

As a result of the Myonexus acquisition, we recorded acquired in-process research and development expense of approximately $173.2 million during the second quarter of 2019.

There was no such transaction during the six months ended June 30, 2020.

As a result of the Myonexus acquisition, we recorded acquired in-process research and development expense of approximately $173.2 million during the nine months ended September 30, 2019.

There was no such transaction during the nine months ended September 30, 2020.

Amortization of In-licensed Rights

Amortization of in-licensed rights relate to the agreements we entered into with BioMarin and UWA in July 2017 and April 2011, respectively.

Amortization of in-licensed rights relates to the agreements we entered into with BioMarin and UWA in July 2017 and April 2011, respectively.

We recorded an in-licensed right asset of approximately $6.6 million in 2017 as a result of the settlement and license agreements with BioMarin.

Additionally, following the first sale of EXONDYS 51 in September 2016 and VYONDYS 53 in December 2019, we recorded an in-licensed right asset of $1.0 million and $0.5 million, respectively, related to the license agreement with UWA.

Each in-licensed right is being amortized on a straight-line basis over the life of the patent from the first commercial sale of each product.

For both the three months ended June 30, 2020 and 2019, we recorded amortization of in-licensed rights of

approximately $0.2 million .

For the six months ended June 30, 2020 and 2019, we recorded amortization of in-licensed rights of approximately $0.3 million and $0.4 million, respectively.

For both the three months ended September 30, 2020 and 201 9 , we recorded amortization of in-licen sed rights of approximately $0.2 million .

For the nine months ended September 30, 2020 and 2019, we recorded amortization of in-licensed rights of approximately $0.

5 million and $0.

6 million, respectively.

Gain from sale of Priority Review Voucher

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Following the early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in March 2020, we completed our 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.

There was no similar activity during the six months ended June 30, 2019.

There was no similar activity during the nine months ended September 30, 2019.

Loss on contingent consideration

The loss on contingent consideration relates to the fair value adjustment of the Company’s contingent consideration derivative liability related to regulatory-related contingent payments to Myonexus selling shareholders as well as to an academic institution under separate license agreements that meet the definition of a derivative.

During the three months ended September 30, 2020, the Company recognized $45.0 million of expense to adjust the fair value of the contingent consideration.

There was no similar activity during the three or nine months ended September 30, 2019.

For further information on our contingent considerations, please read Note 5, Fair Value Measurements.

Other expense, net

Other expense, net, primarily consists of interest income on our cash, cash equivalents and investments, interest expense on our debt facilities, amortization of investment discount, and unrealized gain from our investment in Lysogene.

Our cash equivalents and investments consist of money market funds, government and government agency debt securities, and certificates of deposit.

Interest expense includes interest accrued on our convertible notes and term loan.

For the three and six months ended June 30, 2020, other expense, net increased by approximately $11.6 million and $18.8 million compared with the three and six months ended June 30, 2019, respectively .

The increase primarily reflected the interest expense on our debt facilities entered into in December 2019 as well as a decrease in interest income and the amortization of investment discounts due to the investment mix of the Company’s investment portfolio.

For the three and nine months ended September 30, 2020, other expense, net increased by approximately $11.8 million and $30.7 million compared with the three and nine months ended September 30, 2019 , respectively.

The increase primarily reflected the interest expense on our debt facility entered into in December 2019 as well as a decrease in interest income and the amortization of investment discounts due to the investment mix of the Company’s investment portfolio.

Income tax expense

Income tax expense for the three and six months ended June 30, 2020 was less than $0.1 million and approximately $0.1 million, respectively.

Income tax expense for the three and six months ended June 30, 2019 was approximately $0.2 million and $0.3 million, respectively.

Income tax expense for the three and nine months ended September 30, 2020 was approximately $0.1 million and $0.2 million, respectively.

Income tax expense for the three and nine months ended September 30, 2019 was approximately $0.2 million and $0.5 million, respectively.

Income tax expense for all periods presented relate to state taxes.

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The following table summarizes our financial condition for each of the periods indicated:

September 30,

(in thousands)

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Total cash, cash equivalents and investments

Long-term debt

Convertible debt

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For the period ended December 31, 2019, our principal sources of liquidity were derived from proceeds from product sales of EXONDYS 51 and debt and equity financings.

For the period ended June 30, 2020, our principal sources of liquidity were primarily derived from our collaboration arrangement with Roche, net proceeds from sale of the PRV and product sales of our products.

Our principal uses of cash are research and development expenses, selling, general and administrative expenses, investments, capital

expenditures , business development transactions and other working capital requirements.

The increase in o ur working capital primarily resulted from cash received from Roche offset by overall use of cash in operating activities .

For the period ended September 30, 2020, our principal sources of liquidity were primarily derived from our collaboration arrangement with Roche, net proceeds from sale of the PRV and product sales of our products.

Our principal uses of cash are research and development expenses, selling, general and administrative expenses, investments, capital expenditures, business development transactions and other working capital requirements.

The increase in our working capital primarily resulted from cash received from Roche offset by overall use of cash in operating activities.

For more information for the Roche transaction, please read Note 3, License and Collaboration Agreements .

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To the extent we issue additional equity securities, our existing stockholders could experience substantial dilution.

For the Six Months Ended

For the Nine Months Ended

September 30,

(in thousands)

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Increase in cash and cash equivalents

NM = Not Meaningful

Operating Activities.

Cash provided by operating activities was $520.2 million for the six months ended June 30, 2020.

Cash used in operating activities for the six months ended June 30, 2019 was $225.2 million.

The favorable change was primarily driven by the following:

Cash provided by operating activities was $282.0 million for the nine months ended September 30, 2020.

Cash used in operating activities for the nine months ended September 30, 2019 was $292.7 million.

The favorable change was primarily driven by the following items that were adjustments to net loss:

$771.9 million net increase in deferred revenue primarily as a result of the collaboration arrangement with Roche;

$80.2 million net increase in non-cash adjustments.

$23.6 million net increase in use of operating assets and liabilities, excluding deferred revenue.

The increases were partially offset by:

$166.7 million increase in net loss, excluding acquired in-process research and development expense, and the gain from the sale of the PRV, primarily driven by increases in research and development expense and selling, general, and administrative expense, offset by increases in net product revenues and collaboration revenue;

$110.7 million net increase in use of operating assets and liabilities, excluding deferred revenue.

Investing Activities.

Cash used in investing activities was $51.9 million for the six months ended June 30, 2020.

Cash provided by investing activities for the six months ended June 30, 2019 was $287.6 million.

The unfavorable change was primarily driven by the following:

$598.9 million decrease in proceeds from the sale or maturity of available-for-sale securities during the six months ended June 30, 2020;

$25.5 million increase in purchase of available-for-sale securities during the six months ended June 30, 2020.

Cash provided by investing activities decreased by $267.5 million for the nine months ended September 30, 2020 compared with the nine months ended September 30, 2019, primarily driven by the following:

$622.9 million decrease in proceeds from the sale or maturity of available-for-sale securities during the nine months ended September 30, 2020;

$11.2 million increase in purchase of property and equipment during the nine months ended September 30, 2020.

The decreases were partially offset by:

$172.6 million decrease as a result of the acquisition of Myonexus during the six months ended June 30, 2019;

$108.1 million increase as a result of the sale of the PRV during the six months ended June 30, 2020;

$4.7 million decrease in purchase of property and equipment during the six months ended June 30, 2020.

$172.6 million decrease in net payments as a result of the acquisition of Myonexus during the nine months ended September 30, 2019;

$108.1 million increase in net proceeds from the sale of the PRV during the nine months ended September 30, 2020;

$86.5 million decrease in purchase of available-for-sale securities during the nine months ended September 30, 2020.

Financing Activities.

Cash provided by financing activities decreased by $47.3 million for the six months ended June 30, 2020 compared with the six months ended June 30, 2019, primarily driven by the following:

Cash provided by financing activities decreased by $30.2 million for the nine months ended September 30, 2020 compared with the nine months ended September 30, 2019, primarily driven by the following:

$365.4 million decrease in net proceeds from the sale of common stock.

$3.9 million increase in taxes paid related to net share settlement of equity awards.

The decreases were partially offset by:

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In our continuing operations, we have entered into long-term contractual arrangements from time to time for our facilities, the provision of goods and services, and acquisition of technology access rights, among others.

The following table presents contractual obligations arising from these arrangements as of June 30, 2020:

The following table presents contractual obligations arising from these arrangements as of September 30, 2020:

Payment Due by Period

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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 June 30, 2020, such contingencies have not been recorded in our unaudited condensed consolidated financial statements.

Because the achievement of these milestones is not probable, and payment is not required as of September 30, 2020, such contingencies have not been recorded in our unaudited condensed consolidated financial statements.

Amounts related to contingent milestone payments are not yet considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval and sales milestones.

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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 2. Management’s Discussion and Analysis