Attached files

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EX-32.2 - EX-32.2 - Sarepta Therapeutics, Inc.srpt-ex322_9.htm
EX-32.1 - EX-32.1 - Sarepta Therapeutics, Inc.srpt-ex321_11.htm
EX-31.2 - EX-31.2 - Sarepta Therapeutics, Inc.srpt-ex312_8.htm
EX-31.1 - EX-31.1 - Sarepta Therapeutics, Inc.srpt-ex311_6.htm
EX-10.4 - EX-10.4 - Sarepta Therapeutics, Inc.srpt-ex104_15.htm
EX-10.3 - EX-10.3 - Sarepta Therapeutics, Inc.srpt-ex103_14.htm
EX-10.2 - EX-10.2 - Sarepta Therapeutics, Inc.srpt-ex102_16.htm
EX-10.1 - EX-10.1 - Sarepta Therapeutics, Inc.srpt-ex101_27.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-14895

 

SAREPTA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

93-0797222

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

215 First Street, Suite 415

Cambridge, MA

 

02142

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617) 274-4000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller Reporting Company

 

 

 

 

 

 

 

 

Emerging growth company

 

  

  

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common Stock with $0.0001 par value

  

54,955,063

(Class)

  

(Outstanding as of April 28, 2017)

 

 

 

 


SAREPTA THERAPEUTICS, INC.

FORM 10-Q

INDEX

 

 

 

 

 

Page

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets — As of March 31, 2017 and December 31, 2016

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) — For the Three Months Ended March 31, 2017 and 2016

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2017
and 2016

 

5

 

 

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

25

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

25

 

 

 

 

 

Item 1A.

 

Risk Factors

 

25

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

48

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

48

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

48

 

 

 

 

 

Item 5.

 

Other Information

 

48

 

 

 

 

 

Item 6.

 

Exhibits

 

49

 

 

 

 

 

Signatures

 

50

 

 

 

 

 

Exhibits

 

51

 

 

2


PART I — FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

SAREPTA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

As of

March 31,

2017

 

 

As of

December 31,

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

274,723

 

 

$

122,420

 

Short-term investments

 

 

115,590

 

 

 

195,425

 

Accounts receivable

 

 

12,278

 

 

 

5,228

 

Inventory

 

 

30,445

 

 

 

12,813

 

Restricted investment

 

 

 

 

 

10,695

 

Asset held for sale

 

 

1,529

 

 

 

 

Other current assets

 

 

22,742

 

 

 

26,895

 

Total current assets

 

 

457,307

 

 

 

373,476

 

Restricted cash and investments

 

 

784

 

 

 

784

 

Property and equipment, net of accumulated depreciation of $31,488

   and $30,346 as of March 31, 2017 and December 31, 2016, respectively

 

 

38,412

 

 

 

37,801

 

Intangible assets, net of accumulated amortization of $2,758 and $3,134 as of

   March 31, 2017 and December 31, 2016, respectively

 

 

7,684

 

 

 

8,076

 

Other non-current assets

 

 

7,346

 

 

 

3,967

 

Total assets

 

$

511,533

 

 

$

424,104

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

27,446

 

 

$

29,690

 

Accrued expenses

 

 

31,157

 

 

 

31,016

 

Current portion of long-term debt

 

 

11,346

 

 

 

10,108

 

Deferred revenue

 

 

3,303

 

 

 

3,303

 

Other current liabilities

 

 

1,377

 

 

 

1,305

 

Total current liabilities

 

 

74,629

 

 

 

75,422

 

Long-term debt

 

 

2,343

 

 

 

6,042

 

Deferred rent and other

 

 

5,419

 

 

 

5,949

 

Total liabilities

 

 

82,391

 

 

 

87,413

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 3,333,333 shares authorized; none issued and

   outstanding

 

 

 

 

 

 

Common stock, $0.0001 par value, 99,000,000 shares authorized; 54,940,604

   and 54,759,234 issued and outstanding at March 31, 2017 and

   December 31, 2016, respectively

 

 

5

 

 

 

5

 

Additional paid-in capital

 

 

1,511,422

 

 

 

1,503,126

 

Accumulated other comprehensive loss

 

 

(55

)

 

 

(120

)

Accumulated deficit

 

 

(1,082,230

)

 

 

(1,166,320

)

Total stockholders’ equity

 

 

429,142

 

 

 

336,691

 

Total liabilities and stockholders’ equity

 

$

511,533

 

 

$

424,104

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

3


SAREPTA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands, except per share amounts)

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

Product, net

 

$

16,342

 

 

$

 

Total revenues

 

 

16,342

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of sales

 

 

252

 

 

 

 

Research and development

 

 

29,119

 

 

 

38,826

 

Selling, General and administrative

 

 

26,216

 

 

 

20,876

 

Total cost and expenses

 

 

55,587

 

 

 

59,702

 

Operating loss

 

 

(39,245

)

 

 

(59,702

)

 

 

 

 

 

 

 

 

 

Other income (loss):

 

 

 

 

 

 

 

 

Gain from sale of Priority Review Voucher

 

 

125,000

 

 

 

 

Interest income (expense) and other, net

 

 

335

 

 

 

(68

)

Total other income (loss)

 

 

125,335

 

 

 

(68

)

 

 

 

 

 

 

 

 

 

Income (loss) before income tax expense

 

 

86,090

 

 

 

(59,770

)

Income tax expense

 

 

2,000

 

 

 

 

Net income (loss)

 

 

84,090

 

 

 

(59,770

)

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized gain on short-term securities - available-for-sale

 

 

65

 

 

 

106

 

Total other comprehensive income

 

 

65

 

 

 

106

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

84,155

 

 

$

(59,664

)

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

1.53

 

 

$

(1.31

)

Diluted earnings (loss) per share

 

$

1.50

 

 

$

(1.31

)

Weighted average number of shares of common stock used in calculating:

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

 

54,850

 

 

 

45,697

 

Diluted earnings (loss) per share

 

 

56,012

 

 

 

45,697

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

4


SAREPTA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

84,090

 

 

$

(59,770

)

Adjustments to reconcile net income (loss) to cash flows from operating activities:

 

 

 

 

 

 

 

 

Gain from sale of Priority Review Voucher

 

 

(125,000

)

 

 

 

Depreciation and amortization

 

 

1,637

 

 

 

1,397

 

Amortization of (discount) premium on available-for-sale securities and non-cash interest

 

 

(18

)

 

 

242

 

Loss on abandonment of patents

 

 

485

 

 

 

15

 

Stock-based compensation

 

 

5,712

 

 

 

6,835

 

Changes in operating assets and liabilities, net:

 

 

 

 

 

 

 

 

Net increase in accounts receivable

 

 

(7,050

)

 

 

(13

)

Net increase in inventory

 

 

(17,632

)

 

 

 

Net decrease (increase) in other assets

 

 

774

 

 

 

(3,180

)

Net decrease in accounts payable, accrued expenses, deferred revenue and

    other liabilities

 

 

(886

)

 

 

(6,214

)

Net cash used in operating activities

 

 

(57,888

)

 

 

(60,688

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(4,465

)

 

 

(1,168

)

Purchase of intangible assets

 

 

(1,245

)

 

 

(410

)

Proceeds from sale of Priority Review Voucher

 

 

125,000

 

 

 

 

Maturity of restricted investment

 

 

10,695

 

 

 

 

Maturity of available-for-sale securities

 

 

80,000

 

 

 

21,000

 

Net cash provided by investing activities

 

 

209,985

 

 

 

19,422

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayments of long-term debt and notes payable

 

 

(2,543

)

 

 

(2,525

)

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

     Purchase Program

 

 

2,749

 

 

 

1,488

 

Net cash provided by (used in) financing activities

 

 

206

 

 

 

(1,037

)

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

152,303

 

 

 

(42,303

)

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Beginning of period

 

 

122,556

 

 

 

80,439

 

End of period

 

 

274,859

 

 

 

38,136

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

291

 

 

$

409

 

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

 

 

 

 

 

 

 

 

Shares withheld for taxes

 

$

165

 

 

$

44

 

Accrual for debt issuance costs related to the senior secured term loan

 

$

400

 

 

$

400

 

Intangible assets included in accrued expenses

 

$

179

 

 

$

192

 

Property and equipment included in accrued expenses

 

$

330

 

 

$

19

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5


SAREPTA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. BUSINESS

Sarepta Therapeutics, Inc. (together with its wholly-owned subsidiaries, “Sarepta” or the “Company”) is a commercial-stage biopharmaceutical company focused on the discovery and development of unique RNA-targeted therapeutics for the treatment of rare neuromuscular diseases. Applying its proprietary, highly-differentiated and innovative platform technologies, the Company is able to target a broad range of diseases and disorders through distinct RNA-targeted mechanisms of action. The Company is primarily focused on rapidly advancing the development of its potentially disease-modifying Duchenne muscular dystrophy (“DMD”) drug candidates. On September 19, 2016, the United States Food and Drug Administration (“FDA”) granted accelerated approval for EXONDYS 51, 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 is studied in clinical trials under the name of eteplirsen and is marketed in the U.S. under the trademarked name of EXONDYS 51® (eteplirsen) Injection. In November 2016, the Company submitted a marketing authorization application (“MAA”) for eteplirsen to the European Medicine Agency (“EMA”) and the application was validated in December 2016.

As of March 31, 2017, the Company had approximately $391.1 million of cash, cash equivalents and investments, consisting of $274.7 million of cash and cash equivalents, $115.6 million of short-term investments and $0.8 million of restricted cash and investments. The Company believes that its balance of cash, cash equivalents and investments as of March 31, 2017 is sufficient to fund its current operational plan for the next twelve months, though it may pursue additional cash resources through public or private financings, seek additional government funding and establish collaborations with or license its technology to other companies.

 

2. SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), reflect the accounts of Sarepta Therapeutics, Inc. and its wholly-owned subsidiaries. All intercompany transactions between and among its consolidated subsidiaries have been eliminated. Management has determined that the Company operates in one segment: discovering, developing, manufacturing and delivering therapies to patients for the treatment of rare neuromuscular diseases.

Estimates and Uncertainties

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenue, expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include revenue recognition, inventory, the valuation of stock-based awards, research and development expenses and income tax.

Concentration of Credit Risk

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

For the three months ended March 31, 2017, the majority of the Company’s accounts receivable arose from product sales in the U.S. and all customers have standard payment terms which generally require payment within 30 to 45 days. Three individual customers accounted for 60%, 23% and 17% of net product revenues and 61%, 22% and 17% of accounts receivable from product sales, respectively. The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in the customers’ credit profile. As of March 31, 2017, the Company believes that such customers are of high credit quality.

As of March 31, 2017, the Company’s money market funds and short-term investments were concentrated at a single financial institution, which potentially exposes the Company to credit risks. However, the Company does not believe that there is significant risk of non-performance by the financial institution.

6


Significant Accounting Policies

For details about the Company’s accounting policies, please read Note 2, Summary of Significant Accounting Policies and Recent Accounting Pronouncements of the Annual Report on Form 10-K for the year ended December 31, 2016.

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, “Statement of Cash Flows: Restricted Cash”. The amendments in this update requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU No. 2016-18 will be effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company elected to early adopt this guidance as of January 1, 2017. This guidance was applied using a retrospective transition method for each period presented.

There have not been any other material changes to the Company’s accounting policies as of March 31, 2017.

 

Recent Accounting Pronouncements

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments”. The amendments in this update clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU No. 2016-15 will be effective for fiscal years beginning after December 15, 2017, with early adoption permitted. As of March 31, 2017, the Company has not elected to early adopt this guidance and does not expect the adoption of this guidance to have any impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which supersedes Topic 840, “Leases”. Under the new guidance, a lessee should recognize assets and liabilities that arise from its leases and disclose qualitative and quantitative information about its leasing arrangements. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU No. 2016-02 will be effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The adoption of this standard is expected to have an impact on the amount of the Company’s assets and liabilities. As of March 31, 2017, the Company has not elected to early adopt this guidance or determined the effect that the adoption of this guidance will have on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, “Revenue Recognition. Under the new guidance, a company is required to recognize revenue when it transfers goods or renders services to customers at an amount that it expects to be entitled to in exchange for these goods or services. The new standard allows for either a full retrospective with or without practical expedients or a retrospective with a cumulative catch upon adoption transition method. This guidance was originally intended to be effective for the fiscal years beginning after December 15, 2016, with early adoption not permitted. In August 2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date”, which states that the mandatory effective date of this new revenue standard will be delayed by one year, with early adoption only permitted in fiscal year 2017. During the second quarter of 2016, the FASB issued three amendments to the new revenue standard to address some application questions: ASU No. 2016-10, “Identifying Performance Obligations and Licensing”, ASU No. 2016-11, “Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09”, and ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients”. In December 2016, the FASB issued ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”, which amends certain narrow aspects of the guidance issued in ASU 2014-09 including guidance related to the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples. These three amendments will be effective upon adoption of Topic 606. As of March 31, 2017, the Company has not yet determined which adoption method it will utilize or the effect that the adoption of this guidance will have on its consolidated financial statements.

 

3. GAIN FROM SALE OF PRIORITY REVIEW VOUCHER

On February 21, 2017, the Company entered into an agreement with Gilead Sciences, Inc. (“Gilead”) to sell the Company’s Rare Pediatric Disease Priority Review Voucher (“PRV”). The Company received the PRV when EXONDYS 51 was approved by the FDA for the treatment of patients with DMD amenable to exon 51 skipping. Following the early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, on March 30, 2017, the Company completed its sale of the PRV to a subsidiary of Gilead. Pursuant to the Agreement, the subsidiary of Gilead paid the Company $125.0 million, 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.

 

7


4. FAIR VALUE MEASUREMENTS

The Company has certain financial assets that are recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

 

Level 1 — quoted prices for identical instruments in active markets;

 

Level 2 — quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

 

Level 3 — valuations derived from valuation techniques in which one or more significant value drivers are unobservable.

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

 

 

 

Fair Value Measurement as of March 31, 2017

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Money market funds

 

$

81,286

 

 

$

81,286

 

 

$

 

 

$

 

Commercial paper

 

 

29,435

 

 

 

 

 

 

29,435

 

 

 

 

Government and government agency bonds

 

 

65,329

 

 

 

 

 

 

65,329

 

 

 

 

Corporate bonds

 

 

20,826

 

 

 

 

 

 

20,826

 

 

 

 

Certificates of deposit

 

 

684

 

 

 

684

 

 

 

 

 

 

 

Total assets

 

$

197,560

 

 

$

81,970

 

 

$

115,590

 

 

$

 

 

 

 

Fair Value Measurement as of December 31, 2016

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Money market funds

 

$

1,147

 

 

$

1,147

 

 

$

 

 

$

 

Commercial paper

 

 

69,304

 

 

 

 

 

 

69,304

 

 

 

 

Government and government agency bonds

 

 

105,287

 

 

 

 

 

 

105,287

 

 

 

 

Corporate bonds

 

 

20,834

 

 

 

 

 

 

20,834

 

 

 

 

Certificates of deposit

 

 

11,343

 

 

 

11,343

 

 

 

 

 

 

 

Total assets

 

$

207,915

 

 

$

12,490

 

 

$

195,425

 

 

$

 

 

The Company’s assets with fair value categorized as Level 1 within the fair value hierarchy include money market funds and certificates of deposit. Money market funds are publicly traded mutual funds and are presented as cash equivalents in the unaudited condensed consolidated balance sheets as of March 31, 2017.

The Company’s assets with fair value categorized as Level 2 within the fair value hierarchy consist of commercial paper, government and government agency bonds and corporate bonds. These assets have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, through income-based approaches utilizing observable market data.

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts for long-term debt approximate fair value based on market activity for other debt instruments with similar characteristics and comparable risk.

 

5. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

It is the Company’s policy to mitigate credit risk in its financial assets by maintaining a well-diversified portfolio that limits the amount of exposure as to maturity and investment type. The weighted average maturity of the Company’s available-for-sale securities as of March 31, 2017 and December 31, 2016 was approximately seven and four months, respectively.

8


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

 

 

 

As of March 31, 2017

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Market

Value

 

 

 

(in thousands)

 

Cash and money market funds

 

$

274,723

 

 

$

 

 

$

 

 

$

274,723

 

Commercial paper

 

 

29,450

 

 

 

 

 

 

(15

)

 

 

29,435

 

Government and government agency bonds

 

 

65,361

 

 

 

 

 

 

(32

)

 

 

65,329

 

Corporate bonds

 

 

20,834

 

 

 

 

 

 

(8

)

 

 

20,826

 

Total assets

 

$

390,368

 

 

$

 

 

$

(55

)

 

$

390,313

 

As reported:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

274,723

 

 

$

 

 

$

 

 

$

274,723

 

Short-term investments

 

 

115,645

 

 

 

 

 

 

(55

)

 

 

115,590

 

Total assets

 

$

390,368

 

 

$

 

 

$

(55

)

 

$

390,313

 

 

 

 

 

As of December 31, 2016

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair

Market

Value

 

 

 

(in thousands)

 

Cash and money market funds

 

$

122,420

 

 

$

 

 

$

 

 

$

122,420

 

Commercial paper

 

 

69,355

 

 

 

 

 

 

(51

)

 

 

69,304

 

Government and government agency bonds

 

 

105,340

 

 

 

 

 

 

(53

)

 

 

105,287

 

Corporate bonds

 

 

20,850

 

 

 

 

 

 

(16

)

 

 

20,834

 

Total assets

 

$

317,965

 

 

$

 

 

$

(120

)

 

$

317,845

 

As reported:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

122,420

 

 

$

 

 

$

 

 

$

122,420

 

Short-term investments

 

 

195,545

 

 

 

 

 

 

(120

)

 

 

195,425

 

Total assets

 

$

317,965

 

 

$

 

 

$

(120

)

 

$

317,845

 

 

6. ACCOUNTS RECEIVABLE AND RESERVES FOR PRODUCT SALES

The Company’s accounts receivable arise from product sales, government research contracts and other grants. They are generally stated at the invoiced amount and do not bear interest.

The accounts receivable from product sales represents receivables due from the Company’s specialty distributor and specialty pharmacies. The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in the customers’ credit profiles. The Company provides reserves against trade receivables for estimated losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are written-off against the established reserve. As of March 31, 2017, the credit profiles for the Company’s customers are deemed to be in good standing and write-offs of accounts receivable are not considered necessary. Historically, no accounts receivable amounts related to government research contracts and other grants have been written off and, thus, an allowance for doubtful accounts receivable related to government research contracts and other grants is not considered necessary.

 

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

 

 

 

As of

March 31,

2017

 

 

As of

December 31,

2016

 

 

 

(in thousands)

 

Trade receivables

 

$

11,349

 

 

$

4,002

 

Unbilled receivables

 

 

929

 

 

 

1,226

 

Total accounts receivable

 

$

12,278

 

 

$

5,228

 

 

9


The balance for unbilled receivables for both periods presented is subject to government audit and will not be collected until the completion of the audit. The decrease in unbilled receivables is related to contract finalization and subsequent collection of the European Union SKIP-NMD Agreement related to the Company’s exon 53 product candidate.

 

The following table summarizes an analysis of the change in reserves for discounts and allowances for the periods indicated:

 

 

 

Chargebacks

 

 

Rebates

 

 

Other Accruals

 

 

Total

 

 

 

(in thousands)

 

Balance, as of December 31, 2016

 

$

1

 

 

$

238

 

 

$

67

 

 

$

306

 

Provision

 

 

256

 

 

 

608

 

 

 

132

 

 

 

996

 

Payments/credits

 

 

(152

)

 

 

(88

)

 

 

(82

)

 

 

(322

)

Balance, as of March 31, 2017

 

$

105

 

 

$

758

 

 

$

117

 

 

$

980

 

 

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

 

 

 

As of

March 31,

2017

 

 

As of

December 31,

2016

 

 

 

(in thousands)

 

Reduction to accounts receivable

 

$

105

 

 

$

1

 

Component of accrued expenses

 

 

875

 

 

 

305

 

Total reserves

 

$

980

 

 

$

306

 

 

 

7. INVENTORY

Inventories are stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis. The Company capitalizes inventory costs associated with products following regulatory approval when future commercialization is considered probable and the future economic benefit is expected to be realized. EXONDYS 51 which may be used in clinical development programs are included in inventory and charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes. The following table summarizes the components of the Company’s inventory for the period indicated:

 

 

As of

March 31,

2017

 

 

As of

December 31,

2016

 

 

(in thousands)

 

Raw materials

$

24,898

 

 

$

9,531

 

Work in progress

 

5,433

 

 

 

3,175

 

Finished goods

 

114

 

 

 

107

 

Total inventory

$

30,445

 

 

$

12,813

 

 

 

 

 

 

 

 

 

 

 

 

8. ASSET HELD FOR SALE

The Company owns a facility located at 1749 SW Airport Avenue, Corvallis, OR (“Airport Facility”). The Airport Facility was previously leased to an unrelated third party. In July 2016, the third party lessee terminated the lease and vacated the facility. It has been unoccupied since then. The Company has set up a program and is actively marketing the Airport Facility. As of March 31, 2017, the Airport Facility with net book value of approximately $1.5 million was reclassified as an asset held for sale which is presented as a component of current assets.

 

 

10


9. OTHER CURRENT ASSETS AND OTHER NON-CURRENT ASSETS

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

 

 

 

As of

March 31,

2017

 

 

As of

December 31,

2016

 

 

 

(in thousands)

 

Manufacturing-related deposits and prepaids

 

$

18,451

 

 

$

23,604

 

Prepaid clinical expenses

 

 

1,822

 

 

 

1,163

 

Other prepaids

 

 

1,513

 

 

 

1,214

 

Other

 

 

956

 

 

 

914

 

Total other current assets

 

$

22,742

 

 

$

26,895

 

 

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

 

 

 

As of

March 31,

2017

 

 

As of

December 31,

2016

 

 

 

(in thousands)

 

Prepaid clinical expenses

 

$

3,891

 

 

$

3,725

 

Manufacturing-related deposits

 

 

3,213

 

 

 

 

Other

 

 

242

 

 

 

242

 

Total other non-current assets

 

$

7,346

 

 

$

3,967

 

 

 

 

10. ACCRUED EXPENSES

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

 

 

 

As of

March 31,

2017

 

 

As of

December 31,

2016

 

 

 

(in thousands)

 

Accrued clinical and preclinical costs

 

$

11,134

 

 

$

10,033

 

Accrued contract manufacturing costs

 

 

5,736

 

 

 

4,673

 

Accrued employee compensation costs

 

 

5,177

 

 

 

8,748

 

Accrued professional fees

 

 

3,759

 

 

 

2,799

 

Product revenue related reserve

 

 

875

 

 

 

305

 

Accrued research costs

 

 

441

 

 

 

1,186

 

Other

 

 

4,035

 

 

 

3,272

 

Total accrued expenses

 

$

31,157

 

 

$

31,016

 

 

 

11. RESTRUCTURING

In March 2016, the Company announced a long-term plan (“Corvallis plan”) to consolidate all of the Company’s operations to Massachusetts as part of a strategic plan to increase operational efficiency. As part of the consolidation, research activities and some employees have transitioned to the Company’s facilities in Andover and Cambridge, Massachusetts. As of March 31, 2017, the relocations and terminations were substantially completed.

 

In December 2016, the second floor of the two floors at the Corvallis facility was vacated and closed and made available for sub-leasing. The first floor of the facility continues to be used by the Company’s employees. As of March 31, 2017, the Company continues to be obligated to make $6.0 million of minimum lease payments and certain other contractual maintenance costs for the whole facility.

11


For the three months ended March 31, 2017, the Company recognized $0.2 million of restructuring expenses, the majority of which related to relocation of equipment from Oregon to Massachusetts. For the three months ended March 31, 2016, $0.5 million of restructuring expenses related to workforce reduction.

The following table summarizes the restructuring expenses by function for the periods indicated:

 

 

 

For the Three Months Ended

March 31, 2017

 

 

For the Three Months Ended

March 31, 2016

 

 

 

(in thousands)

 

 

 

Cash

 

 

 

 

Non-cash

 

 

 

 

Total

 

 

Cash

 

 

 

 

Non-cash

 

 

 

 

Total

 

Research and development

 

$

70

 

 

 

 

$

 

 

 

 

$

70

 

 

$

357

 

 

 

 

$

145

 

 

 

 

$

502

 

General and administration

 

 

166

 

 

 

 

 

 

 

 

 

 

166

 

 

 

31

 

 

 

 

 

 

 

 

 

 

31

 

Total restructuring expenses

 

$

236

 

 

 

 

$

 

 

 

 

$

236

 

 

$

388

 

 

 

 

$

145

 

 

 

 

$

533

 

 

The following table summarizes the restructuring reserve for the periods indicated:

 

 

 

For the Quarter

Ended

March 31,

2017

 

 

For the Year

Ended

December 31,

2016

 

 

 

(in thousands)

 

Restructuring reserve beginning balance

 

$

1,588

 

 

$

 

Restructuring expenses incurred during the period

 

 

236

 

 

 

3,651

 

Amounts paid during the period

 

 

(394