Sarepta Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This section should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the section contained in our Annual Report on Form 10-K for the year ended December 31, 2019 under the caption “Part II-Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations”. This discussion contains certain forward-looking statements, which are often identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “estimate,” “could,” “continue,” “ongoing,” “predict,” “potential,” “likely,” “seek” and other similar expressions, as well as variations or negatives of these words. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements include, but are not limited to • the expected or potential impact of the COVID-19 pandemic on our business, including our commercial sales, ongoing and planned clinical trials, manufacturing and operations; • our expectations regarding the continued growth of our business operations due, in part, to the commercialization of new pharmaceutical products; • our technologies and programs, including those with strategic partners, and their respective potential benefits, including the goal of exon skipping to create the production of an internally truncated but functional dystrophin protein and the goal of SRP-9003 to restore the dystrophin associated protein complex; • our expectation that our partnerships with manufacturers will support our clinical and commercial manufacturing capacity for our micro-dystrophin Duchenne muscular dystrophy gene therapy programs and Limb-girdle muscular dystrophy programs, while also acting as a manufacturing platform for potential future gene therapy programs, and our belief that our current network of manufacturing partners are able to fulfil the requirements of our commercial plan; • 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 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; • the timely completion and satisfactory outcome of our post-marketing requirements and commitments, including verification of a clinical benefit for EXONDYS 51 and VYONDYS 53 in confirmatory trials; • our plan to evaluate future engagement with the European Medicines Agency (the “EMA”) on potential next steps for EMA approval of our products; • our ability to further secure long-term supply of our commercial products and our product candidates to satisfy our planned commercial, early access programs and clinical needs; • the impact of regulations and regulatory decisions by the U.S. Food and Drug Administration and other regulatory agencies on our business, as well as the development of our product candidates and our financial and contractual obligations; • the possible impact of any competing products on the commercial success of EXONDYS 51, VYONDYS 53 and our product candidates and our ability to compete against such products; • our expectations regarding the potential benefits of the partnership, licensing and/or collaboration arrangements and other strategic arrangements and transactions we have entered into or may enter into in the future; • the extent of protection that our patents provide and our pending patent applications may provide, if patents issue from such applications, to our technologies and programs, and our ability to obtain and maintain patent protection for our technologies and programs; • our plans and ability to file and progress to issue additional patent applications to enhance and protect our new and existing technologies and programs; • our estimates regarding how long our currently available cash and cash equivalents will be sufficient to finance our operations and business plans and statements about our future capital needs; 22 • our estimates regarding future revenues, research and development expenses, other expenses, capital requirements and payments to third parties; • our expectations relating to potential funding from government and other sources for the development of some of our product candidates; • our expectation regarding the impact of environmental laws and regulations on our business; and • our beliefs and expectations regarding milestone, royalty or other payments that could be due to third parties under existing agreements. We undertake no obligation to update any of the forward-looking statements contained in this Quarterly Report on Form 10-Q after the date of this report, except as required by law or the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) . We caution readers not to place undue reliance on forward-looking statements. Our actual results could differ materially from those discussed in this Quarterly Report on Form 10-Q. The forward-looking statements contained in this Quarterly Report on Form 10-Q, and other written and oral forward-looking statements made by us from time to time, are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements, including the risks, uncertainties and assumptions identified under the heading “Risk Factors” in this Quarterly Report on Form 10-Q. Overview We are a commercial-stage biopharmaceutical company focused on helping patients through the discovery and development of unique RNA-targeted therapeutics, gene therapy and other genetic therapeutic modalities for the treatment of rare diseases. Applying our proprietary, highly-differentiated and innovative technologies, and through collaborations with our strategic partners, we 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 (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. EXONDYS 51 uses our phosphorodiamidate morpholino oligomer (“PMO”) chemistry and exon-skipping technology to skip exon 51 of the dystrophin gene. Our second commercial product, VYONDYS 53 (golodirsen) Injection (“VYONDYS 53”), was granted accelerated approval by the FDA on December 12, 2019. VYONDYS 53 is indicated for the treatment of DMD in patients who have a confirmed mutation of the DMD gene that is amenable to exon 53 skipping. VYONDYS 53 uses our PMO chemistry and exon-skipping technology to skip exon 53 of the dystrophin gene. We are in the process of conducting various EXONDYS 51 and VYONDYS 53 clinical trials, including studies that are required to comply with our post-marketing FDA requirements/commitments to verify and describe the clinical benefit of EXONDYS 51 and VYONDYS 53. A summary description of our main product candidates, including those in collaboration with our strategic partners, is as follows: • Casimersen (SRP-4045) uses our PMO chemistry and exon-skipping technology to skip exon 45 of the DMD gene. Casimersen is designed to bind to exon 45 of dystrophin pre-mRNA, resulting in exclusion, or “skipping”, of this exon during mRNA processing in patients with genetic mutations that are amenable to exon 45 skipping. We are enrolling and dosing patients in ESSENCE (4045-301), our Phase 3 placebo controlled confirmatory trial in patients who have a confirmed mutation of the DMD gene that is amenable to exon 45 or 53 skipping using casimersen and golodirsen, respectively. On March 28, 2019, we announced results from our interim analysis of muscle biopsy endpoints comparing casimersen treatment to placebo in the ESSENCE study. 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. SRP-5051, a peptide conjugated PMO, is designed to bind to exon 51 of dystrophin pre-mRNA, resulting in exclusion of this exon during mRNA processing in patients with genetic mutations that are amenable to exon 51 skipping. Exon skipping is intended to promote the production of an internally truncated but functional dystrophin protein. In the fourth quarter of 2017, we commenced a first-in-human, single ascending dose, study for the treatment of 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 fourth quarter of 2020. 23 • 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. 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 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). We are developing gene therapy programs for various forms of LGMDs. The most advanced of our LGMD product candidates, SRP-9003, is designed to transfer a gene that codes for and restores beta-sarcoglycan protein with the goal of restoring the dystrophin associated protein complex. It utilizes the AAVrh.74 vector system, the same vector used in the micro-dystrophin gene therapy program. A Phase 1/2a trial of SRP-9003 was commenced in the fourth quarter of 2018. In February 2019, we announced positive two-month biopsy data from the first three-patient low-dose cohort dosed in the SRP-9003 trial, and in October 2019, we announced positive nine-month functional data from these three patients. We have recently dosed one additional cohort of three patients at a higher dose per the study protocol. In June 2020, we announced safety and expression results from three clinical trial participants in the high-dose cohort measured at 60 days, and one-year functional data from three clinical trial participants in the low-dose cohort. In September 2020, we announced six-month functional data from three clinical trial participants in the high-dose cohort, and eighteen-month functional data from three clinical trial participants in the low-dose cohort. 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 . We are collaborating with Lysogene S.A (“Lysogene”) to develop a gene therapy, LYS-SAF302, to treat MPS IIIA. Lysogene is conducting a global Phase 2/3 clinical trial of LYS-SAF302 (AAVance) to evaluate the effectiveness of a one-time delivery of an AAVrh.10 virus carrying the N-SGSH gene. Dosing in this trial has been completed. 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 multifaceted approach and expertise in precision genetic medicine to make a profound difference in the lives of patients suffering from rare diseases. Manufacturing, Supply and Distribution We have developed proprietary state-of-the-art Chemistry, Manufacturing and Controls (“CMC”) and manufacturing capabilities that allow synthesis and purification of our products and product candidates to support both clinical development as well as commercialization. Our current main focus in manufacturing is to continue scaling up production of our PMO-based therapies and optimizing manufacturing for PPMO and gene therapy-based product candidates. We have entered into certain manufacturing and supply arrangements with third-party suppliers which will in part utilize these capabilities to support production of certain of our product candidates and their components. In 2017, we opened a facility in Andover, Massachusetts, which significantly enhanced our research and development manufacturing capabilities. However, we currently do not have internal GMP manufacturing capabilities. For our current and future manufacturing needs, we have entered into supply agreements with specialized contract manufacturing organizations (each a “CMO”) to produce custom raw materials, the active pharmaceutical ingredients (“APIs”), drug product and finished goods for our products and product candidates for both commercial and clinical use. All of our CMO partners have extensive technical expertise, GMP experience and experience manufacturing our specific technology. For our commercial 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. Additionally, we have, and will continue to evaluate further relationships with, additional suppliers to increase overall capacity as well as further reduce risks associated with reliance on a limited number of suppliers for manufacturing. 24 Our commercial products are distributed in the U.S. through a limited network of home infusion specialty pharmacy providers that deliver the medication to patients and a specialty distributor that distributes our products to hospitals and hospital outpatient clinics. With respect to the pre-commercial distribution of our products to patients outside of the U.S., we have contracted with third party distributors and service providers to distribute our products in certain countries through our ex-U.S. early access programs (“EAP”). We plan to continue building out our network for commercial distribution in jurisdictions in which our products are approved. Our gene therapy manufacturing capabilities have been greatly enhanced through partnerships with Thermo Fisher Scientific, Inc., formerly Brammer Bio MA, LLC (“Thermo”), Catalent, Inc., formerly Paragon Bioservices, Inc. (“Catalent”), and Aldevron LLC (“Aldevron”). 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 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. Aldevron is expected to provide GMP-grade plasmid for our SRP-9001 micro-dystrophin DMD gene therapy program and LGMD programs, as well as plasmid source material for future gene therapy programs, such as CMT, MPS IIIA and other neuromuscular and CNS related disorders. Manufacturers and suppliers of our commercial products and product candidates are subject to the FDA’s current GMP (“cGMP”) requirements and other rules and regulations prescribed by foreign regulatory authorities. We depend on our third-party partners for continued compliance with cGMP requirements and applicable foreign standards. Cash, Cash Equivalents 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. The likelihood of our long-term success must be considered in light of the expenses, difficulties and delays frequently encountered in the development and commercialization of new pharmaceutical products, competitive factors in the marketplace, the risks associated with government sponsored programs and the complex regulatory environment in which we operate. COVID-19 Pandemic The COVID-19 pandemic has presented a substantial public health and economic challenge around the world. Our business operations and financial condition and results have been impacted to varying degrees, and we expect the impact will continue in future quarters. Commercialization : We have activated business continuity plans to minimize disruption to patients. There has been minimal disruption to our commercial and clinical supply chains and we continue to provide an uninterrupted supply of our approved or investigational therapies to patients. Although the vast majority of EXONDYS 51 patients are treated in home, and although we are working to increase the percentage of patients that can initiate treatment with VYONDYS 53 and EXONDYS 51 at home, the response to COVID-19 by healthcare providers has made it difficult for some patients to receive infusions or initiate treatment with our commercial products. For this and other reasons, such as potential delays in processing reauthorizations and modifications to program benefits by insurers, we expect that COVID-19 will impact our revenue. Clinical Trials : 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. 25 Operations : 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 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. Facility-dependent employees, including those needed to maintain manufacturing and clinical research, are reporting to work under strict protocols designed to help those employees remain healthy. We are continuing to assess the potential impact of the COVID-19 pandemic on our business, operations and financial condition and results. Despite careful tracking and planning, however, we are unable to accurately predict the extent of the impact of the pandemic on our business, results of operations and financial condition due to the uncertainty of future developments. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. For additional information on the various risks posed by the COVID-19 pandemic, refer to Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q. Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements included elsewhere in this report. The preparation of our unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the U.S. requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities for the periods presented. Some of these judgments can be subjective and complex and, consequently, actual results may differ from these estimates. We believe that the estimates and judgments upon which we rely are reasonable based upon historical experience and information available to us at the time that we make these estimates and judgments. To the extent there are material differences between these estimates and actual results, our unaudited condensed consolidated financial statements will be affected. Although we believe that our judgments and estimates are appropriate, actual results may differ from these estimates. Due to the collaboration arrangement with F. Hoffman-La Roche Ltd. (“Roche”), we have added collaboration revenue recognition to our critical accounting policies and estimates. As such, we believe the following accounting policies to be the most critical to the judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements: • revenue recognition; • inventory; and • income tax. Revenue recognition – collaboration revenue Our collaboration revenue is generated from our collaboration arrangement with Roche. For more information, please read Note 3, Collaboration and License Agreements . At the inception of a collaboration arrangement, we first assess whether the contractual arrangement is within the scope of ASC 808, Collaborative Arrangements (“ASC 808”), to determine whether the arrangement involves a joint operating activity and involves two (or more) parties that are both active participants in the activity and exposed to significant risks and rewards dependent on the commercial success of such activities. Then we determine whether the collaboration arrangement in its entirety represents a contract with a customer as defined by ASC 606, Revenue from Contracts with Customers (“ASC 606”). If only a portion of the collaboration arrangement is potentially with a customer, we apply the distinct good or service unit-of-account guidance in ASC 606 to determine whether there is a unit of account that should be accounted for under ASC 606. For the units of account in the collaboration arrangement that do not represent a vendor-customer relationship, we will (i) consider applying other GAAP, including by analogy, or (ii) if there is no appropriate analogy, consistently apply a reasonable and rational accounting policy election. In general, by analogy to ASC 606, we identify the performance obligations within the collaboration arrangement and identify and allocate the transaction price we expect to receive on a relative standalone selling price basis to each performance obligation. The residual approach is used to determine estimated standalone selling prices when the selling price is uncertain. 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 26 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. Up-front payments from a collaboration partner are recognized as deferred revenue when received and recognized as revenue over the estimated performance period. Reimbursement payments from a collaboration partner associated with research and development cost sharing provisions in a collaboration arrangement are recognized as the related expense is incurred and classified as an offset to research and development expense. Our collaboration arrangements may contain options which provide the collaboration partner with the right to obtain additional licenses. If an arrangement contains customer options, by analogy to ASC 606, we evaluate the customer options to determine whether they represent material rights, which may include options to acquire additional goods or services for free or at a discount. If the customer options are determined to represent material rights, they are recognized as a separate performance obligation at inception of the arrangement. We allocate a portion of the transaction price of the collaboration arrangement to material rights based on the relative standalone selling price. Amounts allocated to material rights are not recognized as revenue until related options are exercised or expire. Key assumptions to determine the standalone selling price of units of account in a collaboration arrangement include, but are not limited to, forecasted revenues, development timelines, incremental costs related to the arrangement, discount rates and probabilities of technical and regulatory success. 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. 27 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, 2020 2019 Change Change (in thousands, except per share amounts) $ % Revenues: Products, net $ 121,429 $ 99,041 $ 22,388 23 % Collaboration 22,495 — 22,495 NM* Total revenues 143,924 99,041 44,883 45 % Cost and expenses: Cost of sales (excluding amortization of in-licensed rights) 15,015 13,037 1,978 15 % Research and development 190,438 133,949 56,489 42 % Selling, general and administrative 75,373 75,429 (56 ) (— )% Amortization of in-licensed rights 166 216 (50 ) (23 )% Total cost and expenses 280,992 222,631 58,361 26 % Operating loss (137,068 ) (123,590 ) (13,478 ) 11 % Other loss: Loss on contingent consideration (45,000 ) — (45,000 ) NM* Other expense, net (14,335 ) (2,510 ) (11,825 ) NM* Total other loss (59,335 ) (2,510 ) (56,825 ) NM* Loss before income tax expense (196,403 ) (126,100 ) (70,303 ) 56 % Income tax expense 96 226 (130 ) (58 )% Net loss $ (196,499 ) $ (126,326 ) $ (70,173 ) 56 % Net loss per share - basic and diluted $ (2.50 ) $ (1.70 ) $ (0.80 ) 47 % For the Nine Months Ended September 30, 2020 2019 Change Change (in thousands, except per share amounts) $ % Revenues: Products, net $ 333,221 $ 280,720 $ 52,501 19 % Collaboration 61,740 — 61,740 NM* Total revenues 394,961 280,720 114,241 41 % Costs and expenses: Cost of sales (excluding amortization of in-licensed rights) 40,978 41,019 (41 ) (— )% Research and development 515,104 337,768 177,336 53 % Selling, general and administrative 231,829 203,388 28,441 14 % Acquired in-process research and development — 173,240 (173,240 ) (100 )% Amortization of in-licensed rights 497 649 (152 ) (23 )% Total cost and expenses 788,408 756,064 32,344 4 % Operating loss (393,447 ) (475,344 ) 81,897 (17 )% Other income (loss): Gain from sale of Priority Review Voucher 108,069 — 108,069 NM* Loss on contingent consideration (45,000 ) — (45,000 ) NM* Other expense, net (34,202 ) (3,544 ) (30,658 ) NM* Total other income (loss) 28,867 (3,544 ) 32,411 NM* Loss before income tax expense (364,580 ) (478,888 ) 114,308 (24 )% Income tax expense 231 484 (253 ) (52 )% Net loss $ (364,811 ) $ (479,372 ) $ 114,561 (24 )% Net loss per share - basic and diluted $ (4.70 ) $ (6.54 ) $ 1.84 (28 )% * NM = Not Meaningful 28 Revenues Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from Medicaid rebates, governmental chargebacks including Public Health Services chargebacks, prompt pay discounts, co-pay assistance and distribution fees. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if no payments are required of us) or a current liability (if a payment is required of us). Our estimates take into consideration current contractual and statutory requirements. The amount of variable consideration included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received or paid may differ from our estimates. 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 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. Collaboration revenue relates to our collaboration arrangement with Roche. In February 2020, we received an aggregate of approximately $1.2 billion in cash consideration from Roche, consisting of an up-front payment and an equity investment in our company. 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 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 . Cost of Sales (excluding amortization of in-licensed rights) Our cost of sales (excluding amortization of in-licensed rights) primarily consists of royalty payments to BioMarin Pharmaceuticals, Inc. (“BioMarin”) and the University of Western Australia (“UWA”) , inventory costs that relate to sales of our products and the related overhead costs. 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 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, 2020 2019 Change Change (in thousands) $ % Inventory costs related to products sold $ 7,202 $ 6,687 $ 515 8 % Royalty payments 7,813 6,350 1,463 23 % Total cost of sales $ 15,015 $ 13,037 $ 1,978 15 % 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; and • $1.5 million increase in royalty payments to BioMarin and UWA reflects increasing demand for our products. For the Nine Months Ended September 30, 2020 2019 Change Change (in thousands) $ % Inventory costs related to products sold $ 19,711 $ 24,396 $ (4,685 ) (19 )% Royalty payments 21,267 16,623 4,644 28 % Total cost of sales $ 40,978 $ 41,019 $ (41 ) (— )% 29 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; and • $4.6 million increase in royalty payments to BioMarin and UWA reflects increasing demand for our products. Research and Development Expenses Research and development expenses consist of costs associated with research activities as well as costs associated with our product development efforts, conducting pre-clinical trials, clinical trials and manufacturing activities. Direct research and development expenses associated with our programs include clinical trial site costs, clinical manufacturing costs, costs incurred for consultants, up-front fees and milestones paid to third parties in connection with technologies that have not reached technological feasibility and do not have an alternative future use, and other external services, such as data management and statistical analysis support, and materials and supplies used in support of clinical programs. Indirect costs of our clinical programs include salaries, stock-based compensation and allocation of our facility- and technology-related costs. Research and development expenses represent a substantial percentage of our total operating expenses. We do not maintain or evaluate and, therefore, do not allocate internal research and development costs on a project-by-project basis. As a result, a significant portion of our research and development expenses are not tracked on a project-by-project basis, as the costs may benefit multiple projects. The following tables summarize our research and development expenses by project for each of the periods indicated: For the Three Months Ended September 30, 2020 2019 Change Change (in thousands) $ % Micro-dystrophin $ 71,451 $ 23,439 $ 48,012 205 % Other gene therapies 27,256 12,671 14,585 115 % Up-front, milestone, and other expenses 15,375 12,146 3,229 27 % Eteplirsen (exon 51) 10,766 12,703 (1,937 ) (15 )% Golodirsen (exon 53) 7,021 5,956 1,065 18 % Casimersen (exon 45) 6,710 8,343 (1,633 ) (20 )% PPMO platform 6,683 4,575 2,108 46 % Collaboration cost-sharing 5,615 — 5,615 NM* Other projects 915 323 592 183 % Internal research and development expenses 55,303 53,793 1,510 3 % Roche collaboration reimbursement (16,657 ) — (16,657 ) NM* Total research and development expenses $ 190,438 $ 133,949 $ 56,489 42 % For the Nine Months Ended September 30, 2020 2019 Change Change (in thousands) $ % Micro-dystrophin $ 175,799 $ 60,885 $ 114,914 189 % Other gene therapies 72,389 15,409 56,980 NM* Casimersen (exon 45) 40,516 21,237 19,279 91 % Up-front, milestone, and other expenses 36,658 28,346 8,312 29 % Golodirsen (exon 53) 28,093 17,012 11,081 65 % Eteplirsen (exon 51) 22,901 30,392 (7,491 ) (25 )% PPMO platform 17,710 14,018 3,692 26 % Collaboration cost-sharing 9,924 416 9,508 NM* Other projects 3,706 3,123 583 18 % Internal research and development expenses 149,261 146,930 2,331 1 % Roche collaboration reimbursement (41,853 ) — (41,853 ) NM* Total research and development expenses $ 515,104 $ 337,768 $ 177,336 53 % * NM = Not Meaningful 30 The following tables summarize our research and development expenses by category for each of the periods indicated: For the Three Months Ended September 30, 2020 2019 Change Change (in thousands) $ % Manufacturing expenses $ 89,165 $ 46,633 $ 42,532 91 % Clinical expenses 29,547 18,369 11,178 61 % Compensation and other personnel expenses 26,053 21,808 4,245 19 % Up-front, milestone, and other expenses 15,375 12,146 3,229 27 % Facility- and technology-related expenses 14,328 12,104 2,224 18 % Stock-based compensation 10,645 6,972 3,673 53 % Collaboration cost-sharing 5,615 — 5,615 NM* Professional services 4,546 6,656 (2,110 ) (32 )% Pre-clinical expenses 2,819 1,812 1,007 56 % Research and other 9,002 7,449 1,553 21 % Roche collaboration reimbursement (16,657 ) — (16,657 ) NM* Total research and development expenses $ 190,438 $ 133,949 $ 56,489 42 % * NM = Not Meaningful 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: • $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; • $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; • $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; • $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; and • $16.7 million offset to expense incurred in the third quarter of 2020 associated with a collaboration reimbursement from Roche. 31 For the Nine Months Ended September 30, 2020 2019 Change Change (in thousands) $ % Manufacturing expenses $ 254,561 $ 88,747 $ 165,814 187 % Compensation and other personnel expenses 78,778 63,527 15,251 24 % Clinical expenses 64,297 58,026 6,271 11 % Facility- and technology-related expenses 40,462 34,216 6,246 18 % Up-front, milestone, and other expenses 36,658 28,346 8,312 29 % Stock-based compensation 31,034 18,982 12,052 63 % Professional services 13,060 16,292 (3,232 ) (20 )% Collaboration cost-sharing 9,924 416 9,508 NM* Pre-clinical expenses 6,047 9,826 (3,779 ) (38 )% Research and other 22,136 19,390 2,746 14 % Roche collaboration reimbursement (41,853 ) — (41,853 ) NM* Total research and development expenses $ 515,104 $ 337,768 $ 177,336 53 % * NM = Not Meaningful 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: • $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; • $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; • $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; • $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; and • $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 Selling, general and administrative expenses consist of salaries, benefits, stock-based compensation and related costs for personnel in our executive, finance, legal, information technology, business development, human resources, commercial and other general and administrative functions. Other general and administrative expenses include an allocation of our facility- and technology-related costs and professional fees for legal, consulting and accounting services. 32 The following table s summarize selling, general and administrative expenses by category for each of the periods indicated: For the Three Months Ended September 30, 2020 2019 Change Change (in thousands) $ % Compensation and other personnel expenses $ 26,578 $ 26,992 $ (414 ) (2 )% Professional services 22,732 25,713 (2,981 ) (12 )% Stock-based compensation 16,258 13,665 2,593 19 % Facility- and technology-related expenses 7,296 7,167 129 2 % Roche collaboration reimbursement (223 ) — (223 ) NM* Other 2,732 1,892 840 44 % Total selling, general and administrative expenses $ 75,373 $ 75,429 $ (56 ) (— )% * NM = Not Meaningful 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; and • $2.6 million increase in stock-based compensation primarily due to increases in headcount and stock price. For the Nine Months Ended September 30, 2020 2019 Change Change (in thousands) $ % Compensation and other personnel expenses $ 80,294 $ 77,476 $ 2,818 4 % Professional services 74,518 63,193 11,325 18 % Stock-based compensation 47,509 37,556 9,953 27 % Facility- and technology-related expenses 21,532 20,216 1,316 7 % Roche collaboration reimbursement (382 ) — (382 ) NM* Other 8,358 4,947 3,411 69 % Total selling, general and administrative expenses $ 231,829 $ 203,388 $ 28,441 14 % * NM = Not Meaningful 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; • $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; and • $1.3 million increase in facility- and technology-related expense primarily due to continuing global expansion. 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 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 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 33 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 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 In February 2020, we entered into an agreement with Vifor (International) Ltd. to sell the rare pediatric disease Priority Review Voucher (“PRV”) we 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 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 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 or loss 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 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 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. 34 Liquidity and Capital Resources The following table summarizes our financial condition for each of the periods indicated: As of September 30, 2020 As of December 31, 2019 Change Change (in thousands) $ % Financial assets: Cash and cash equivalents $ 1,474,637 $ 835,080 $ 639,557 77 % Short-term investments 341,467 289,668 51,799 18 % Restricted cash and investments 9,566 9,566 — (— )% Total cash, cash equivalents and investments $ 1,825,670 $ 1,134,314 $ 691,356 61 % Borrowings: Term loan $ 241,575 $ 240,004 $ 1,571 1 % Convertible debt 458,895 441,896 16,999 4 % Total borrowings $ 700,470 $ 681,900 $ 18,570 3 % Working capital Current assets $ 2,322,673 $ 1,468,913 $ 853,760 58 % Current liabilities 378,388 264,767 113,621 43 % Total working capital $ 1,944,285 $ 1,204,146 $ 740,139 61 % 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 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 . Our future expenditures and capital requirements may be substantial and will depend on many factors, including but not limited to the following: • our ability to continue to generate revenues from sales of EXONDYS 51, VYONDYS 53, and potential future products; • the timing and costs associated with our global expansion; • the timing and costs of building out our manufacturing capabilities; • the timing of advanced payments related to our future inventory commitments and manufacturing obligations; • the timing and costs associated with our clinical trials and pre-clinical trials; • the attainment of milestones and our obligations to make milestone payments to Myonexus’ selling shareholders StrideBio, BioMarin, Lysogene, Lacerta, Nationwide, UWA and other institutions; • repayment of outstanding debt; and • the costs of filing, prosecuting, defending and enforcing patent claims and our other intellectual property rights. Our cash requirements are expected to continue to increase as we advance our research, development and commercialization programs and we expect to seek additional financings primarily from, but not limited to, the sale and issuance of equity, debt securities, the licensing or sale of our technologies or additional government contracts. We cannot provide assurances that financing will be available when and as needed or that, if available, the financings will be on favorable or acceptable terms. If we are unable to obtain additional financing when and if we require, this would have a material adverse effect on our business and results of operations. To the extent we issue additional equity securities, our existing stockholders could experience substantial dilution. 35 Cash Flows For the Nine Months Ended September 30, 2020 2019 Change Change (in thousands) $ % Cash provided by (used in) Operating activities $ 282,001 $ (292,668 ) $ 574,669 (196 )% Investing activities 2,170 269,645 (267,475 ) (99 )% Financing activities 355,386 385,588 (30,202 ) (8 )% Increase in cash and cash equivalents $ 639,557 $ 362,565 $ 276,992 76 % Operating Activities. 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; and • $80.2 million net increase in non-cash adjustments. 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; and • $110.7 million net increase in use of operating assets and liabilities, excluding deferred revenue. Investing Activities. 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; and • $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 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; and • $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 $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. The decreases were partially offset by: • $312.1 million increase in net proceeds from the issuance of common stock to Roche; and • $23.6 million increase in proceeds from the exercise of options and the purchase of stock under our Employee Stock Purchase Program. 36 Off-Balance Sheet Arrangements During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for another contractually narrow or limited purpose. Contractual Payment Obligations 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 September 30, 2020: Payment Due by Period Total Less Than 1 Year 1 - 3 Years 3 - 5 Years More than 5 Years (in thousands) Debt obligations (1) $ 924,678 $ 30,095 $ 60,190 $ 834,393 $ — Lease obligations (2) 61,291 13,524 23,766 23,144 857 Manufacturing obligations (3) 1,080,346 602,187 215,190 113,618 149,351 Total contractual obligations and contingencies $ 2,066,315 $ 645,806 $ 299,146 $ 971,155 $ 150,208 (1) Interest is included. (2) Lease obligations only include real estate leases. The leases embedded in certain supply agreements are included in the manufacturing obligations. (3) Manufacturing obligations include agreements to purchase goods and services that are enforceable and legally binding or subject to cancellation fees and that specify all significant terms. Manufacturing obligations relate primarily to our commercialization of EXONDYS 51 and VYONDYS 53, and clinical programs for DMD as well as our gene therapy programs. Milestone Obligations For product candidates that are currently in various research and development stages, we may be obligated to make up to $3.7 billion of future development, regulatory, commercial and up-front royalty milestone payments associated with our license and collaboration agreements. Payments under these agreements generally become due and payable upon achievement of certain development, regulatory or commercial milestones. Because the achievement of these milestones is not probable, and payment is not required as of 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. Recent Accounting Pronouncements For additional information, please read Note 2, Summary of Significant Accounting Policies and Recent Accounting Pronouncements of the unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.