# Sarepta Therapeutics, Inc. (SRPT) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Sarepta Therapeutics, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/873303/000095017022002517/srpt-20211231.htm
Accession: 0000950170-22-002517
Filing date: 2022-03-01
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SRPT/
All MD&A years: /company/SRPT/mda/
Next year: /company/SRPT/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The purpose of Management's Discussion and Analysis of Financial Condition and Results of Operations is to provide an understanding of the financial condition, changes in financial condition and results of operations of Sarepta Therapeutics, Inc. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Please review our legend titled “Forward-Looking Information” at the beginning of this Annual Report on Form 10-K which is incorporated herein by reference. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K. Throughout this discussion, unless the context specifies or implies otherwise, the terms “Sarepta”, “we”, “us” and “our” refer to Sarepta Therapeutics, Inc. and its subsidiaries.

This section discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 have been excluded from this Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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, LGMDs, and other CNS related disorders.

We commercialize three products, all of which were granted accelerated approval by the FDA:

•
EXONDYS 51 (eteplirsen) Injection (“EXONDYS 51”), approved by the FDA on September 19, 2016, is indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin 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.

•
VYONDYS 53 (golodirsen) Injection (“VYONDYS 53”), approved by the FDA on December 12, 2019, is indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin 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.

•
AMONDYS 45 (casimersen) Injection (“AMONDYS 45”), approved by the FDA on February 25, 2021, is indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin 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.

We are in the process of conducting various EXONDYS 51, VYONDYS 53 and AMONDYS 45 clinical trials, including studies that are required to comply with our post-marketing FDA requirements/commitments to verify and describe the clinical benefit of these products.

A summary description of our key product candidates, including those in collaboration with our strategic partners, is as follows:

•
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 Duchenne in patients who are amenable to exon 51 skipping. 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. In May 2021, we announced results from the 30 mg/kg cohort of Part A of Study 5051-201. We initiated Part B of Study 5051-201 in the fourth quarter of 2021 and are currently enrolling patients.

•
SRP-9001 (Duchenne, 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 Duchenne

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was initiated (Study 101). In October 2018, Nationwide presented results from the Phase 1/2a clinical trial in four individuals with Duchenne 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). 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 announced topline results for Part 2 of Study 102 in January 2022. We have completed dosing in the first cohort in Study 103, an open-label study evaluating the safety and expression of commercially representative material for SRP-9001. In May 2021, we announced 12-week expression and safety results from the first 11 participants enrolled in Study 103. In October 2021, we announced functional data from the first 11 patients and tolerability data for all 32 patients enrolled in Study 103. We also initiated our pivotal trial (Study 301) in October 2021 and are currently enrolling patients. We expect to announce additional data for SRP-9001 in 2022.

•
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 we are developing with Nationwide. 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 GMP runs for SRP-9003 in 2022. We also plan to meet with the FDA in 2022 to discuss our pivotal 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.

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 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.

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.

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.

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Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The preparation of our 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 consolidated financial statements will be affected. Although we believe that our judgments and estimates are appropriate, actual results may differ from these estimates. We believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements:

•
inventory; and

•
income tax.

Inventory Valuation

Inventories are stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis. We capitalize 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, VYONDYS 53 and AMONDYS 45 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 analyze our inventories for excess amounts or obsolescence and write down obsolete or otherwise unmarketable inventory to its estimated net realizable value based on assumptions about expected future demand and market conditions. 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. Expense incurred related to excess inventory, obsolete inventory, or inventories that do not meet our quality specifications are recorded as a component of cost of sales in the consolidated statement of operations.

Income Tax

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained upon an examination. The calculation of our tax liabilities resulting from uncertain tax positions can involve significant judgment. Further, the calculation may involve the application of complex tax regulations in a foreign jurisdiction. Any significant impact as a result of changes in underlying facts, law, tax rates, tax audit, or review could lead to adjustments to our income tax expense, our effective tax rate, and/or our cash flow. Although we believe that we have adequately provided for tax liabilities resulting from uncertain tax positions, the actual amounts paid, if any, could have a material impact on our results of operations. Interest and penalties associated with uncertain tax positions are classified as a component of income tax expense.

Please read Note 2, Summary of Significant Accounting Policies and Recent Accounting Pronouncements to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a further discussion of our critical accounting policies and estimates.

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The following table sets forth selected consolidated statements of operations data for each of the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","","2020","","","Change","","","Change"],["","","(in thousands, except per share amounts)","","","$","","","%"],["Revenues:"],["Products, net","","$","612,401","","","$","455,865","","","$","156,536","","","","34","%"],["Collaboration and other","","","89,486","","","","84,234","","","","5,252","","","","6","%"],["Total revenues","","","701,887","","","","540,099","","","","161,788","","","","30","%"],["Cost and expenses:"],["Cost of sales (excluding amortization of in-licensed rights)","","","97,049","","","","63,382","","","","33,667","","","","53","%"],["Research and development","","","771,182","","","","722,343","","","","48,839","","","","7","%"],["Selling, general and administrative","","","282,660","","","","317,875","","","","(35,215",")","","","(11",")%"],["Settlement and license charges","","","10,000","","","","\u2014","","","","10,000","","","NM*"],["Amortization of in-licensed rights","","","706","","","","662","","","","44","","","","7","%"],["Total cost and expenses","","","1,161,597","","","","1,104,262","","","","57,335","","","","5","%"],["Operating loss","","","(459,710",")","","","(564,163",")","","","104,453","","","","(19",")%"],["Other income:"],["Gain from sale of Priority Review Voucher","","","102,000","","","","108,069","","","","(6,069",")","","","(6",")%"],["Gain (loss) on contingent consideration, net","","","7,200","","","","(45,000",")","","","52,200","","","","(116",")%"],["Other expense, net","","","(68,438",")","","","(51,971",")","","","(16,467",")","","","32","%"],["Total other income","","","40,762","","","","11,098","","","","29,664","","","NM*"],["Loss before income tax (benefit) expense","","","(418,948",")","","","(553,065",")","","","134,117","","","","(24",")%"],["Income tax (benefit) expense","","","(168",")","","","1,063","","","","(1,231",")","","","(116",")%"],["Net loss","","$","(418,780",")","","$","(554,128",")","","$","135,348","","","","(24",")%"],["Net loss per share \u2014 basic and diluted","","$","(5.15",")","","$","(7.11",")","","$","1.96","","","","(28",")%"]]
[[/GREPCENT_TABLE]]

* NM: not meaningful

Revenues

The following table summarizes the components of our net product revenues for the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","","2020","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["EXONDYS 51","","$","454,361","","","$","422,007","","","$","32,354","","","","8","%"],["VYONDYS 53","","","89,511","","","","33,858","","","","55,653","","","","164","%"],["AMONDYS 45","","","68,529","","","","\u2014","","","","68,529","","","NM*"],["Products, net","","$","612,401","","","$","455,865","","","$","156,536","","","","34","%"]]
[[/GREPCENT_TABLE]]

Net product revenues for our products for 2021 increased by $156.5 million compared with 2020. The increase primarily reflects increasing demand for our products in the U.S. and the commercial launch of AMONDYS 45.

Collaboration and other revenues primarily relate to our collaboration arrangement with Roche. For the years ended December 31, 2021 and December 31, 2020, we recognized $89.5 million and $84.2 million of collaboration and other revenues, respectively. For more information, please read Note 3, License and Collaboration Agreements.

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

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, VYONDYS 53 and AMONDYS 45 by the FDA in September 2016, December 2019 and February 2021, respectively, we expensed such manufacturing

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and material costs as research and development expenses. For AMONDYS 45 sold in 2021 and VYONDYS 53 sold in 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 VYONDYS sold in 2021 and EXONDYS 51 sold in 2021 and 2020, 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 FDA approval, the incremental inventory costs related to our products sold in 2021 and 2020 would have been approximately $22.0 million and $25.9 million, respectively.

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","","2020","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Inventory costs related to products sold","","$","56,720","","","$","34,323","","","$","22,397","","","","65","%"],["Royalty payments","","","40,329","","","","29,059","","","","11,270","","","","39","%"],["Total cost of sales","","$","97,049","","","$","63,382","","","$","33,667","","","","53","%"]]
[[/GREPCENT_TABLE]]

The cost of sales for 2021 increased $33.7 million, or 53%, compared with 2020. The change primarily 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 table summarizes our research and development expenses by project for each of the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","","2020","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Micro-dystrophin","","$","320,214","","","$","289,877","","","$","30,337","","","","10","%"],["Other gene therapies","","","102,036","","","","67,650","","","","34,386","","","","51","%"],["Up-front, milestone, and other expenses","","","40,267","","","","47,280","","","","(7,013",")","","","(15",")%"],["Eteplirsen (exon 51)","","","36,464","","","","32,371","","","","4,093","","","","13","%"],["PPMO platform","","","35,652","","","","31,633","","","","4,019","","","","13","%"],["Casimersen (exon 45)","","","34,443","","","","58,179","","","","(23,736",")","","","(41",")%"],["Golodirsen (exon 53)","","","28,898","","","","36,650","","","","(7,752",")","","","(21",")%"],["Collaboration cost-sharing","","","12,425","","","","13,105","","","","(680",")","","","(5",")%"],["Other projects","","","17,302","","","","4,566","","","","12,736","","","NM*"],["Internal research and development expenses","","","233,704","","","","206,912","","","","26,792","","","","13","%"],["Roche collaboration reimbursement","","","(90,223",")","","","(65,880",")","","","(24,343",")","","","37","%"],["Total research and development expenses","","$","771,182","","","$","722,343","","","$","48,839","","","","7","%"]]
[[/GREPCENT_TABLE]]

* NM: not meaningful

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","","2020","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Manufacturing expenses","","$","384,700","","","$","366,867","","","$","17,833","","","","5","%"],["Compensation and other personnel expenses","","","115,394","","","","107,149","","","","8,245","","","","8","%"],["Clinical trial expenses","","","104,732","","","","95,367","","","","9,365","","","","10","%"],["Facility- and technology-related expenses","","","70,597","","","","55,372","","","","15,225","","","","27","%"],["Stock-based compensation","","","50,526","","","","41,671","","","","8,855","","","","21","%"],["Up-front, milestone, and other expenses","","","40,267","","","","47,280","","","","(7,013",")","","","(15",")%"],["Pre-clinical expenses","","","21,410","","","","10,139","","","","11,271","","","","111","%"],["Professional services","","","13,900","","","","18,325","","","","(4,425",")","","","(24",")%"],["Collaboration cost-sharing","","","12,425","","","","13,105","","","","(680",")","","","(5",")%"],["Research and other","","","47,454","","","","32,948","","","","14,506","","","","44","%"],["Roche collaboration reimbursement","","","(90,223",")","","","(65,880",")","","","(24,343",")","","","37","%"],["Total research and development expenses","","$","771,182","","","$","722,343","","","$","48,839","","","","7","%"]]
[[/GREPCENT_TABLE]]

Research and development expenses for 2021 increased by $48.8 million, or 7%, compared with 2020. The increase was primarily driven by the following:

•
$17.8 million increase in manufacturing expenses primarily due to our accelerated amortization of nonrefundable advance payments due to capacity changes associated with the execution of the Third Amendment to our manufacturing and supply agreement with Thermo;

•
$8.2 million increase in compensation and other personnel expenses primarily due to changes in headcount;

•
$9.4 million increase in clinical trial expenses primarily due to increased patient enrollment for our ESSENCE and MOMENTUM programs as well as certain start-up activities and patient enrollment for our SRP-9001 micro-dystrophin program including for our EMBARK program;

•
$15.2 million increase in facility- and technology-related expenses primarily due to our continuing expansion efforts;

•
$8.9 million increase in stock-based compensation expense primarily due to changes in headcount and stock price;

•
$7.0 million decrease in up-front, milestone and other expenses, primarily due to a $28.7 million increase of an accrued sublicense fee to Nationwide and $11.6 million of expense incurred as a result of up-front and milestone payments related to certain research and license agreements during 2021. This was offset primarily by $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;

•
$11.3 million increase in pre-clinical expenses primarily due to an increase of toxicology studies in our PPMO platforms;

•
$4.4 million decrease in professional service expenses primarily due to a decrease in reliance on third-party research and development contractors;

•
$0.7 million decrease in collaboration cost sharing expenses with Lysogene S.A. (“Lysogene”) on its MPS IIIA drug candidate offset by an increase in cost sharing expenses with Genethon on its micro-dystrophin drug candidate;

•
$14.5 million increase in research and other expenses primarily driven by an increase in sponsored research with academic institutions during 2021; and

•
$24.3 million increase in the offset to expense associated with a collaboration reimbursement from Roche primarily due to continuing development of our SRP-9001 micro-dystrophin gene therapy.

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

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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.

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","","2020","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Compensation and other personnel expenses","","$","103,528","","","$","105,233","","","$","(1,705",")","","","(2",")%"],["Professional services","","","73,605","","","","106,571","","","","(32,966",")","","","(31",")%"],["Stock-based compensation","","","63,417","","","","66,399","","","","(2,982",")","","","(4",")%"],["Facility- and technology-related expenses","","","31,113","","","","28,615","","","","2,498","","","","9","%"],["Other","","","11,251","","","","11,661","","","","(410",")","","","(4",")%"],["Roche collaboration reimbursement","","","(254",")","","","(604",")","","","350","","","","(58",")%"],["Total selling, general and administrative expenses","","$","282,660","","","$","317,875","","","$","(35,215",")","","","(11",")%"]]
[[/GREPCENT_TABLE]]

Selling, general and administrative expenses for 2021 decreased by $35.2 million, or 11%, compared with 2020. This was primarily driven by the following:

•
$1.7 million decrease in compensation and other personnel expenses primarily due to changes in headcount;

•
$33.0 million decrease in professional service expenses primarily due to a decrease in reliance on third-party selling, general and administrative contractors, as well as a transaction fee for the Roche transaction incurred during 2020, with no similar activity incurred during 2021;

•
$3.0 million decrease in stock-based compensation expense primarily due to changes in headcount and stock price; and

•
$2.5 million increase in facility- and technology-related expenses primarily due to our continuing expansion efforts.

Settlement and license charges

In February 2021, we recognized a $10.0 million settlement charge related to contingent settlement payments to BioMarin as a result of the approval of AMONDYS 45 in the U.S. This was a result of a settlement and license agreement with BioMarin executed in July 2017. This amount, which was expensed to operations as incurred, is separately presented as settlement and license charges in the Company's consolidated statement of operations and comprehensive loss for the year ended December 31, 2021. There was no such expense recognized during the same period of 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 2013, respectively. 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 both the years ended December 31, 2021 and 2020, we recorded amortization of in-licensed rights of approximately $0.7 million.

Gain from sale of Priority Review Voucher

In February 2021, we entered into an agreement to sell the PRV (the "AMONDYS 45 PRV") we received from the FDA in connection with the approval of AMONDYS 45. Following the termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in April 2021, we completed our sale of the AMONDYS 45 PRV and received proceeds of $102.0 million, with no commission costs, 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.

In February 2020, we entered into an agreement to sell the PRV (the "VYONDYS 53 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 VYONDYS 53 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.

Gain (loss) on contingent consideration, net

The gain (loss) on contingent consideration, net, 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 two

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academic institutions under separate license agreements that meet the definition of a derivative. For the years ended December 31, 2021 and 2020, we recognized a $7.2 million net gain and $45.0 million net loss, respectively, to adjust the fair value of the contingent consideration liabilities. 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 our strategic investments. 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.

Other expense, net, for 2021 increased by approximately $16.5 million compared with 2020. The increase primarily reflects an increase in interest expense incurred on our term loan debt facilities due to an increase in the outstanding balance as well as an impairment loss related to a strategic investment, partially offset by a decrease of $20.8 million in non-cash interest expense on our convertible debt in 2021 as compared to 2020.

Income tax (benefit) expense

Income tax benefit for 2021 was approximately $0.2 million and income tax expense for 2020 was $1.1 million. Income tax (benefit) expense for all periods presented relates to state and foreign income taxes.

Liquidity and Capital Resources

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","","2020","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Financial assets:"],["Cash and cash equivalents","","$","2,115,869","","","$","1,502,648","","","$","613,221","","","","41","%"],["Short-term investments","","","\u2014","","","","435,923","","","","(435,923",")","","","(100",")%"],["Restricted cash and investments","","","9,904","","","","9,315","","","","589","","","","6","%"],["Total cash, cash equivalents and investments","","$","2,125,773","","","$","1,947,886","","","$","177,887","","","","9","%"],["Borrowings:"],["Term loan","","$","533,203","","","$","527,731","","","$","5,472","","","","1","%"],["Convertible debt","","","563,673","","","","464,762","","","","98,911","","","","21","%"],["Total borrowings","","$","1,096,876","","","$","992,493","","","$","104,383","","","","11","%"],["Working capital"],["Current assets","","$","2,604,099","","","$","2,485,196","","","$","118,903","","","","5","%"],["Current liabilities","","","452,733","","","","416,026","","","","36,707","","","","9","%"],["Total working capital","","$","2,151,366","","","$","2,069,170","","","$","82,196","","","","4","%"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2021, our principal sources of liquidity were primarily derived from sales of our products, our collaboration arrangement with Roche, net proceeds from sale of the PRV, and net proceeds from our common stock offering. 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. 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 changes in our total borrowings primarily reflect the adoption of ASU 2020-06 as of January 1, 2021, which resulted in the convertible debt being accounted for as a single liability measured at its amortized cost. For more information on the adoption and impact of ASU 2020-06, please read Note 13, Indebtedness. The changes in our working capital primarily reflect use of cash in operating activities. While our contractual obligations, commitments and debt service requirements over the next several years are significant, we intend to continue to fund our short-term financing needs and working capital requirements from cash flows of operating activities as well as cash on hand, and such sources are anticipated to be adequate to fund working capital requirements for at least twelve months from the date these consolidated financial statements were issued.

Beyond 2022, our cash requirements will depend extensively on our ability to advance our research, development and commercialization programs. We expect to seek additional financings primarily from, but not limited to, the sale and issuance of

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equity and debt securities, the licensing or sale of our technologies, additional government contracts and/or funded research and development agreements. Our future expenditures and long-term 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, AMONDYS 45 and potential future products;

•
the timing and costs associated with our expansion efforts;

•
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 existing lease 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’s selling shareholders StrideBio, BioMarin, Lysogene, Lacerta Therapeutics, Inc., 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.

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.

Cash Flows

The following table summarizes our cash flow activity for each of the periods indicated:

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","","2020","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Cash (used in) provided by"],["Operating activities","","$","(443,172",")","","$","107,466","","","$","(550,638",")","","NM*"],["Investing activities","","","495,413","","","","(121,721",")","","","617,134","","","NM*"],["Financing activities","","","561,569","","","","682,323","","","","(120,754",")","","","(18",")%"],["Increase in cash and cash equivalents","","$","613,810","","","$","668,068","","","$","(54,258",")","","","(8",")%"]]
[[/GREPCENT_TABLE]]

* NM: not meaningful

Operating Activities

Cash used in operating activities, which consists of our net loss adjusted for non-cash items and changes in net operating assets and liabilities, totaled $443.2 million in 2021. Operating activities provided $107.5 million of cash in 2020. The most significant contributor to the year-over-year change was the cash received in the prior year relating to the collaboration arrangement with Roche that was recorded as deferred revenue. Cash used in operating activities in 2021 was primarily driven by the net loss of $418.8 million, adjusted for following:

•
$113.9 million in stock-based compensation expense;

•
$38.0 million in depreciation and amortization expense; and

•
$23.8 million in other non-cash items.

These amounts were partially offset by the gain of $102.0 million recorded from the sale of the PRV.

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The net cash outflow from changes in our operating assets and liabilities was primarily driven by the following:

•
$89.2 million decrease in deferred revenue related to the collaboration with Roche;

•
$83.8 million increase in inventory due our continuing build-up of inventory purchased in 2021 as the demand for our products increased; and

•
$51.7 million increase in accounts receivable due to the launch of AMONDYS 45 in 2021 and an increase in demand for our products.

These amounts were partially offset by the following:

•
$23.3 million increase in accounts payable, accrued expenses, lease liabilities and other liabilities due to the timing and invoicing of payments; and

•
$103.2 million decrease in other assets primarily due to lower manufacturing-related deposits as a result of the accelerated amortization of nonrefundable advance payments due to capacity changes associated with the execution of the Third Amendment to our manufacturing and supply agreement with Thermo.

Cash provided by operating activities in 2020 was primarily driven by the net loss of $554.1 million, adjusted for:

•
$108.1 million in stock-based compensation expense;

•
$45.0 million in loss on contingent consideration, driven by the mark-to-market adjustment of the contingent consideration liability;

•
$26.9 million in depreciation and amortization expense;

•
$25.5 million in non-cash interest expense associated with our debt facilities; and

•
$10.2 million in other non-cash items.

These amounts were partially offset by the gain of $108.1 million recorded from the sale of the PRV.

The net cash inflow from changes in our operating assets and liabilities was primarily driven by the following:

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

•
$42.0 million increase in accounts payable, accrued expenses, lease liabilities and other liabilities due to the timing and invoicing of payments.

These increases were partially offset by:

•
$166.3 million increase in other assets primarily due to greater manufacturing-related deposits and prepaids and the establishment of a collaboration receivable associated with the Roche agreement;

•
$60.6 million increase in inventory due our continuing build-up of inventory purchased in 2020 as the demand for our products increased; and

•
$10.5 million increase in accounts receivable due to increase in demand for our products.

Investing Activities

Cash provided by investing activities was $495.4 million in 2021 compared to $121.7 million of cash used in 2020. Cash provided by investing activities in 2021 primarily consisted of the following:

•
$466.0 million of maturity and sales of available-for-sale securities; and

•
$102.0 million of net proceeds related to the sale of the PRV.

These amounts were partially offset by the following:

•
$38.5 million of purchases of property and equipment due to the continued build-out of our facilities; and

•
$30.0 million of purchases of available-for-sale securities.

Cash used in investing activities in 2020 primarily consisted of the following:

•
$1.3 billion of purchases of available-for-sale securities; and

•
$82.2 million of purchases of property and equipment due to the continued build-out of our facilities.

These amounts were partially offset by the following:

•
$1.2 billion of maturity and sales of available-for-sale securities; and

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•
$108.1 million of net proceeds related to the sale of the PRV.

Financing Activities

Cash provided by financing activities was $561.6 million in 2021 compared to $682.3 million in 2020. Cash provided by financing activities in 2021 consisted primarily of the following:

•
$548.5 million in proceeds from the issuance of common stock; and

•
$20.8 million in proceeds from exercise of options and our employee stock purchase program.

These amounts were partially offset by $7.8 million of taxes paid related to net share settlement of equity awards.

Cash provided by financing activities in 2020 primarily consisted of the following:

•
$312.1 million in proceeds from the issuance of common stock to Roche;

•
$291.2 million in proceeds from term loans, driven by the drawdown of our term loan; and

•
$84.0 million in proceeds from exercise of options and our employee stock purchase program.

These amounts were partially offset by $4.8 million of taxes paid related to net share settlement of equity awards.

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. As such, we have no off-balance sheet arrangements as defined by Regulation S-K of the Securities Act of 1933.

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 issuance of debt securities, among others. As of December 31, 2021, total obligations under debt, lease, and manufacturing arrangements were $1.3 billion, $64.2 million, and $1.2 billion, respectively. Additional information regarding our obligations under debt, lease, and manufacturing arrangements is provided in Note 13, Indebtedness, Note 19, Leases and Note 21, Commitments and Contingencies, respectively, to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data.

Milestone Obligations

For products and product candidates that are currently in various research and development stages, we may be obligated to make up to $4.0 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 commercial milestones. Because the achievement of these milestones is not probable and payment is not required as of December 31, 2021, 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 commercial milestones.

Other Funding Commitments

We have several on-going clinical trials in various stages. Our most significant clinical trial expenditures are to CROs. The CRO contracts are generally cancellable at our option. As of December 31, 2021, we had approximately $378.5 million in cancellable future commitments based on existing CRO contracts.

Recent Accounting Pronouncements

Please read Note 2, Summary of Significant Accounting Policies and Recent Accounting Pronouncements to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.