# Sarepta Therapeutics, Inc. (SRPT) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Sarepta Therapeutics, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/873303/000095017024022036/srpt-20231231.htm
Accession: 0000950170-24-022036
Filing date: 2024-02-28
Report date: 2023-12-31
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/
Previous year: /company/SRPT/mda/fy2022/ (FY 2022)
Next year: /company/SRPT/mda/fy2024/ (FY 2024)

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 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 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, 2022.

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 have developed multiple approved products for the treatment of Duchenne muscular dystrophy (“Duchenne”) and are developing potential therapeutic candidates for a broad range of diseases and disorders, including Duchenne, Limb-girdle muscular dystrophies (“LGMDs”), and other neuromuscular and central nervous system (“CNS”) related disorders.

We commercialized four 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.

•
ELEVIDYS (delandistrogene moxeparvovec-rokl), approved by the FDA on June 22, 2023, is an adeno-associated virus based gene therapy for the treatment of ambulatory pediatric patients aged 4 through 5 years with Duchenne with a confirmed mutation in the Duchenne gene. ELEVIDYS is contraindicated in patients with any deletion in exon 8 and/or exon 9 in the Duchenne gene.

We are in the process of conducting various clinical trials for our approved products, 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, cell-penetrating peptide-conjugated PMO (“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. In July 2022,

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the FDA placed Study 5051-201 on clinical hold following a serious adverse event of hypomagnesemia. The clinical hold was lifted in August 2022. In January 2024, we announced results from Part B of Study 5051-2021. We plan to meet with FDA to discuss next steps in the second half of 2024.

•
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 our SRP-9001 gene therapy program. A Phase 1/2a trial of SRP-9003 was commenced in the fourth quarter of 2018. In February 2019, we announced positive two-month biopsy data from the first three-patient low-dose cohort dosed in the SRP-9003 trial, and in October 2019, we announced positive nine-month functional data from these three patients. We have 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. In March 2021, we announced 24-month functional and expression data from the three clinical trial participants in the low-dose cohort and twelve-month functional data from the three clinical trial participants in the high-dose cohort. In March 2022, we announced 36-month functional data from three clinical trial participants in the low-dose cohort and 24-month functional data from two clinical trial participants in the high-dose cohort. In January 2024, we announced that we had begun screening in Study SRP-9003-301, a Phase 3, multi-national, open-label study of SRP-9003.

We are conducting various clinical trials for ELEVIDYS and announced our submission of an efficacy supplement to the biologics license application ("BLA") for ELEVIDYS to expand its label indication to remove age and ambulatory restrictions from the approved indication on December 22, 2023. We also submitted our postmarketing requirement related to the Phase 3 SRP-9001-301 confirmatory study for ELEVIDYS requesting conversion from accelerated approval to traditional approval during December 2023. The FDA granted priority review with a review goal date of June 21, 2024.

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 sustain large-scale 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, the risks associated with government sponsored reimbursement programs and the complex regulatory environment in which we operate. We may never achieve significant revenue or profitable operations.

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

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•
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, AMONDYS 45, and ELEVIDYS 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 is recorded as a component of cost of sales in the consolidated statements 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 (or amount of reduction in our deferred tax assets from net operating loss carryover and research credit carryover) 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 deferred tax asset, 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 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,"],["","","2023","","","2022","","","Change","","","Change"],["","","(in thousands, except per share amounts)","","","$","","","%"],["Revenues:"],["Products, net","","$","1,144,876","","","$","843,769","","","$","301,107","","","","36","%"],["Collaboration and other","","","98,460","","","","89,244","","","","9,216","","","","10","%"],["Total revenues","","","1,243,336","","","","933,013","","","","310,323","","","","33","%"],["Cost and expenses:"],["Cost of sales (excluding amortization of in-licensed rights)","","","150,343","","","","139,989","","","","10,354","","","","7","%"],["Research and development","","","877,387","","","","877,090","","","","297","","","","(\u2014",")%"],["Selling, general and administrative","","","481,871","","","","451,421","","","","30,450","","","","7","%"],["Amortization of in-licensed rights","","","1,559","","","","714","","","","845","","","","118","%"],["Total cost and expenses","","","1,511,160","","","","1,469,214","","","","41,946","","","","3","%"],["Operating loss","","","(267,824",")","","","(536,201",")","","","268,377","","","","(50",")%"],["Other loss, net:"],["Loss on debt extinguishment","","","(387,329",")","","","(125,441",")","","","(261,888",")","","","209","%"],["Gain from sale of Priority Review Voucher","","","102,000","","","","\u2014","","","","102,000","","","NM*"],["Other income (expense), net","","","33,055","","","","(28,321",")","","","61,376","","","","217","%"],["Total other loss, net","","","(252,274",")","","","(153,762",")","","","(98,512",")","","","(64",")%"],["Loss before income tax expense","","","(520,098",")","","","(689,963",")","","","169,865","","","","25","%"],["Income tax expense","","","15,879","","","","13,525","","","","2,354","","","","17","%"],["Net loss","","$","(535,977",")","","$","(703,488",")","","$","167,511","","","","24","%"],["Net loss per share \u2014 basic and diluted","","$","(5.80",")","","$","(8.03",")","","$","2.23","","","","28","%"]]
[[/GREPCENT_TABLE]]

* NM: not meaningful

Revenues

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2023","","","2022","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["EXONDYS 51","","$","540,576","","","$","511,749","","","$","28,827","","","","6","%"],["AMONDYS 45","","","273,755","","","","214,582","","","","59,173","","","","28","%"],["ELEVIDYS","","","200,356","","","","\u2014","","","","200,356","","","NM*"],["VYONDYS 53","","","130,189","","","","117,438","","","","12,751","","","","11","%"],["Products, net","","$","1,144,876","","","$","843,769","","","$","301,107","","","","36","%"]]
[[/GREPCENT_TABLE]]

* NM: not meaningful

Net product revenues for our products for 2023 increased by $301.1 million compared with 2022. The increase primarily reflects increasing demand for EXONDYS 51, AMONDYS 45 and VYONDYS 53 (collectively, the “PMO Products”), as well as $200.4 million of net product revenues associated with sales of ELEVIDYS for 2023 after its approval in June 2023.

The following table summarizes the components of our collaboration and other revenues for the periods indicated:

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[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2023","","","2022","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Amortization of performance obligations**","","$","89,244","","","$","89,244","","","$","\u2014","","","","(\u2014",")%"],["Contract manufacturing","","","9,216","","","","\u2014","","","","9,216","","","NM*"],["Total collaboration and other","","$","98,460","","","$","89,244","","","$","9,216","","","","10","%"]]
[[/GREPCENT_TABLE]]

* NM: not meaningful

** Related to the recognition of previously deferred revenue under the Roche collaboration agreement as the Company satisfies its performance obligations under the contract. For more information, please read Note 3, License and Collaboration Agreements.

Collaboration and other revenues primarily relate to our collaboration arrangement with Roche. For both 2023 and 2022, we recognized $89.2 million of collaboration revenue, related to the amortization of performance obligations. For more information, please read Note 3, License and Collaboration Agreements. In addition, in accordance with our Collaboration Agreement with Roche, the parties agreed to enter into a supply agreement in order for Sarepta to supply Roche with clinical and commercial batches of ELEVIDYS (the “Supply Agreement”). While the Supply Agreement is in the process of being negotiated, we delivered several batches of commercial ELEVIDYS supply to Roche that were agreed upon on a purchase order-by-purchase order basis. In 2023, we recognized $9.2 million of contract manufacturing collaboration revenue related to these shipments, with no similar activity for 2022.

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

Our cost of sales (excluding amortization of in-licensed rights) consists of inventory costs that relate to sales of our products and the related overhead costs and royalty payments primarily to BioMarin and UWA for the PMO Products and to Nationwide for ELEVIDYS. Prior to receiving regulatory approval for EXONDYS 51, VYONDYS 53, AMONDYS 45 and ELEVIDYS by the FDA in September 2016, December 2019, February 2021 and June 2023, respectively, we expensed such manufacturing and material costs as research and development expenses. For ELEVIDYS sold in 2023 and AMONDYS 45 sold in 2022, the majority of related manufacturing costs incurred had previously been expensed as research and development expense. 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 PMO Products sold would have been approximately $12.3 million higher for 2022 and those related to ELEVIDYS sold, including products sold to Roche under the Collaboration Agreement, would have been approximately $33.9 million higher for 2023.

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2023","","","2022","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Inventory costs related to products sold (excluding products sold to Roche**)","","$","108,988","","","$","95,765","","","$","13,223","","","","14","%"],["Royalty payments","","","39,537","","","","44,224","","","","(4,687",")","","","(11",")%"],["Inventory costs related to products sold to Roche**","","","1,818","","","","\u2014","","","","1,818","","","NM*"],["Total cost of sales (excluding amortization of in-licensed rights)","","$","150,343","","","$","139,989","","","$","10,354","","","","7","%"]]
[[/GREPCENT_TABLE]]

* NM: not meaningful

** See above for further details regarding product supply sold to Roche via contract manufacturing under our Collaboration Agreement.

The cost of sales (excluding amortization of in-licensed rights) for 2023 increased $10.4 million, or 7%, compared with 2022. The change primarily reflects increasing demand for our PMO products, partially offset by a decrease in write-offs of certain batches of our products not meeting our quality specifications in 2023, as compared to 2022, as well as a decrease in royalty payments due to changes in the BioMarin royalty terms.

Research and development expenses

Research and development expenses consist of costs associated with research activities as well as those 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

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support, and materials and supplies used in support of clinical programs. Indirect costs of our 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,"],["","","2023","","","2022","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["SRP-9001","","$","282,207","","","$","424,210","","","$","(142,003",")","","","(33",")%"],["Eteplirsen (exon 51)","","","90,829","","","","46,100","","","","44,729","","","","97","%"],["PPMO platform","","","78,231","","","","50,026","","","","28,205","","","","56","%"],["LGMD platform","","","58,529","","","","27,949","","","","30,580","","","","109","%"],["Other gene therapies","","","29,411","","","","53,834","","","","(24,423",")","","","(45",")%"],["Casimersen (exon 45)","","","21,264","","","","31,850","","","","(10,586",")","","","(33",")%"],["Golodirsen (exon 53)","","","16,556","","","","14,707","","","","1,849","","","","13","%"],["Up-front, milestone, and other expenses","","","13,232","","","","35,102","","","","(21,870",")","","","(62",")%"],["Gene editing","","","12,177","","","","10,537","","","","1,640","","","","16","%"],["Other projects","","","10,288","","","","6,026","","","","4,262","","","","71","%"],["Internal research and development expenses","","","370,677","","","","294,021","","","","76,656","","","","26","%"],["Roche collaboration reimbursement","","","(106,014",")","","","(117,272",")","","","11,258","","","","(10",")%"],["Total research and development expenses","","$","877,387","","","$","877,090","","","$","297","","","","(\u2014",")%"]]
[[/GREPCENT_TABLE]]

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,"],["","","2023","","","2022","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Manufacturing expenses","","$","302,025","","","$","445,758","","","$","(143,733",")","","","(32",")%"],["Clinical trial expenses","","","187,289","","","","135,838","","","","51,451","","","","38","%"],["Compensation and other personnel expenses","","","187,224","","","","148,385","","","","38,839","","","","26","%"],["Facility- and technology-related expenses","","","103,434","","","","85,093","","","","18,341","","","","22","%"],["Stock-based compensation","","","82,489","","","","61,293","","","","21,196","","","","35","%"],["Professional services","","","28,962","","","","19,264","","","","9,698","","","","50","%"],["Up-front, milestone, and other expenses","","","13,232","","","","35,102","","","","(21,870",")","","","(62",")%"],["Pre-clinical expenses","","","11,838","","","","8,704","","","","3,134","","","","36","%"],["Research and other","","","66,908","","","","54,925","","","","11,983","","","","22","%"],["Roche collaboration reimbursement","","","(106,014",")","","","(117,272",")","","","11,258","","","","(10",")%"],["Total research and development expenses","","$","877,387","","","$","877,090","","","$","297","","","","(\u2014",")%"]]
[[/GREPCENT_TABLE]]

Research and development expenses for 2023 slightly increased by $0.3 million, compared with 2022. The increase was primarily driven by the following:

•
$143.7 million decrease in manufacturing expenses primarily due to the capitalization of commercial batches of ELEVIDYS manufactured after its approval in June 2023 and a decrease of $54.0 million related to the minimum purchase requirements under a gene therapy manufacturing and supply agreement with Thermo (the “Thermo Agreement”) in 2022, with no similar activity in 2023;

•
$51.5 million increase in clinical trial expenses primarily due to an increased patient enrollment and site activation for our MIS51ON, MOMENTUM, ENVISION, EMERGENE and EXPEDITION programs, as well as additional PPMO clinical trials;

•
$38.8 million increase in compensation and other personnel expenses primarily due to changes in headcount;

•
$18.3 million increase in facility- and technology-related expenses primarily due to our continuing expansion efforts;

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•
$21.2 million increase in stock-based compensation expense primarily due to changes in headcount and the value of stock awards, as well as the achievement of performance conditions related to certain shares with performance conditions (“PSUs”) in 2023 with continuing vesting requirements related to a service condition;

•
$9.7 million increase in professional service expenses primarily related to the launch of ELEVIDYS prior to its regulatory approval in June 2023;

•
$21.9 million decrease in up-front, milestone and other expenses, primarily due to timing and costs related to the execution of certain research and license agreements and achievement of certain milestones year over year;

•
$3.1 million increase in pre-clinical expenses primarily due to an increase in toxicology study activity across multiple gene therapy and PPMO platforms;

•
$12.0 million increase in research and other expenses primarily driven by an increase in sponsored research with academic institutions during 2023 and an increase in collaboration cost-sharing expenses related to Genethon's micro-dystrophin drug candidate; and

•
$11.3 million decrease in the offset to expense associated with a collaboration reimbursement from Roche primarily due to a decrease in reimbursed cost related to the minimum purchase requirements under the Thermo Agreement for 2022, with no similar activity in 2023, partially offset by the continuing development of our SRP-9001 gene therapy programs.

Selling, general and administrative expenses

Selling, general and administrative expenses consist of salaries, benefits, stock-based compensation and related costs for personnel in our executive, finance, legal, information technology, business development, human resources, commercial and other general and administrative functions. Other general and administrative expenses include an allocation of our facility- and technology-related costs and professional fees for legal, consulting and accounting services.

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,"],["","","2023","","","2022","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Professional services","","$","158,279","","","$","97,330","","","$","60,949","","","","63","%"],["Compensation and other personnel expenses","","","157,317","","","","122,127","","","","35,190","","","","29","%"],["Stock-based compensation","","","100,025","","","","171,725","","","","(71,700",")","","","(42",")%"],["Facility- and technology-related expenses","","","44,090","","","","33,156","","","","10,934","","","","33","%"],["Other","","","23,031","","","","27,618","","","","(4,587",")","","","(17",")%"],["Roche collaboration reimbursement","","","(871",")","","","(535",")","","","(336",")","","","63","%"],["Total selling, general and administrative expenses","","$","481,871","","","$","451,421","","","$","30,450","","","","7","%"]]
[[/GREPCENT_TABLE]]

Selling, general and administrative expenses for 2023 increased by $30.5 million, or 7%, compared with 2022. This was primarily driven by the following:

•
$60.9 million increase in professional service expenses primarily related to the launch of ELEVIDYS and ongoing litigation matters;

•
$35.2 million increase in compensation and other personnel expenses primarily due to changes in headcount;

•
$71.7 million decrease in stock-based compensation expense primarily related to the execution of the Chief Executive Officer grant modification agreement in 2022, partially offset by the achievement of performance conditions related to certain PSUs in 2023 with continuing vesting requirements related to a service condition, as well as changes in headcount and the value of stock awards;

•
$10.9 million increase in facility- and technology-related expenses primarily due to our continuing expansion efforts; and

•
$4.6 million decrease in other expenses primarily related to timing of charitable contributions.

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Amortization of in-licensed rights

Amortization of in-licensed rights relates to the agreements we entered into with UWA, Nationwide, BioMarin and Parent Project Muscular Dystrophy in April 2013, December 2016, July 2017 and May 2018, respectively. Each in-licensed right is being amortized on a straight-line basis over the remaining life of the relevant patent from the date the related fee was incurred, either the regulatory approval or the first commercial sale of the applicable product. For 2023 and 2022, we recorded amortization of in-licensed rights of $1.6 million and $0.7 million, respectively.

Loss on debt extinguishment

On November 14, 2017, we issued $570.0 million aggregate principal amount of senior convertible notes due on November 15, 2024. On March 2, 2023, we entered into separate, privately negotiated exchange agreements with certain holders of the outstanding 2024 Notes (the “Exchange Agreements”). The Exchange Agreements resulted in an exchange of $313.5 million in aggregate principal value of the 2024 Notes for shares of our common stock (the “2024 Notes Exchange”). In connection with the 2024 Notes Exchange, we issued approximately 4.5 million shares of our common stock representing an agreed upon contractual exchange rate pursuant to the terms of each Exchange Agreement. The exchange was not pursuant to the conversion privileges included in the terms of the debt at issuance and therefore was accounted for as a debt extinguishment. We accounted for the debt extinguishment by recognizing the difference between the fair value of the shares of common stock transferred on the exchange date and the net carrying amount of the extinguished debt as a loss on debt extinguishment. The loss incurred on the extinguishment for 2023 was $387.3 million, inclusive of $6.9 million in third-party debt conversion costs.

On September 14, 2022, the Company entered into separate, privately negotiated transactions to repurchase a portion of the 2024 Notes. The holders exchanged $150.6 million in aggregate principal value of 2024 Notes held by them plus accrued interest of $0.8 million for an aggregate payment of $248.6 million. The Company accounted for the repurchase of the 2024 Notes as a debt extinguishment by recognizing the difference between the repurchase price of the debt and the net carrying amount of the extinguished debt as loss on debt extinguishment. The loss incurred on the extinguishment for 2022 was $98.5 million.

On September 16, 2022, the Company repaid in full all of its amounts outstanding with respect to the December 13, 2019, term loan with Biopharma Credit PLC and Biopharma Credit Investments V (Master) LP (the “December 2019 Term Loan”) and repaid in full all obligations to the lenders. The aggregate payoff amount was approximately $585.5 million, which included $550.0 million of principal amounts, additional loan consideration and premiums of $25.4 million, and accrued interest of $10.1 million through the repayment date. The loss incurred on the extinguishment for 2022 was $26.9 million and represents the difference between the aggregate payoff amount and the net carrying amount of the December 2019 Term Loan.

Gain from sale of Priority Review Voucher

In June 2023, we entered into an agreement to sell the rare pediatric disease Priority Review Voucher (“ELEVIDYS PRV”) we received from the FDA in connection with the approval of ELEVIDYS for consideration of $102.0 million, with no commission costs. The transaction was not subject to the conditions set forth under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and closed in June 2023. The net proceeds were recorded as a gain from sale of the ELEVIDYS PRV for 2023 as it did not have a carrying value at the time of the sale. There was no similar activity in 2022.

Other income (expense), net

Other income (expense), net primarily consists of interest expense on our debt facilities, interest income on our cash, cash equivalents and investments, amortization of investment premium or accretion of investment discount, unrealized gains or losses or an impairment of our strategic investments and gains or losses on contingent consideration, net related to regulatory-related contingent payments meeting the definition of a derivative. Interest expense primarily includes interest accrued on our convertible notes. Our cash equivalents and investments consist of money market funds, corporate bonds, commercial paper, government and government agency debt securities and certificates of deposit.

Other income (expense), net for 2023 increased by approximately $61.4 million compared to 2022. The increase is primarily due to a $38.5 million increase in accretion of investment discount, net and a $19.8 million increase in interest income due to the investment mix of our investment portfolio and an increase in interest rates, as well as a $31.2 million reduction of interest expense incurred as a result of the repayment of our December 2019 Term Loan in 2022, partially offset by a $27.7 million increase in the impairment of strategic investments and a $7.9 million decrease in gain (loss) on contingent consideration, net.

Income tax expense

Income tax expense for 2023 and 2022 was approximately $15.9 million and $13.5 million, respectively. Income tax expense for 2023 relates to state, foreign and federal taxes, while income tax expense for 2022 relates to state and foreign income taxes. Refer to Note 18, Income Taxes for discussion of the key drivers impacting our effective tax rate.

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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,"],["","","2023","","","2022","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Financial assets:"],["Cash and cash equivalents","","$","428,430","","","$","966,777","","","$","(538,347",")","","","(56",")%"],["Short-term investments","","","1,247,820","","","","1,022,597","","","","225,223","","","","22","%"],["Restricted cash","","","15,579","","","","19,024","","","","(3,445",")","","","(18",")%"],["Total cash, cash equivalents and investments","","$","1,691,829","","","$","2,008,398","","","$","(316,569",")","","","(16",")%"],["Borrowings:"],["Convertible debt","","$","1,237,998","","","$","1,544,292","","","$","(306,294",")","","","(20",")%"],["Total borrowings","","$","1,237,998","","","$","1,544,292","","","$","(306,294",")","","","(20",")%"],["Working capital"],["Current assets","","$","2,579,331","","","$","2,557,861","","","$","21,470","","","","1","%"],["Current liabilities","","","653,659","","","","619,604","","","","34,055","","","","5","%"],["Total working capital","","$","1,925,672","","","$","1,938,257","","","$","(12,585",")","","","(1",")%"]]
[[/GREPCENT_TABLE]]

For 2023 and 2022, our principal sources of liquidity were primarily derived from sales of our products, net proceeds from sale of the ELEVIDYS PRV, net proceeds from our offering of the 2027 Notes, proceeds from the partial settlement of capped call options associated with the 2024 Notes Exchange and our collaboration arrangement with Roche. Our principal uses of cash are research and development expenses, manufacturing costs, selling, general and administrative expenses, investments, capital expenditures, business development transactions, settlement of long-term debt and other working capital requirements. Refer to Note 13, Indebtedness and Note 19, Leases for additional discussion of our outstanding indebtedness and material changes to our leasing obligations, respectively. 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 2024, our cash requirements will depend extensively on our ability to advance our research, development and commercialization of product candidates. We may seek additional financings primarily from, but not limited to, the sale and issuance of equity and debt securities, the licensing or sale of our technologies, and entering into 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 commercial products 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 payments related to our future inventory commitments and manufacturing obligations;

•
the timing and costs associated with our existing lease obligations and new obligations expected to be entered into in future years;

•
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, BioMarin, Nationwide, UWA and other institutions;

•
obligations to holders of our convertible notes; 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

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adverse effect on our business and results of operations. To the extent we issue additional equity securities, our existing stockholders could experience substantial dilution.

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. 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. The following table summarizes our total obligations under debt, lease, and manufacturing arrangements:

[[GREPCENT_TABLE]]
[["","","As of December 31, 2023"],["","","Due in less than one year","","","Due in greater than one year","","","Total"],["","(in thousands)"],["Debt obligations (1)","","$","121,810","","","$","1,193,125","","","$","1,314,935"],["Lease obligations (2)","","","26,432","","","","336,011","","","","362,443"],["Manufacturing obligations (3)","","","1,032,159","","","","407,671","","","","1,439,830"],["Total obligations under debt, lease and manufacturing arrangements","","$","1,180,401","","","$","1,936,807","","","$","3,117,208"]]
[[/GREPCENT_TABLE]]

(1) Interest payments are included within the future debt obligations.

(2) Lease obligations only include real estate leases that had commenced prior to December 31, 2023.

(3) The leases embedded in a certain supply agreement are included in manufacturing obligations.

For products and product candidates that are currently approved or are in various research and development stages, we may be obligated to make up to $3.2 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, 2023, 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.

Cash Flows

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2023","","","2022","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Cash (used in) provided by"],["Operating activities","","$","(500,993",")","","$","(325,346",")","","$","(175,647",")","","","54","%"],["Investing activities","","","(165,803",")","","","(1,046,883",")","","","881,080","","","","(84",")%"],["Financing activities","","","125,004","","","","232,507","","","","(107,503",")","","","(46",")%"],["Decrease in cash and cash equivalents","","$","(541,792",")","","$","(1,139,722",")","","$","597,930","","","","(52",")%"]]
[[/GREPCENT_TABLE]]

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 $501.0 million in 2023. Operating activities used $325.3 million of cash in 2022. Cash used in operating activities in 2023 was primarily driven by the net loss of $536.0 million, adjusted for the following non-cash charges:

•
$387.3 million in loss on debt extinguishment of the 2024 Notes;

•
$182.5 million in stock-based compensation expense;

•
$44.4 million in depreciation and amortization expense;

•
$30.3 million in impairments associated with our strategic investments; and

•
$19.7 million in other non-cash items.

These non-cash charges were partially offset by the gain of $102.0 million recorded from the sale of the ELEVIDYS PRV and $46.2 million in accretion of investment discount, net.

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

•
$185.7 million increase in accounts receivable, net due to the launch of ELEVIDYS and an increase in the demand of our PMO Products;

•
$147.7 million increase in inventory primarily due to the addition of capitalized inventory corresponding to the regulatory approval of ELEVIDYS in June 2023;

•
$86.8 million decrease in deferred revenue primarily related to the collaboration with Roche;

•
$50.1 million decrease in accounts payable, accrued expenses, lease liabilities and other liabilities, primarily due to the $54.0 million shortfall payment to Thermo and payments to Catalent for raw materials in 2023 and the overall timing and invoicing of payments; and

•
$10.7 million increase in other assets primarily due to the timing and consumption of manufacturing prepaids.

Cash used in operating activities in 2022 was primarily driven by the net loss of $703.5 million, adjusted for following:

•
$233.0 million in stock-based compensation expense;

•
$125.4 million in loss on debt extinguishment of the 2024 Notes and 2019 Term Loan;

•
$41.9 million in depreciation and amortization expense; and

•
$27.9 million in other non-cash items.

These amounts were partially offset by $10.7 million in accretion of investment discount, net.

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;

•
$61.6 million increase in accounts receivable, net due to an increase in demand for our PMO products; and

•
$50.8 million increase in inventory due to our continuing build-up of inventory purchased in 2022 as the demand for our PMO products increased.

These amounts were partially offset by the following:

•
$147.6 million increase in accounts payable, accrued expenses, lease liabilities and other liabilities due to the timing and invoicing of payments; and

•
$14.6 million decrease in other assets primarily due to the release of manufacturing deposits and amortization of prepaids primarily related to SRP-9001 batch production.

Investing Activities

Cash used in investing activities for 2023 and 2022 were $165.8 million and $1,046.9 million, respectively. Cash used in investing activities in 2023 primarily consisted of purchases of available-for-sale securities, property and equipment and intangible assets of $2,044.9 million, $76.1 million and $11.2 million, respectively, partially offset by $102.0 million of net proceeds related to the sale of the ELEVIDYS PRV and $1,868.5 million from the maturity and sales of available-for-sale securities.

Cash used in investing activities in 2022 primarily consisted of purchases of available-for-sale securities and property and equipment of $1,936.9 million and $30.8 million, respectively, partially offset by proceeds of $923.2 million from the maturity of available-for-sale securities.

Financing Activities

Cash provided by financing activities was $125.0 million in 2023 compared to $232.5 million in 2022. Cash provided by financing activities in 2023 consisted of $80.6 million in partial settlement of capped call options for the 2024 Notes and $51.2 million in proceeds from exercise of options and purchase of stock under our employee stock purchase program, partially offset by $6.9 million in third-party debt conversion costs related to the 2024 Notes Exchange.

Cash provided by financing activities in 2022 primarily consisted of the following:

•
$1,127.4 million in proceeds from the 2027 Notes offering, net of commissions;

•
$30.0 million in proceeds from exercise of options and purchase of stock under our Employee Stock Purchase Program; and

•
$26.3 million in partial settlement of capped call share options for the 2024 Notes.

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These amounts were partially offset by the following items:

•
$550.0 million for the repayment of the 2019 Term Loan;

•
$247.9 million in the repurchase of a portion of the 2024 Notes;

•
$127.3 million purchase of capped call share options for the 2027 Notes; and

•
$25.4 million for payment on the debt extinguishment of the 2019 Term Loan.

Other Funding Commitments

We have several on-going clinical trials in various development stages. Our most significant clinical trial expenditures are to CROs. The CRO contracts are generally cancellable at our option. As of December 31, 2023, we had approximately $580.0 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.