What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-03-01 compared with 2020-02-26 · 186 added, 109 removed, 224 unchanged (57% of the section changed)

10 unchanged sentences

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 DMD, LGMDs, MPS IIIA and other CNS related disorders.

Our first commercial product, EXONDYS 51, was granted accelerated approval by the FDA on September 19, 2016.

4 unchanged sentences

VYONDYS 53 uses our PMO chemistry and exon-skipping technology to skip exon 53 of the dystrophin gene.

Our third commercial product, AMONDYS 45, was granted accelerated approval by the FDA on February 25, 2021.

AMONDYS 45 is indicated for the treatment of DMD in patients who have a confirmed mutation of the DMD gene that is amenable to exon 45 skipping.

AMONDYS 45 uses our PMO chemistry and exon-skipping technology to skip exon 45 of the dystrophin gene.

A summary description of our key 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 January 2020, we commenced a rolling submission of an NDA to the FDA seeking accelerated approval for casimersen.

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

2 unchanged sentences

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 middle of 2020.

In 2019, we commenced Study 5051-201.

In December 2020, we announced an interim analysis on clinical results from the 10 mg/kg and 20 mg/kg dose cohorts of Part A of Study 5051-201.

We expect to announce results from the next cohort of Part A of Study 5051-201 at 30 mg/kg in the second quarter of 2021.

SRP-9001 (DMD, micro-dystrophin gene therapy program) , aims to express micro-dystrophin – a smaller but still 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 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 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 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 the middle of 2020, pending regulatory feedback.

In the fourth quarter of 2017, an 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 (Study 101).

In October 2018, 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 dosed all 41 participants in Study 102 and have begun dosing participants in the crossover phase of the study.

In January 2021, we released top-line results for Part 1 of Study 102 (the 48-week assessment of 41 participants) and interim expression results from Part 2 of Study 102 (the crossover phase).

We expect additional results from Part 2 of Study 102 in the first quarter of 2022.

We have commenced dosing in Study 103, an open-label study evaluating the safety and expression of commercially representative material for SRP-9001, and expect to report biomarker and safety results from Study 103 in the second quarter of 2021.

SRP-9003 (LGMD, gene therapy program) .

3 unchanged sentences

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

O n February 27, 2019, we announced positive two-month biopsy data from the first three-patient cohort dosed in the SRP - 9 0 03 trial , and on October 4, 2019, we announced positive nine-month functional data from these three patients.

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.

We expect to have the results from the second cohort and make a dose selection in the third quarter of 2020 .

LYS-SAF 302 .

We are collaborating with 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.

We expect to complete dosing in this trial in the first half of 2020.

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.

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 GMP runs for SRP-9003 in 2021.

We also expect to seek FDA confirmation to initiate our pivotal trial in 2021.

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.

We have developed proprietary state-of-the-art 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 products and product candidates and their components.

We have entered into certain manufacturing and supply arrangements with third-party suppliers and will utilize these capabilities to support production of certain of our products and 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 large scale GMP manufacturing capabilities to produce our products and product candidates for commercial and/or clinical use.

As of December 31, 2019, we had approximately $1,134.4 million of cash, cash equivalents and investments, consisting of $835.1 million of cash and cash equivalents, $289.7 million 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 and the complex regulatory environment in which we operate.

We may never achieve significant revenue or profitable operations.

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.

The response to COVID-19 by healthcare providers has made it difficult for some patients, especially those dependent on a hospital setting, to receive infusions or initiate treatment with our commercial products.

In addition, as a result of the pandemic, some patients may choose to delay or stop treatment to avoid a visit to a hospital or a visit of a third party in their homes to minimize the risk of infection.

The impact of COVID-19 may also result in delays in processing reauthorizations and modifications to program benefits by insurers, making it difficult for patients to obtain or maintain favorable coverage decisions for our products.

In addition, the increase in unemployment due to the pandemic has resulted in decreased insurance coverage for many individuals.

These challenges may continue for the duration of the COVID-19 pandemic, which is uncertain, and are expected to reduce our revenue and cash flows.

Clinical Trials :

The impact of COVID-19 has caused disruptions and may cause delays in some of our clinical trials.

Missing data could undermine data integrity and probability of success.

The response to COVID-19 by healthcare providers and regulatory agencies could delay the commencement of trials, site initiation, compliance in the trials, 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 strategy and technology in an attempt to mitigate this risk in the event of subsequent outbreaks.

In addition, as COVID-19 continues to spread, some participants and clinical investigators may be unable or unwilling to comply with clinical trial protocols.

For example, quarantines or other travel limitations (whether voluntary or required) have been implemented in many countries, and may impede participant movement, affect sponsor access to study sites, or interrupt healthcare services, which may negatively impact the execution of clinical trials.

Significant delays or disruptions to our clinical trials could adversely affect our ability to timely initiate studies, conduct successful studies, obtain or maintain regulatory approvals, or commercialize our product candidates.

On March 13, 2020, to protect the health of our employees and their families, and our communities, and in accordance with direction from state and local government authorities, we instituted mandatory work-from-home for all employees and contingent workers other than those who are facility-dependent .

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.

Our increased reliance on personnel working from home may negatively impact productivity or disrupt, delay or otherwise adversely impact our business.

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

In addition, remote working could increase our cyber security risk.

General protective measures put into place at various governmental levels, including quarantines, travel restrictions and business shutdowns, may also negatively affect our operations.

Further, if the spread of the COVID-19 pandemic continues and our operations are adversely impacted, including due to an outbreak in a facility, we risk a delay, default and/or nonperformance under existing agreements.

Manufacturing :

A significant outbreak at one of our partner sites could lead to delays in the manufacturing of our products and product candidates.

In addition, the need to prioritize rated orders issued by the Federal Emergency Management Agency pursuant to the U.S.

Defense Production Act could impact the manufacturing, supply chain and distribution of our products and product candidates.

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 I, Item 1A.

Risk Factors of this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

8 unchanged sentences

revenue recognition;

valuation of product options;

Revenue Recognition

To determine revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps:

To determine revenue recognition for arrangements within the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), we perform the following five steps:

(1) identify the contracts with a customer;

3 unchanged sentences

and (5) recognize revenue when or as we satisfy a performance obligation.

Variable Consideration

Product Revenue

Product revenues are recorded at the net sales price (transaction price) which includes estimated reserves for variable consideration, such as Medicaid rebates, governmental chargebacks, including PHS chargebacks, prompt payment discounts, co-pay assistance and distribution fees.

16 unchanged sentences

Please read Note 7, Accounts Receivable and Reserves for Product Sales to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a further discussion of revenue recognition.

Collaboration Revenue

Our collaboration revenue is primarily 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 Topic 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.

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.

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.

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.

Valuation of Product Options

Our collaboration arrangements may contain options which provide the collaboration partner with the right to obtain additional licenses.

If an arrangement contains product options, by analogy to ASC 606, we evaluate the product 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 product options in a collaboration arrangement include, but are not limited to, forecasted revenues, development timelines, incremental costs related to the arrangement, discount rates and likelihood of technical and regulatory success.

Inventory Valuation

2 unchanged sentences

EXONDYS 51 and VYONDYS 53 inventory that may be used in clinical development programs is charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes.

We periodically review our inventories for excess amounts or obsolescence and write down obsolete or otherwise unmarketable inventory to its estimated net realizable value.

We periodically analyze our inventories for excess amounts or obsolescence and write down obsolete or otherwise unmarketable inventory to its estimated net realizable value.

Additionally, though our products are subject to strict quality control and monitoring, which we perform throughout the manufacturing processes, certain batches or units of product may not meet quality specifications resulting in a charge to cost of sales.

9 unchanged sentences

share amounts)

Products, net

Collaboration

Total revenues

8 unchanged sentences

Operating loss

Other income (loss):

Gain from sale of Priority Review Voucher

Loss on contingent consideration

Other expense, net

Loss before income tax expense (benefit)

Income tax expense (benefit)

Total other income (loss)

Loss before income tax expense

Income tax expense

Net loss per share — basic and diluted

not meaningful

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 PHS 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).

These reserves are based on estimates of the amounts earned or to be claimed on the related sales.

Our estimates take into consideration current contractual and statutory requirements.

The amount of variable consideration that is 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 2020 increased by $75.0 million compared with 2019.

The increase primarily reflects the continuing increase in demand for EXONDYS 51 in the U.S.

The increase primarily reflects the launch of a new product in December 2019 in the U.S., VYONDYS 53, and increasing demand for our products in the U.S.

Collaboration revenue primarily 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 recorded as deferred revenue and is being recognized as collaboration revenue on a straight-line basis over the performance period, estimated to be through the fourth quarter of 2023.

For the year ended December 31, 2020 we recognized $84.2 million of collaboration revenue.

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

There was no such transaction in 2019.

Cost of sales (excluding amortization of in-licensed rights)

Our cost of sales (excluding amortization of in-licensed rights) primarily consists of inventory costs that relate to sales of our products following their commercial launches in the U.S., royalty payments, and other inventory costs.

Our cost of sales (excluding amortization of in-licensed rights) consists of royalty payments primarily to BioMarin and UWA and inventory costs that relate to sales of our products.

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 2019, 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 VYONDYS 53 sold in 2020 and 2019, 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 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 in 2019 and 2018 would have been approximately $12.4 million and $12.6 million, respectively.

I n addition to royalty payments to BioMarin Pharmaceuticals, Inc.

(“BioMarin”), during the second quarter of 2019, we began to pay the University of Western Australia (“UWA”) a low-single-digit percentage royalty on net sales of products covered by issued patents licensed from UWA.

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

If product related costs had not previously been expensed as research and development expenses prior to FDA approval, the incremental inventory costs related to our products sold in 2020 and 2019 would have been approximately $25.9 million and $12.4 million, respectively.

Th e following table summarizes the components of our cost of sales for the periods indicated:

For the Year Ended December 31,

2 unchanged sentences

Royalty payments

Other inventory costs

Total cost of sales

The cost of sales for 2020 increased $6.8 million, or 12%, compared with 2019.

The increase was primarily driven by the following:

$15.5 million and $7.9 million increases in inventory costs related to products sold and royalty payments to BioMarin and UWA, respectively, primarily as a result of the increasing demand for EXONDYS 51 during 2019;

$1.0 million decrease in other inventory costs as a result of a reduction in write-offs of certain batches of EXONDYS 51 not meeting our quality specifications.

The increase was primarily driven by a $6.1 million increase in royalty payments to BioMarin and UWA that reflects increasing demand for our products.

Research and development expenses

1 unchanged sentence

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 costs.

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.

4 unchanged sentences

(in thousands)

Gene therapies

Up-front, milestone, and other expenses

Eteplirsen (exon 51)

Micro-dystrophin

Other gene therapies

Casimersen (exon 45)

Up-front, milestone, and other expenses

Golodirsen (exon 53)

Eteplirsen (exon 51)

PPMO platform

2 unchanged sentences

Internal research and development expenses

Roche collaboration reimbursement

Total research and development expenses

3 unchanged sentences

(in thousands)

Clinical and manufacturing expenses

Up-front, milestone, and other expenses

Manufacturing expenses

Compensation and other personnel expenses

Clinical expenses

Facility- and technology-related expenses

Up-front, milestone, and other expenses

Stock-based compensation

Professional services

Pre-clinical expenses

Collaboration cost-sharing

Pre-clinical expenses

Research and other

Roche collaboration reimbursement

Total research and development expenses

not meaningful

Research and development expenses for 2020 increased by $161.4 million, or 29%, compared with 2019.

The increase was primarily driven by the following:

$111.1 million increase in clinical and manufacturing expenses primarily due to a ramp-up of manufacturing activities for our gene therapy programs (including our micro-dystrophin program), increased patient enrollment in our ESSENCE trial, and initiation of certain post-market studies for EXONDYS 51.

These increases were partially offset by a ramp-down of clinical trials in EXONDYS 51, including the PROMOVI trial and the Phase 1/2 trial in VYONDYS 53;

$39.3 million decrease in up-front, milestone, and other expenses, primarily due to $46.9 million of up-front cash and equity payments to StrideBio as a result of the execution of a license and collaboration agreement in November 2019, a $28.0 million up-front payment to Genethon as a result of the execution of a license and collaboration agreement in November 2019, and $25.6 million of up-front and milestone payments made to various academic institutions throughout 2019, as compared with $85.0 million up-front and milestone payments to Myonexus as a result of the execution of a warrant agreement in May 2018 as well as certain development milestones being achieved, $44.8 million up-front and milestone payments to Lysogene as a result of the execution of a collaboration and license agreement in October 2018 as well as certain development milestones becoming probable of being achieved, and $8.0 million related to the purchase of a license to develop, manufacture and commercialize a pre-clinical Pompe product candidate under a license agreement with Lacerta in August 2018 ;

$223.9 million increase in manufacturing expenses primarily due to a continuing ramp-up of our micro-dystrophin gene therapy program as well as other gene therapy programs in our pipeline;

$17.5 million increase in compensation and other personnel expenses primarily due to a net increase in headcount;

$30.0 million increase in facility- and technology-related expenses due to our continuing global expansion efforts as well as a change in methodology in allocation of technology expense;

$16.1 million increase in clinical expenses primarily due to increased patient enrollment in our ESSENCE program as well as certain start-up activities for our micro-dystrophin program;

$8.8 million increase in facility- and technology-related expenses due to our continuing global expansion efforts;

$55.9 million decrease 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 $38.0 million of up-front payments as a result of the execution of certain research, option and license agreements during 2020.

This was offset primarily by $46.9 million of up-front payments to StrideBio and a $28.0 million up-front payment to Genethon as a result of the execution of a license and collaboration agreement with each company, respectively, and $25.6 million of up-front and milestone payments made to various academic institutions throughout 2019 ;

$14.0 million increase in stock-based compensation expense primarily driven by increases in headcount and stock price;

$5.0 million increase in professional services primarily due to continuing accelerated company growth as a result of expansion of our research and development pipeline;

$11.3 million decrease in pre-clinical expenses primarily due to the completion of certain toxicology studies in our PPMO platform;

$0.8 million increase in collaboration cost-sharing driven by collaboration cost-sharing with Genethon on its microdystrophin platform, offset by a decrease in collaboration cost-sharing with Summit (Oxford) Ltd.

as it wound down activities on its Utrophin platform;

$9.2 million increase in research and other primarily driven by a $7.1 million increase in lab supplies as a result of an increase in headcount as well as a $3.0 million increase in sponsored research with academic institutions, partially offset by a reduction of $3.8 million in loss due to impairment of certain patents from 2018.

$4.6 million decrease in professional services primarily due to a decrease in reliance on third-party research and development contractors as a result of an increase in hiring and headcount ;

$3.7 million increase in collaboration cost-sharing with Genethon on its micro-dystrophin drug candidates and Lysogene on its Mucopolysaccharidosis type IIIA (“MPS IIIA”) drug candidate;

$1.6 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 programs ;

$5.4 million increase in research and other primarily driven by an increase in sponsored research with academic institutions during 2020;

$65.9 million offset to expense incurred during 2020 associated with a collaboration reimbursement from Roche related to the micro-dystrophin project.

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 costs and professional fees for legal, consulting and accounting services.

Other general and administrative expenses include an allocation of our facility- and technology-related costs and professional fees for legal, consulting and accounting services.

The following table summarizes our selling, general and administrative expenses by category for each of the periods indicated:

1 unchanged sentence

(in thousands)

Compensation and other personnel expenses

Professional services

Compensation and other personnel expenses

Stock-based compensation

Facility- and technology-related expenses

Restructuring expenses

Roche collaboration reimbursement

Total selling, general and administrative expenses

not meaningful

Selling, general and administrative expenses for 2020 increased by $33.1 million, or 12%, compared with 2019.

This was primarily driven by the following:

$34.0 million increase in compensation and other personnel expenses primarily due to a net increase in headcount;

$15.2 million increase in professional services primarily due to continuing global expansion;

$15.5 million increase in stock-based compensation primarily due to increases in headcount and stock price ;

$16.5 million increase in facility- and technology-related expense primarily due to continuing global expansion offset by a decrease in technology expense due to a change in allocation methodology;

$2.2 million decrease in restructuring credits due to the relief of cease-use liabilities as a result of the termination of the rental agreement for our Corvallis facility recorded during the second quarter of 2018 .

$1.4 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 second quarter of 2019.

There was no such transaction during the same period of 2018 .

There was no such transaction during 2020 .

Settlement and license charges

1 unchanged sentence

This was a result of a settlement and license agreement with BioMarin in July 2017.

There was no such expense recognized during the same period of 2018.

There was no such expense recognized during 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.

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

For the years ended December 31, 2020 and 2019, we recorded amortization of in-licensed rights of approximately $0.7 million and $0.8 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 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 academic institutions under separate license agreements that meet the definition of a derivative.

For the year ended December 31, 2020, we recognized $45.0 million of expense to adjust the fair value of the contingent consideration liabilities.

There was no similar activity during 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, gain from our investment in Lysogene, and rental income and loss.

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

Interest expense primarily includes interest accrued on our convertible notes, term loan, revolving line of credit and a mortgage loan related to our Corvallis, Oregon property.

Rental income and loss is from leasing excess space in some of our facilities.

Other expense, net, for 2019 decreased by $10.7 million compared with 2018.

The decrease primarily reflected decreases in term loan termination expense and an increase in amortization of investment discount as a result of an increase in interest rates.

Income tax expense (benefit)

Income tax expense for 2019 was approximately $1.2 million, which primarily reflected adjustments to estimated foreign and current state income taxes in 2019.

Income tax benefit for 2018 was approximately $0.7 million, which primarily reflected adjustments to estimated state income taxes in 2017.

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 fair value adjustment 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 primarily includes interest accrued on our convertible notes and term loan.

Other expense, net, for 2020 increased by approximately $43.7 million compared with 2019.

The increase primarily reflected an increase in the interest expense on our debt facilities 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 2020 and 2019 was approximately $1.1 million and $1.2 million, respectively.

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

Liquidity and Capital Resources

7 unchanged sentences

Total cash, cash equivalents and

Long-term debt

Convertible debt

4 unchanged sentences

Total working capital

not meaningful

For the years ended December 31, 2019 and December 31, 2018, our principal source of liquidity was derived from proceeds from sales of our products and debt and equity financings.

For the year ended December 31, 2020, our principal sources of liquidity were primarily derived from our collaboration arrangement with Roche, net proceeds from draw-down of our debt facility, net proceeds from sale of the PRV and product sales of our products.

For the year ended December 31, 2019, our principal source of liquidity was derived from proceeds from product sales of our products and debt and equity financings.

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.

1 unchanged sentence

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 continuing global expansion;

the timing and costs associated with our global expansion;

the timing and costs of building out our manufacturing capabilities;

15 unchanged sentences

Financing activities

Increase (decrease) in cash and cash equivalents

Increase in cash and cash equivalents

Operating Activities

Cash used in operating activities increased by $67.8 million for 2019 compared with 2018, primarily due to the following:

$179.9 million increase in net loss excluding acquired in-process research and development expense primarily driven by increases in research and development expense and selling, general and administrative expense partially offset by an increase in net product revenues for EXONDYS 51 and VYONDYS 53.

Cash provided by operating activities was $107.5 million for 2020.

Cash used in operating activities for 2019 was $456.5 million.

The favorable change was primarily driven by the following:

$749.4 million net increase in deferred revenue primarily as a result of the collaboration with Roche;

$45.0 million increase in the mark-to-market loss on the contingent consideration;

$29.5 million increase in stock-based compensation due to year-over-year increases in headcount and stock price;

$18.3 million net increase in other non-cash adjustments.

The increases were partially offset by:

$41.7 million increase in non-cash adjustments;

$41.0 million increase in use of operating assets and liabilities.

$120.4 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 partially offset by an increase in net product revenues and collaboration revenue;

$29.4 million decrease related to the issuance of common shares to StrideBio at no cost in 2019;

$14.6 million net increase in inventory primarily from our continuing build-up of inventory purchased in 2020 as the demand for our products increased;

$113.8 million net increase in use of other operating assets and liabilities, excluding deferred revenue.

Investing Activities

Cash provided by investing activities was $286.7 million for 2019.

Cash used in investing activities for 2018 was $370.5 million.

The favorable change was primarily due to the following:

$849.8 million increase in proceeds from the maturity or sale of available-for-sale securities;

$1.5 million decrease in purchase of property and equipment.

The increases were partially offset by:

$172.6 million increase as a result of the acquisition of Myonexus;

$22.0 million increase in the purchase of available-for-sale securities.

Cash used in investing activities was $121.7 million for 2020.

Cash provided by investing activities for 2019 was $286.7 million.

The unfavorable change was primarily due to the following:

$526.1 million decrease in proceeds from the maturity or sale of available-for-sale securities;

$139.9 million increase in purchase of available-for-sale securities;

$22.6 million increase in purchase of property and equipment.

The decreases were partially offset by:

$172.6 million decrease in net payments as a result of the acquisition of Myonexus during 2019;

$108.1 million increase in net proceeds from the sale of the PRV during 2020.

Financing Activities

Cash provided by financing activities increased by $39.8 million for 2020 compared with 2019, primarily driven by the following:

$9.8 million increase in proceeds from debt financings;

$269.4 million decrease in repayment of outstanding debts and debt extinguishment costs.

$312.1 million increase in net proceeds from the issuance of common stock Roche;

$47.4 million increase in proceeds from the exercise of options and our employee stock purchase program;

$45.5 million increase in net proceeds from debt financings.

The increases were partially offset by:

$148.1 million decrease in proceeds from sales of common stock;

$13.6 million decrease in proceeds from the exercise of options and our employee stock purchase program;

$4.3 million increase in taxes paid related to net share settlement of equity awards.

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

Off-Balance Sheet Arrangements

5 unchanged sentences

(in thousands)

Convertible debt (1)

Term loan (1)

Debt obligations (1)

Lease obligations (2)

2 unchanged sentences

Interest is included.

Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding or subject to cancellation fees and that specify all significant terms.

Purchase obligations relate primarily to our commercialization of EXONDYS 51 and VYONDYS 53, and clinical programs for DMD and gene therapy programs.

Lease obligations only include real estate leases that had commenced prior to December 31, 2020.

The leases embedded in certain supply agreements are included in the manufacturing obligations caption.

Manufacturing obligations include agreements to purchase goods and services that are enforceable and legally binding or subject to cancellation penalties 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 products and product candidates that are currently in various research and development stages, we may be obligated to make up to $3.9 billion of future development, regulatory, up-front royalty and sales milestone payments associated with our collaboration and license agreements.

Payments under these agreements generally become due and payable upon achievement of certain development, regulatory or sales milestones.

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 December 31, 2020, such contingencies have not been recorded in our 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.

Other Funding Commitments

6 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis