SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 2017
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to
Commission file number: 001-35969
PTC Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
| | |
Delaware | 04-3416587 | |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification |
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100 Corporate Court | | |
South Plainfield, NJ | | 07080 |
(Address of principal executive offices) | | (Zip Code) |
(908) 222-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.001 par value per share | | PTCT | | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | |
Large accelerated filer | þ | Accelerated filer | ☐ |
| | | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | | |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
þ
As of October 31, 2017,August 2, 2022, there were 41,489,58071,540,965 shares of Common Stock, $0.001 par value per share, outstanding.
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i
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:
● | our expectations with respect to the COVID-19 pandemic and related response measures and their effects on our business, operations, clinical trials, potential regulatory submissions and approvals, our collaborators, contract research organizations, suppliers and manufacturers; |
● | our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms and processes on a timely basis, or at all, with third-party payors for our products or product candidates that we commercialize or may commercialize in the future; |
● | expectations with respect to our gene therapy platform, including our ability to commercialize UpstazaTM (eladocagene exuparvovec), formerly known as PTC-AADC, for the treatment of Aromatic L-Amino Acid Decarboxylase, or AADC deficiency, in the European Economic Area, or EEA, any potential regulatory submissions and potential approvals, our manufacturing capabilities and the potential financial impact and benefits of our leased biologics manufacturing facility and the potential achievement of development, regulatory and sales milestones and contingent payments that we may be obligated to make; |
● | our ability to maintain our marketing authorization of TranslarnaTM (ataluren) for the treatment of nonsense mutation Duchenne muscular dystrophy, or nmDMD, in the EEA, which is subject to the specific obligation to conduct and submit the results of Study 041 to the European Medicines Agency, or EMA, and annual review and renewal by the European Commission following reassessment of the benefit-risk balance of the authorization by the EMA; |
● | our ability to utilize results from Study 041 to support a marketing approval for Translarna for the treatment of nmDMD in the United States; |
● | the anticipated period of market exclusivity for Emflaza® (deflazacort) for the treatment of Duchenne muscular dystrophy in the United States under the Orphan Drug Act of 1983; |
● | our expectations with respect to the commercial status of Evrysdi® (risdiplam) and our program directed against spinal muscular atrophy in collaboration with F. Hoffmann La Roche Ltd and Hoffmann La Roche Inc. and the Spinal Muscular Atrophy Foundation and our estimates regarding future revenues from sales-based royalty payments or the achievement of milestones in that program; |
● | our expectations and the potential financial impact and benefits related to our Collaboration and License Agreement with a subsidiary of Ionis Pharmaceuticals, Inc. including with respect to the timing of regulatory approval of Tegsedi® (inotersen) and WaylivraTM (volanesorsen) in countries in which we are licensed to commercialize them, the commercialization of Tegsedi and Waylivra, and our expectations with respect to royalty payments by us based on our potential achievement of certain net sales thresholds; |
● | the timing and scope of our commercialization of our products and product candidates; |
● | our ability to obtain additional and maintain existing reimbursed named patient and cohort early access programs for our products on adequate terms, or at all; |
1
● | our estimates regarding the potential market opportunity for our products or product candidates, including the size of eligible patient populations and our ability to identify such patients; |
● | our estimates regarding expenses, future revenues, third-party discounts and rebates, capital requirements and needs for additional financing, including our ability to maintain the level of our expenses consistent with our internal budgets and forecasts and to secure additional funds on favorable terms or at all; |
● | the timing and conduct of our ongoing, planned and potential future clinical trials and studies in our splicing, gene therapy, Bio-e, metabolic and oncology programs and studies of emvododstat for COVID-19 as well as studies in our products for maintaining authorizations, label extensions and additional indications, including the timing of initiation, enrollment and completion of the trials and the period during which the results of the trials will become available; |
● | our ability to realize the anticipated benefits of our acquisitions or other strategic transactions, including the possibility that the expected impact of benefits from the acquisitions or strategic transactions will not be realized or will not be realized within the expected time period, significant transaction costs, the integration of operations and employees into our business, our ability to obtain marketing approval of our product candidates we acquired from the acquisitions or other strategic transactions and unknown liabilities; |
● | the rate and degree of market acceptance and clinical utility of any of our products or product candidates; |
● | the ability and willingness of patients and healthcare professionals to access our products and product candidates through alternative means if pricing and reimbursement negotiations in the applicable territory do not have a positive outcome; |
● | the timing of, and our ability to obtain additional marketing authorizations for our products and product candidates; |
● | the ability of our products and our product candidates to meet existing or future regulatory standards; |
● | our ability to maintain the current labeling under the marketing authorization in the EEA or expand the approved product label of Translarna for the treatment of nmDMD; |
● | our ability to complete Study 041, a multicenter, randomized, double-blind, 18-month, placebo-controlled clinical trial of Translarna for the treatment of nmDMD followed by an 18-month open-label extension, according to the protocol agreed with the EMA, and by the EMA’s deadline; |
● | the potential receipt of revenues from future sales of our products or product candidates; |
● | the potential impact that completion of Study 041 may have on our revenue growth; |
● | our sales, marketing and distribution capabilities and strategy, including the ability of our third-party manufacturers to manufacture and deliver our products and product candidates in clinically and commercially sufficient quantities and the ability of distributors to process orders in a timely manner and satisfy their other obligations to us; |
● | our ability to establish and maintain arrangements for the manufacture of our products and product candidates that are sufficient to meet clinical trial and commercial launch requirements; |
● | our ability to complete any post-marketing requirements imposed by regulatory agencies with respect to our products; |
● | our ability to operate and grow our manufacturing capabilities for our gene therapy platform; |
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● | our expectations with respect to the potential financial impact and benefits of our leased biologics manufacturing facility and our ability to satisfy our obligations under the terms of the lease agreement for such facility; |
● | our ability to satisfy our obligations under the indenture governing our 3.00% convertible senior notes due August 15, 2022 and under the indenture governing our 1.50% convertible senior notes due September 15, 2026; |
● | our regulatory submissions, including with respect to timing and outcome of regulatory review; |
● | our plans to advance our earlier stage programs and pursue research and development of other product candidates, including our splicing, gene therapy, Bio-e, metabolic and oncology programs; |
● | whether we may pursue business development opportunities, including potential collaborations, alliances, and acquisition or licensing of assets and our ability to successfully develop or commercialize any assets to which we may gain rights pursuant to such business development opportunities; |
● | the potential advantages of our products and any product candidate; |
● | our intellectual property position; |
● | the impact of government laws and regulations; |
● | the impact of litigation that has been or may be brought against us or of litigation that we are pursuing against others; and |
● | our competitive position. |
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the
You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 20162021 completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.
In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires, references to “PTC,” “PTC Therapeutics,” “the Company,” “we,” “us,” “our,” and similar references refer to PTC Therapeutics, Inc. and, where appropriate, its subsidiaries. The trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
All website addresses given in this Quarterly Report on Form 10-Q are for information only and are not intended to be an active link or to incorporate any website information into this document.
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Item 1. Financial Statements.
PTC Therapeutics, Inc.
Consolidated Balance Sheets (unaudited)
In thousands (except per share data)
September 30, 2017 | December 31, 2016 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 141,838 | $ | 58,321 | ||||
Marketable securities | 27,472 | 173,345 | ||||||
Trade receivables, net | 38,744 | 24,929 | ||||||
Inventory | 7,792 | — | ||||||
Prepaid expenses and other current assets | 5,413 | 4,691 | ||||||
Total current assets | 221,259 | 261,286 | ||||||
Fixed assets, net | 6,882 | 7,429 | ||||||
Intangible assets, net | 138,422 | — | ||||||
Deposits and other assets | 1,157 | 630 | ||||||
Total assets | $ | 367,720 | $ | 269,345 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 64,054 | $ | 48,759 | ||||
Deferred revenue | 6,122 | — | ||||||
Other current liabilities | 1,723 | 865 | ||||||
Total current liabilities | 71,899 | 49,624 | ||||||
Deferred revenue - long-term | 6,579 | 1,587 | ||||||
Long-term debt | 143,091 | 98,216 | ||||||
Other long-term liabilities | 269 | 335 | ||||||
Total liabilities | 221,838 | 149,762 | ||||||
Stockholders’ equity: | ||||||||
Common stock, $0.001 par value. Authorized 125,000,000 shares; issued and outstanding 41,463,121 shares at September 30, 2017. Authorized 125,000,000 shares; issued and outstanding 34,169,410 shares at December 31, 2016 | 41 | 34 | ||||||
Additional paid-in capital | 958,206 | 856,142 | ||||||
Accumulated other comprehensive income (loss) | 3,013 | (1,485 | ) | |||||
Accumulated deficit | (815,378 | ) | (735,108 | ) | ||||
Total stockholders’ equity | 145,882 | 119,583 | ||||||
Total liabilities and stockholders’ equity | $ | 367,720 | $ | 269,345 |
| | | | | | | |
| | June 30, | | December 31, | | ||
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| 2022 |
| 2021 | | ||
Assets | | | | | | | |
Current assets: |
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Cash and cash equivalents | | $ | 158,158 | | $ | 189,718 | |
Marketable securities | |
| 347,387 | |
| 583,658 | |
Trade and royalty receivables, net | |
| 135,943 | |
| 110,455 | |
Inventory, net | |
| 15,004 | |
| 15,856 | |
Prepaid expenses and other current assets | |
| 38,184 | |
| 54,681 | |
Total current assets | |
| 694,676 | |
| 954,368 | |
Fixed assets, net | |
| 64,913 | |
| 52,585 | |
Intangible assets, net | |
| 760,154 | |
| 724,841 | |
Goodwill | |
| 82,341 | |
| 82,341 | |
Operating lease ROU assets | | | 141,635 | | | 77,421 | |
Deposits and other assets | |
| 60,338 | |
| 46,500 | |
Total assets | | $ | 1,804,057 | | $ | 1,938,056 | |
Liabilities and stockholders’ (deficit) equity | |
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Current liabilities: | |
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Accounts payable and accrued expenses | | $ | 330,918 | | $ | 288,784 | |
Current portion of long-term debt | |
| 149,908 | |
| 149,540 | |
Operating lease liabilities- current | | | 8,898 | | | 7,273 | |
Finance lease liabilities- current | | | 2,174 | | | 3,000 | |
Liability for sale of future royalties- current | | | 74,022 | | | 59,291 | |
Other current liabilities | |
| 1,451 | |
| 1,460 | |
Total current liabilities | |
| 567,371 | |
| 509,348 | |
Long-term debt | |
| 282,460 | |
| 281,894 | |
Contingent consideration payable | |
| 163,000 | |
| 239,900 | |
Deferred tax liability | |
| 137,110 | |
| 137,110 | |
Operating lease liabilities- noncurrent | | | 137,353 | | | 73,619 | |
Finance lease liabilities- noncurrent | | | 18,675 | | | 20,053 | |
Liability for sale of future royalties- noncurrent | | | 680,306 | | | 674,694 | |
Total liabilities | |
| 1,986,275 | |
| 1,936,618 | |
Stockholders’ (deficit) equity: | |
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Common stock, $0.001 par value. Authorized 250,000,000 shares; issued and outstanding 71,505,889 shares at June 30, 2022. Authorized 250,000,000 shares; issued and outstanding 70,828,226 shares at December 31, 2021. | |
| 71 | |
| 71 | |
Additional paid-in capital | |
| 2,184,230 | |
| 2,123,606 | |
Accumulated other comprehensive loss | |
| 10,251 | |
| (24,282) | |
Accumulated deficit | |
| (2,376,770) | |
| (2,097,957) | |
Total stockholders’ (deficit) equity | |
| (182,218) | |
| 1,438 | |
Total liabilities and stockholders’ equity | | $ | 1,804,057 | | $ | 1,938,056 | |
See accompanying unaudited notes.
4
Consolidated Statements of Operations (unaudited)
In thousands (except shares and per share data)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues: | ||||||||||||||||
Net product revenue | $ | 41,780 | $ | 22,013 | $ | 116,113 | $ | 56,328 | ||||||||
Collaboration and grant revenue | 73 | 973 | 249 | 1,186 | ||||||||||||
Total revenues | 41,853 | 22,986 | 116,362 | 57,514 | ||||||||||||
Operating expenses: | ||||||||||||||||
Cost of product sales, excluding amortization of acquired intangible asset | 1,582 | — | 2,142 | — | ||||||||||||
Amortization of acquired intangible asset | 9,716 | — | 9,952 | — | ||||||||||||
Research and development | 30,024 | 31,396 | 88,222 | 91,622 | ||||||||||||
Selling, general and administrative | 31,423 | 23,654 | 85,788 | 72,958 | ||||||||||||
Total operating expenses | 72,745 | 55,050 | 186,104 | 164,580 | ||||||||||||
Loss from operations | (30,892 | ) | (32,064 | ) | (69,742 | ) | (107,066 | ) | ||||||||
Interest expense, net | (3,421 | ) | (2,133 | ) | (8,648 | ) | (6,149 | ) | ||||||||
Other income (expense), net | 766 | (786 | ) | (1,373 | ) | (1,893 | ) | |||||||||
Loss before income tax expense | (33,547 | ) | (34,983 | ) | (79,763 | ) | (115,108 | ) | ||||||||
Income tax expense | (191 | ) | (184 | ) | (507 | ) | (206 | ) | ||||||||
Net loss attributable to common stockholders | $ | (33,738 | ) | $ | (35,167 | ) | $ | (80,270 | ) | $ | (115,314 | ) | ||||
Weighted-average shares outstanding: | ||||||||||||||||
Basic and diluted (in shares) | 41,296,740 | 34,088,741 | 38,433,749 | 34,002,952 | ||||||||||||
Net loss per share—basic and diluted (in dollars per share) | $ | (0.82 | ) | $ | (1.03 | ) | $ | (2.09 | ) | $ | (3.39 | ) |
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Revenues: |
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Net product revenue | | $ | 143,701 | | $ | 103,113 | | $ | 273,534 | | $ | 194,393 |
Collaboration revenue | |
| — | | | — | |
| 7 | |
| 20,007 |
Royalty revenue | | | 21,825 | | | 13,563 | | | 40,721 | | | 20,220 |
Total revenues | |
| 165,526 | |
| 116,676 | |
| 314,262 | |
| 234,620 |
Operating expenses: | | | | | | | | | | | | |
Cost of product sales, excluding amortization of acquired intangible assets | |
| 9,639 | | | 7,358 | |
| 19,774 | |
| 16,462 |
Amortization of acquired intangible assets | |
| 26,294 | | | 12,751 | |
| 49,767 | |
| 24,028 |
Research and development | |
| 157,263 | | | 125,482 | |
| 297,341 | |
| 259,995 |
Selling, general and administrative | |
| 79,892 | | | 68,878 | |
| 153,162 | |
| 129,973 |
Change in the fair value of deferred and contingent consideration | |
| (15,200) | | | 700 | |
| (26,900) | |
| 800 |
Total operating expenses | |
| 257,888 | |
| 215,169 | |
| 493,144 | |
| 431,258 |
Loss from operations | |
| (92,362) | |
| (98,493) | |
| (178,882) | |
| (196,638) |
Interest expense, net | |
| (21,976) | | | (22,559) | |
| (45,490) | |
| (41,718) |
Other (expense) income, net | |
| (34,357) | | | 3,170 | |
| (46,214) | |
| (7,716) |
Loss before income tax expense | |
| (148,695) | |
| (117,882) | |
| (270,586) | |
| (246,072) |
Income tax expense | |
| (3,392) | | | (488) | |
| (8,227) | |
| (940) |
Net loss attributable to common stockholders | | $ | (152,087) | | $ | (118,370) | | $ | (278,813) | | $ | (247,012) |
Weighted-average shares outstanding: | | | | | | | | | | | | |
Basic and diluted (in shares) | |
| 71,372,940 | | | 70,414,632 | |
| 71,294,458 | |
| 70,302,241 |
Net loss per share—basic and diluted (in dollars per share) | | $ | (2.13) | | $ | (1.68) | | $ | (3.91) | | $ | (3.51) |
See accompanying unaudited notes.
5
Consolidated Statements of Comprehensive Loss (unaudited)
In thousands
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net loss | $ | (33,738 | ) | $ | (35,167 | ) | $ | (80,270 | ) | $ | (115,314 | ) | ||||
Other comprehensive loss: | ||||||||||||||||
Unrealized gain (loss) on marketable securities, net of tax | 31 | (189 | ) | — | 429 | |||||||||||
Foreign currency translation gain | 983 | 60 | 4,498 | 1,527 | ||||||||||||
Comprehensive loss | $ | (32,724 | ) | $ | (35,296 | ) | $ | (75,772 | ) | $ | (113,358 | ) |
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
Net loss | | $ | (152,087) | | $ | (118,370) | | $ | (278,813) | | $ | (247,012) | |
Other comprehensive loss: | |
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| | |
Unrealized loss on marketable securities, net of tax of $0 | |
| (156) | | | (75) | |
| (3,069) | |
| (1,369) | |
Foreign currency translation gain (loss), net of tax of $0 | |
| 29,015 | | | (7,269) | |
| 37,602 | |
| 16,239 | |
Comprehensive loss | | $ | (123,228) | | $ | (125,714) | | $ | (244,280) | | $ | (232,142) | |
See accompanying unaudited notes.
6
PTC Therapeutics, Inc.
Consolidated Statements of Stockholders’ (Deficit) Equity (unaudited)
In thousands (except shares)
| | | | | | | | | | | | | | | | | |
| | | | | |
| | |
| Accumulated |
| | |
| | | |
| | | | | |
| Additional |
| other | | | |
| Total | |||
Three months ended June 30, 2022 | | Common stock | | paid-in |
| comprehensive | | Accumulated | | stockholders’ | |||||||
|
| Shares |
| Amount |
| capital |
| (loss) income |
| deficit |
| deficit | |||||
Balance, March 31, 2022 | | 71,337,041 |
| $ | 71 |
| $ | 2,152,639 |
| $ | (18,608) |
| $ | (2,224,683) |
| $ | (90,581) |
Exercise of options |
| 27,832 | | | — | | | 754 | | | — | | | — | | | 754 |
Restricted stock vesting and issuance, net |
| 49,753 | | | — | | | — | | | — | | | — | | | — |
Issuance of common stock in connection with an employee stock purchase plan |
| 91,263 | | | — | | | 3,107 | | | — | | | — | | | 3,107 |
Share-based compensation expense |
| — | | | — | | | 27,730 | | | — | | | — | | | 27,730 |
Net loss |
| — | | | — | | | — | | | — | | | (152,087) | | | (152,087) |
Comprehensive income |
| — | | | — | | | — | | | 28,859 | | | — | | | 28,859 |
Balance, June 30, 2022 |
| 71,505,889 | | $ | 71 | | $ | 2,184,230 | | $ | 10,251 | | $ | (2,376,770) | | $ | (182,218) |
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| | | | | |
| | |
| Accumulated |
| | |
| | | |
| | | | | |
| Additional |
| other | | | |
| Total | |||
Three months ended June 30, 2021 | | Common stock | | paid-in |
| comprehensive | | Accumulated | | stockholders’ | |||||||
|
| Shares |
| Amount |
| capital |
| loss |
| deficit |
| equity | |||||
Balance, March 31, 2021 |
| 70,405,905 |
| $ | 70 |
| $ | 2,033,972 |
| $ | (38,743) |
| $ | (1,702,723) |
| $ | 292,576 |
Exercise of options |
| 60,159 | | | — | | | 1,389 | | | — | | | — | | | 1,389 |
Restricted stock vesting and issuance, net |
| 20,145 | | | — | | | — | | | — | | | — | | | — |
Issuance of common stock in connection with an employee stock purchase plan | | 73,121 | | | — | | | 2,627 | | | — | | | — | | | 2,627 |
Share-based compensation expense |
| — | | | — | | | 25,699 | | | — | | | — | | | 25,699 |
Net loss |
| — | |
| — | |
| — | |
| — | |
| (118,370) | |
| (118,370) |
Comprehensive loss |
| — | |
| — | |
| — | |
| (7,344) | |
| — | |
| (7,344) |
Balance, June 30, 2021 |
| 70,559,330 | | $ | 70 | | $ | 2,063,687 | | $ | (46,087) | | $ | (1,821,093) | | $ | 196,577 |
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| | | | | |
| | |
| Accumulated |
| | |
| | | |
| | | | | |
| Additional |
| other | | | |
| Total | |||
Six months ended June 30, 2022 | | Common stock | | paid-in |
| comprehensive | | Accumulated | | stockholders’ | |||||||
|
| Shares |
| Amount |
| capital |
| (loss) income |
| deficit |
| equity (deficit) | |||||
Balance, December 31, 2021 |
| 70,828,226 | | $ | 71 | | $ | 2,123,606 | | $ | (24,282) | | $ | (2,097,957) | | $ | 1,438 |
Exercise of options |
| 125,020 | |
| — | |
| 3,198 | |
| — | |
| — | |
| 3,198 |
Restricted stock vesting and issuance, net |
| 461,380 | |
| — | |
| — | |
| — | |
| — | |
| — |
Issuance of common stock in connection with an employee stock purchase plan |
| 91,263 | |
| — | |
| 3,107 | |
| — | |
| — | |
| 3,107 |
Share-based compensation expense |
| — | |
| — | |
| 54,319 | |
| — | |
| — | |
| 54,319 |
Net loss |
| — | |
| — | |
| — | |
| — | |
| (278,813) | |
| (278,813) |
Comprehensive income |
| — | |
| — | |
| — | |
| 34,533 | |
| — | |
| 34,533 |
Balance, June 30, 2022 |
| 71,505,889 | | $ | 71 | | $ | 2,184,230 | | $ | 10,251 | | $ | (2,376,770) | | $ | (182,218) |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | |
| Accumulated |
| | |
| | | |
| | | | | |
| Additional |
| other | | | |
| Total | |||
Six months ended June 30, 2021 | | Common stock | | paid-in |
| comprehensive | | Accumulated | | stockholders’ | |||||||
|
| Shares |
| Amount |
| capital |
| (loss) income |
| deficit |
| equity | |||||
Balance, December 31, 2020 |
| 69,718,096 | | $ | 70 | | $ | 2,171,746 | | $ | (60,957) | | $ | (1,628,877) | | $ | 481,982 |
Exercise of options | | 475,942 | |
| — | |
| 13,144 | |
| — | |
| — | | | 13,144 |
Restricted stock vesting and issuance, net | | 292,171 | |
| — | |
| — | |
| — | |
| — | | | — |
Issuance of common stock in connection with an employee stock purchase plan |
| 73,121 | |
| — | |
| 2,627 | |
| — | |
| — | |
| 2,627 |
Share-based compensation expense |
| — | |
| — | |
| 51,406 | |
| — | |
| — | |
| 51,406 |
Adjustment for the adoption of ASU 2020-06 | | — | | | — | | | (175,236) | | | — | | | 54,796 | | | (120,440) |
Net loss |
| — | |
| — | |
| — | |
| — | |
| (247,012) | |
| (247,012) |
Comprehensive income |
| — | |
| — | |
| — | |
| 14,870 | |
| — | |
| 14,870 |
Balance, June 30, 2021 |
| 70,559,330 | | $ | 70 | | $ | 2,063,687 | | $ | (46,087) | | $ | (1,821,093) | | $ | 196,577 |
See accompanying unaudited notes.
7
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (80,270 | ) | $ | (115,314 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 11,743 | 2,477 | ||||||
Change in valuation of warrant liability | 3 | 44 | ||||||
Non-cash interest expense | 4,999 | 4,487 | ||||||
Loss on disposal of asset | 5 | — | ||||||
Amortization of premiums on investments | 493 | 1,610 | ||||||
Amortization of debt issuance costs | 308 | 224 | ||||||
Share-based compensation expense | 24,082 | 26,610 | ||||||
Benefit for deferred income taxes | — | (222 | ) | |||||
Unrealized foreign currency transaction (gains) losses, net | (364 | ) | 1,401 | |||||
Changes in operating assets and liabilities: | ||||||||
Inventory, net | (3,625 | ) | — | |||||
Prepaid expenses and other current assets | (570 | ) | 1,095 | |||||
Trade receivables, net | (10,994 | ) | (16,035 | ) | ||||
Deposits and other assets | (485 | ) | (154 | ) | ||||
Accounts payable and accrued expenses | 11,807 | 2,080 | ||||||
Other liabilities | 807 | 682 | ||||||
Deferred revenue | 10,710 | 768 | ||||||
Net cash used in operating activities | (31,351 | ) | (90,247 | ) | ||||
Cash flows from investing activities | ||||||||
Purchases of fixed assets | (1,058 | ) | (540 | ) | ||||
Purchases of marketable securities | (19,467 | ) | (73,692 | ) | ||||
Sale and redemption of marketable securities | 164,847 | 155,582 | ||||||
Acquisition, including transaction costs | (77,163 | ) | — | |||||
Net cash provided by investing activities | 67,159 | 81,350 | ||||||
Cash flows from financing activities | ||||||||
Proceeds from exercise of options | 1,437 | 926 | ||||||
Proceeds from shares issued under employee stock purchase plan | 1,362 | — | ||||||
Debt issuance costs related to secured term loan | (432 | ) | — | |||||
Proceeds from issuance of secured term loan | 40,000 | — | ||||||
Net cash provided by financing activities | 42,367 | 926 | ||||||
Effect of exchange rate changes on cash | 5,342 | 235 | ||||||
Net increase (decrease) in cash and cash equivalents | 83,517 | (7,736 | ) | |||||
Cash and cash equivalents, beginning of period | 58,321 | 58,022 | ||||||
Cash and cash equivalents, end of period | $ | 141,838 | $ | 50,286 | ||||
Supplemental disclosure of cash information | ||||||||
Cash paid for interest | $ | 5,496 | $ | 4,513 | ||||
Cash paid for income taxes | $ | 616 | $ | 633 | ||||
Supplemental disclosures of non-cash information related to investing and financing activities | ||||||||
Change in unrealized gain on marketable securities, net of tax | $ | — | $ | 429 |
| | | | | | | |
| | Six Months Ended June 30, | | ||||
|
| 2022 |
| 2021 | | ||
Cash flows from operating activities | | | | | | | |
Net loss | | $ | (278,813) | | $ | (247,012) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | | | |
Depreciation and amortization | |
| 55,494 | | | 28,573 | |
Non-cash operating lease expense | |
| 4,295 | | | 3,666 | |
Non-cash royalty revenue related to sale of future royalties | | | (17,482) | | | (8,681) | |
Non-cash interest expense on liability related to sale of future royalties | | | 37,825 | | | 38,083 | |
Change in valuation of deferred and contingent consideration | |
| (26,900) | | | 800 | |
Unrealized gain on ClearPoint Equity Investments | |
| (2,369) | | | (4,110) | |
Unrealized gain on ClearPoint convertible debt security | | | (1,995) | | | (4,326) | |
Unrealized loss (gain) on marketable securities- equity investments | | | 11,356 | | | (694) | |
Loss on disposal of asset | | | 82 | | | — | |
Amortization of premiums on investments, net | |
| 1,540 | | | 2,644 | |
Amortization of debt issuance costs | |
| 935 | | | 911 | |
Share-based compensation expense | |
| 54,319 | | | 51,406 | |
Unrealized foreign currency transaction losses, net | |
| 36,359 | | | 15,983 | |
Changes in operating assets and liabilities: | |
| | | | | |
Inventory, net | |
| 27 | | | 1,906 | |
Prepaid expenses and other current assets | |
| 16,431 | | | 15,649 | |
Trade and royalty receivables, net | |
| (29,549) | | | (9,420) | |
Deposits and other assets | |
| (974) | | | (289) | |
Accounts payable and accrued expenses | |
| (9,060) | | | (9,223) | |
Other liabilities | |
| (4,167) | | | (3,083) | |
Deferred revenue | |
| — | | | (4,085) | |
Net cash used in operating activities | | $ | (152,646) | | $ | (131,302) | |
Cash flows from investing activities | |
| | |
| | |
Purchases of fixed assets | | $ | (18,012) | | $ | (13,643) | |
Purchases of marketable securities- available for sale | | | (40,429) | | | (192,931) | |
Purchases of marketable securities- equity investments | | | — | | | (200,000) | |
Sale and redemption of marketable securities- available for sale | | | 257,534 | | | 514,716 | |
Sale and redemption of marketable securities- equity investments | | | 3,630 | | | — | |
Acquisition of product rights and licenses | | | (81,426) | | | (21,838) | |
Purchase of equity investment in ClearPoint | |
| — | | | (100) | |
Net cash provided by investing activities | | $ | 121,297 | | $ | 86,204 | |
Cash flows from financing activities | |
|
| |
| | |
Proceeds from exercise of options | | | 3,198 | | | 13,144 | |
Proceeds from employee stock purchase plan | | | 3,107 | | | 2,627 | |
Payment of finance lease principal | | | (1,276) | | | (2,224) | |
Net cash provided by financing activities | | $ | 5,029 | | $ | 13,547 | |
Effect of exchange rate changes on cash | |
| 3,347 | | | 86 | |
Net decrease in cash and cash equivalents | |
| (22,973) | |
| (31,465) | |
Cash and cash equivalents, and restricted cash beginning of period | |
| 197,218 | | | 216,312 | |
Cash and cash equivalents, and restricted cash end of period | | $ | 174,245 | | $ | 184,847 | |
Supplemental disclosure of cash information | |
|
| |
| | |
Cash paid for interest | | $ | 8,273 | | $ | 5,182 | |
Cash paid for income taxes | | | 2,949 | | | 4,127 | |
Supplemental disclosure of non-cash investing and financing activity | |
|
| |
| | |
Unrealized loss on marketable securities, net of tax | | $ | (3,069) | | $ | (1,369) | |
Right-of-use assets obtained in exchange for operating lease obligations | | | 68,642 | | | 13 | |
Acquisition of product rights and licenses | | | 26,687 | | | 18,369 | |
Milestone payable | | | 50,000 | | | — | |
See accompanying unaudited notes.
8
Notes to Consolidated Financial Statements (unaudited)
June 30, 2017
In thousands (except share and per share dataamounts unless otherwise noted)
1. The Company
PTC Therapeutics, Inc. (the “Company” or “PTC”) was incorporated asis a Delaware corporation on March 31, 1998. PTC is ascience-driven global biopharmaceutical company focused on the discovery, development and commercialization of novelclinically differentiated medicines usingthat provide benefits to patients with rare disorders. PTC’s ability to innovate to identify new therapies and to globally commercialize products is the foundation that drives investment in a robust and diversified pipeline of transformative medicines. PTC’s mission is to provide access to best-in-class treatments for patients who have few or no treatment options. PTC’s strategy is to leverage its strong scientific and clinical expertise in RNA biology.and global commercial infrastructure to bring therapies to patients. PTC has discoveredbelieves that this allows it to maximize value for all of its compounds currently understakeholders.
PTC has a portfolio pipeline that includes several commercial products and product candidates in various stages of development, using its proprietary technologies. PTC plans to continue to develop these compounds bothincluding clinical, pre-clinical and research and discovery stages, focused on its own and through selective collaboration arrangements with leading pharmaceutical and biotechnology companies. PTC’s internally discovered pipeline addressesthe development of new treatments for multiple therapeutic areas includingfor rare disorders and oncology.
The Company has two2 products, Translarna
The Company has a pipeline of gene therapy product candidates for rare monogenic diseases that affect the central nervous system (“CNS”) including Upstaza (eladocagene exuparvovec), formerly known as PTC-AADC, for the treatment of Aromatic L-Amino Acid Decarboxylase (“AADC”) deficiency (“AADC deficiency”), a rare CNS disorder arising from reductions in the enzyme AADC that results from mutations in the dopa decarboxylase gene. In July 2022, the European Commission approved Upstaza for the treatment of AADC deficiency for patients 18 months and older within the EEA. The Company is also preparing a biologics license application (“BLA”) for Upstaza for the treatment of AADC deficiency in the United States. In response to discussions with the United States Food and Drug Administration (“FDA”), the Company intends to provide additional information concerning the use of the commercial cannula for Upstaza in young patients. The Company expects to submit a BLA to the FDA in the fourth quarter of 2022.
The Company holds the rights for the commercialization of Tegsedi® (inotersen) and Waylivra® (volanesorsen) for the treatment of rare diseases in countries in Latin America and the Caribbean pursuant to the Collaboration and License Agreement (the “Tegsedi-Waylivra Agreement”), dated August 1, 2018, by and between the Company and Akcea Therapeutics, Inc. (“Akcea”), a subsidiary of Ionis Pharmaceuticals, Inc. Tegsedi has received marketing authorization in the United States, the European Union (the “EU”) and Brazil for the treatment of stage 1 or stage 2 polyneuropathy in adult patients with hereditary transthyretin amyloidosis (“hATTR amyloidosis”). The Company began to make commercial sales of Tegsedi for the treatment of hATTR amyloidosis in Brazil in the second quarter of 2022 and it continues to make Tegsedi available in certain other countries within Latin America and the Caribbean through early access programs (“EAP Programs”). In August 2021, ANVISA, the Brazilian health regulatory authority, approved Waylivra as the first treatment for familial chylomicronemia syndrome (“FCS”) in Brazil and the Company began to make commercial sales of Waylivra in Brazil in the third quarter of 2022 while continuing to make Waylivra available in certain other countries within Latin America and the Caribbean through EAP Programs. Waylivra has also received marketing authorization in the EU for the treatment of FCS. Additionally, the Company submitted an application to ANVISA in December 2021 for the approval of
9
Waylivra for the treatment of familial partial lipodystrophy, and it expects a regulatory decision on approval in the second half of 2022.
The Company also has a spinal muscular atrophy (“SMA”) collaboration with F. Hoffman-La Roche Ltd and Hoffman-La Roche Inc. (referred to collectively as “Roche”) and the Spinal Muscular Atrophy Foundation (“SMA Foundation”). The SMA program has one approved product, Evrysdi® (risdiplam), which was approved by the FDA in August 2020 for the treatment of SMA in adults and children two months and older and by the European Commission in March 2021 for the treatment of 5q SMA in patients two months and older with a clinical diagnosis of SMA Type 1, Type 2 or Type 3 or with one to four SMN2 copies. Evrysdi also received marketing authorization for the treatment of SMA in Brazil in October 2020 and Japan in June 2021. In May 2022, the FDA approved a label expansion for Evrysdi to include infants under two months old with SMA. In addition to the Company’s SMA program, the Company’s splicing platform also includes PTC518, which is being developed for the treatment of Huntington’s disease (“HD”). The Company announced the results from its Phase 1 study of PTC518 in healthy volunteers in September 2021 demonstrating dose-dependent lowering of huntingtin messenger ribonucleic acid and protein levels, that PTC518 efficiently crosses the blood brain barrier at significant levels and that PTC518 was well tolerated. The Company initiated a Phase 2 study of PTC518 for the treatment of HD in the first quarter of 2022, which consists of an initial 12-week placebo-controlled phase focused on safety, pharmacology and pharmacodynamic effects followed by a nine-month placebo-controlled phase focused on PTC518 biomarker effect. The Company expects data from the initial 12-week phase of the Phase 2 study by the end of 2022.
The Company’s Bio-e platform consists of small molecule compounds that target oxidoreductase enzymes that regulate oxidative stress and inflammatory pathways central to the pathology of a number of CNS diseases. The two most advanced molecules in the Company’s Bio-e platform are vatiquinone and PTC857. The Company initiated a registration-directed Phase 2/3 placebo-controlled trial of vatiquinone in children with mitochondrial disease associated seizures in the third quarter of 2020. The Company has experienced additional delays in enrolling this trial due to the COVID-19 pandemic and anticipates results from this trial to be available in the first quarter of 2023. The Company also initiated a registration-directed Phase 3 trial of vatiquinone in children and young adults with Friedreich ataxia in the fourth quarter of 2020 and anticipates results from this trial to be available in the second quarter of 2023. In the third quarter of 2021, the Company completed a Phase 1 trial in healthy volunteers to evaluate the safety and pharmacology of PTC857. PTC857 was found to be well-tolerated with no reported serious adverse events while demonstrating predictable pharmacology. The Company initiated a Phase 2 trial of PTC857 for amyotrophic lateral sclerosis in the first quarter of 2022.
The most advanced molecule in the Company’s metabolic platform is PTC923, an oral formulation of synthetic sepiapterin, a precursor to intracellular tetrahydrobiopterin, which is a critical enzymatic cofactor involved in metabolism and synthesis of numerous metabolic products, for orphan diseases. The Company initiated a registration-directed Phase 3 trial for PTC923 for phenylketonuria (“PKU”) in the third quarter of 2021 and expects results from this trial to be available by the end of 2022.
The Company also has two oncology agents that are in clinical development, unesbulin and emvododstat. The Company completed its Phase 1 trials evaluating unesbulin in leiomyosarcoma (“LMS”) and diffuse intrinsic pontine glioma (“DIPG”) in the fourth quarter of 2021. The Company initiated a registration-directed Phase 2/3 trial of unesbulin for the treatment of LMS in the first quarter of 2022, and it expects to initiate a registration-directed Phase 2 trial of unesbulin for the treatment of DIPG in the third quarter of 2022. The Company completed its Phase 1 trial evaluating emvododstat in acute myelogenous leukemia (“AML”), in the fourth quarter of 2021. The Company expects to provide further updates regarding its emvododstat program at a later date.
In June 2020, the Company initiated a Phase 2/3 clinical trial evaluating the efficacy and safety of emvododstat in patients hospitalized with COVID-19. In February 2021, the Company announced the completion of the first stage of the Phase 2/3 trial. Given the changing nature of the COVID-19 pandemic to the outpatient treatment setting, the Company concluded enrollment in the Phase 2/3 trial early to review the data collected to date and make a decision on next steps. Based upon the Company’s initial analyses of all randomized subjects, there was a trend towards emvododstat benefit across several disease relevant endpoints including reduced hospitalizations and time to reduction of fever. Additionally, within the cohort of patients enrolled within five days of infection, emvododstat demonstrated a benefit with respect to time to respiratory improvement, duration of hospitalization, dyspnea resolution and cough relief. The Company plans to complete the remaining data analyses and will then formulate a strategy for next steps.
10
In addition, the Company has a pipeline of product candidates and discovery programs that are in early clinical, pre-clinical and research and development stages focused on the development of new treatments for multiple therapeutic areas for rare diseases.
The Company’s marketing authorization for Translarna in the EEA is subject to annual review and renewal by the European Commission following reassessment by the European Medicines Agency, or EMA of the benefit-risk balance of the authorization, which the Company refers to as the annual EMA reassessment. The marketing authorization in the EEA was last renewed in June 2022 and is effective, unless extended, through August 5, 2023. This marketing authorization is further subject to the specific obligation to conduct and submit the results of a multi-center, randomized, double-blind, 18-month, placebo-controlled trial, followed by an 18-month open-label extension, according to an agreed protocol, in order to confirm the efficacy and safety of Translarna in the approved patient population. The final report on the trial and open-label extension is to be submitted by the Company to the EMA by the end of the third quarter of 2021.Translarna. The Company refers to the trial and open-label extension together as Study 041.
Translarna is an investigational new drug in the United States. During the first quarter of 2017, the Company filed a New Drug Application or NDA,(“NDA”) over protest with the United States Food and Drug Administration, (the "FDA"),FDA, for which the FDA granted a standard review. In October 2017, the Office of Drug Evaluation I of the FDA issued a complete response letter for the NDA, stating that it iswas unable to approve the application in its current form. Specifically, the letter indicated that evidence of effectiveness from an additional adequate and well-controlled clinical trial(s) will be necessary at a minimum to provide substantial evidence of effectiveness. In response, the Company has filed a formal dispute resolution request (FDRR) with the Office of New Drugs of the FDA. In February 2018, the Office of New Drugs of the FDA which, as per FDA draft guidelines,denied PTC’s appeal of the Complete Response Letter. In its response, the Office of New Drugs recommended a possible path forward for the ataluren NDA submission based on the accelerated approval pathway. This would typically involve a time-framere-submission of one-to-two monthsan NDA containing the current data on effectiveness of ataluren with new data to receive a response frombe generated on dystrophin production in nmDMD patients’ muscles. The Company followed the FDA. The FDA's complete response letter also mentioned other nonclinicalFDA’s recommendation and CMC matterscollected, using newer technologies via procedures and methods that the Company isdesigned, such dystrophin data in a new study, Study 045, and announced the processresults of addressing. The NDA, which seeks approval of Translarna for the treatment of nmDMDStudy 045 in the United States, was initially submitted byFebruary 2021. Study 045 did not meet its pre-specified primary endpoint. In June 2022, the Company in December 2015. In February 2016, followingannounced top-line results from the submission, theplacebo-controlled trial of Study 041. The Company received a Refuseis preparing to File letter fromhave discussions with the FDA regarding the NDA. The FDA stated in the Refuse to File letter that the NDA was not sufficiently complete to permit a substantive review. Specifically, the Company was notified in the letter that, in the viewpotential resubmission of the FDA, both the Phase 2b and Phase 3 ACT DMD trials were negative and do not provide substantial evidence of effectiveness and that the NDA did not contain adequate information regarding the abuse potential of Translarna. Additionally, the FDA stated that the Company had proposed a post-hoc adjustment of ACT DMD that eliminates data from a majority of enrolled patients. During July 2016, the Company appealed the Refuse to File decision via the formal dispute resolution process within FDA’s Center for Drug Evaluation and Research; however, this appeal was denied by the FDA’s Office of Drug Evaluation I in October 2016.
As of SeptemberJune 30, 2017,2022, the Company had an accumulated deficit of approximately $815.4$2,376.8 million. The Company has financed its operations to date primarily through the private offeringofferings in September 2019 of 1.50% convertible senior notes due 2026 and in August 2015 of 3.00% convertible senior notes due 2022 (see Note 9), public offerings of common stock in February 2014, and October 2014, April 2018, January 2019, and September 2019, "at the market offering" of its common stock, its initial public offering of common stock in June 2013, proceeds from the Royalty Purchase Agreement dated as of July 17, 2020, by and among the Company, RPI 2019 Intermediate Finance Trust (“RPI”), and, solely for the limited purposes set forth therein, Royalty Pharma PLC (the “Royalty Purchase Agreement”) (see Note 2), private placements of its convertible preferred stock, collaborations, bank and institutional lender debt, and convertible debt financings and grantsgrant funding and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease area addressed by the Company’s product candidates. Since 2014, the Company has also relied on revenue generated from net sales of Translarna for the treatment of nmDMD in territories outside of the United States, and insince May 2017, the Company began to recognizehas generated revenue generated from net sales of EMFLAZAEmflaza for the treatment of DMD in the United States. The Company has also relied on revenue associated with milestone and royalty payments from Roche pursuant to the License and Collaboration Agreement (the “SMA License Agreement”) dated as of November 23, 2011, by and among the Company, Roche and, for the limited purposes set forth therein, the SMA Foundation, under its SMA program. The Company expects that cash flows from the sales of its products, together with the Company’s cash, cash equivalents and marketable securities, will be sufficient to fund its operations for at least the next twelve months.
11
2. Summary of significant accounting policies
The Company’s complete listing of significant accounting policies is set forth in Note 2 of the notes to the Company’s audited financial statements as of December 31, 20162021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 16, 2017February 22, 2022 (the "2016"2021 Form 10-K"). AdditionalSelected significant accounting policies adopted during the nine month period ended September 30, 2017 are discussed in further detail below.
Basis of presentation
The accompanying financial information as of SeptemberJune 30, 20172022 and for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 has been prepared by the Company, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP)("GAAP") have been condensed or omitted pursuant to such rules and regulations. These interim financial statements should be read in conjunction with the Company’s audited financial statements as of December 31, 20162021 and notes thereto included in the 20162021 Form 10-K.
In the opinion of management, the unaudited financial information as of SeptemberJune 30, 20172022 and for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 reflects all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations, stockholders’ equity, and cash flows. The results of operations for the three and nine month periodssix months ended SeptemberJune 30, 20172022 and 2021 are not necessarily indicative of the results to be expected for the year ended December 31, 20172022 or for any other interim period or for any other future year.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in these consolidated financial
Restricted cash
Restricted cash included in deposits and other assets on the consolidated balance sheet contains an unconditional, irrevocable and transferable letter of credit that was entered into during the twelve-month period ended December 31, 2019 in connection with obligations under a facility lease for the Company’s leased biologics manufacturing facility in Hopewell Township, New Jersey. The amount of the letter of credit is $7.5 million, is to be maintained for a term of not less than five years and has the potential to be reduced to $3.8 million if after five years the Company is not in default of its lease. Restricted cash also contains an unconditional, irrevocable and transferable letter of credit that was entered into during June 2022 in connection with obligations for the Company’s new facility lease in Warren, New Jersey. The amount of the letter of credit is $8.1 million and has the potential to be reduced to $4.1 million if after five years the Company is not in default of its lease. Both amounts are classified within deposits and other assets on the consolidated balance sheet due to the long-term nature of the letter of credit. Restricted cash also includes a bank guarantee of $0.5 million denominated in a foreign currency.
12
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same amounts shown in the statement of cash flows:
| | | | | | |
|
| End of |
| | Beginning of | |
|
| period- |
| period- | ||
|
| June 30, |
| December 31, | ||
|
| 2022 | | 2021 | ||
Cash and cash equivalents | | $ | 158,158 | | $ | 189,718 |
Restricted cash included in deposits and other assets | |
| 16,087 | |
| 7,500 |
Total Cash, cash equivalents and restricted cash per statement of cash flows | | $ | 174,245 | | $ | 197,218 |
Marketable securities
The Company’s marketable securities consists of both debt securities and equity investments. The Company considers its investments in debt securities with original maturities of greater than 90 days to be available for sale securities. Securities under this classification are recorded at fair value and unrealized gains and losses within accumulated other comprehensive income. The estimated fair value of the available for sale securities is determined based on quoted market prices or rates for similar instruments. In addition, the cost of debt securities in this category is adjusted for amortization of premium and accretion of discount to maturity. For available for sale debt securities in an unrealized loss position, the Company assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value. If the criteria are not met, the Company evaluates whether the decline in fair value has resulted from a credit loss or other factors. In making this assessment, management considers, among other factors, the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized costs basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. For the three and six months ended June 30, 2022 and 2021, 0 allowance was recorded for credit losses.
Marketable securities that are equity investments are measured at fair value, as it is readily available, and as such are classified as Level 1 assets. Unrealized holding gains and losses for these equity investments are components of other (expense) income, net within the consolidated statement of operations.
Inventory and cost of product sales
Inventory
Inventories are stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis by product. The Company capitalizes inventory costs associated with products following regulatory approval when future commercialization is considered probable and the future economic benefit is expected to be realized. Translarna and EMFLAZA productProducts which may be used in clinical development programs are included in inventory and charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes. Inventory used for marketing efforts are charged to selling, general and administrative expense.
The following table summarizes the components of the Company’s inventory for the periods indicated:
| | | | | | |
|
| June 30, 2022 |
| December 31, 2021 | ||
Raw materials | | $ | 1,382 | | $ | 1,418 |
Work in progress | |
| 7,034 | |
| 7,721 |
Finished goods | |
| 6,588 | |
| 6,717 |
Total inventory | | $ | 15,004 | | $ | 15,856 |
13
September 30, 2017 | December 31, 2016 | |||||||
Raw materials | $ | 182 | $ | — | ||||
Work in progress | 2,715 | — | ||||||
Finished goods | 4,895 | — | ||||||
Total inventory | $ | 7,792 | $ | — |
The Company periodically reviews its inventories for excess amounts or obsolescence and writes down obsolete or otherwise unmarketable inventory to its estimated net realizable value. TheFor the three and six months ended June 30, 2022, the Company has not recorded any inventory write downs aswrite-downs of $0.3 million and $0.9 million, respectively, primarily related to product approaching expiration. For the current period.three and six months ended June 30, 2021, the Company recorded inventory write-downs of $0.3 million and $1.7 million, respectively, primarily related to product approaching expiration. Additionally, though the Company’s product is subject to strict quality control and monitoring which it performs throughout the manufacturing processes, certain batches or units of product may not meet quality specifications resulting in a charge to cost of product sales.
Cost of product sales
Cost of product sales consists of the cost of inventory sold, manufacturing and supply chain costs, storage costs, amortization of the acquired intangible asset, and royalty payments associated with net product sales.
Revenue recognition
Net product sales
The Company’s net product sales consistedrevenue primarily consists of sales of Translarna for the treatment of nmDMD in territories outside of the U.S. The Company has established a patternfor the treatment of collectabilitynmDMD and since January 2015,sales of Emflaza in the U.S. for the treatment of DMD. The Company recognizes revenue when its performance obligations with its customers have been satisfied. The Company’s performance obligations are to provide products based on customer orders from distributors, hospitals, specialty pharmacies or retail pharmacies. The performance obligations are satisfied at a point in time when the Company’s customer obtains control of the product, saleswhich is typically upon delivery. The Company invoices its customers after the products have been delivered and invoice payments are generally due within 30 to 90 days of the invoice date. The Company determines the transaction price based on fixed consideration in its contractual agreements. Contract liabilities arise in certain circumstances when thereconsideration is persuasive evidence that an arrangement exists, title to product and associated risk of loss has passed to the customer, the price is fixed or determinable, collectability is reasonably assured anddue for goods the Company has no further performance obligations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 605-15, Revenue Recognition—Products.
The Company records revenueproduct sales net of estimated third-partyany variable consideration, which includes discounts, allowances, rebates related to Medicaid and rebates. Allowancesother government pricing programs, and distribution fees. The Company uses the expected value or most likely amount method when estimating its variable consideration, unless discount or rebate terms are specified within contracts. The identified variable consideration is recorded as a reduction of revenue at the time revenues from product sales are recognized. These allowancesestimates for variable consideration are adjusted to reflect known changes in factors and may impact such allowancesestimates in the quarter those changes are known. Revenue recognized does not include amounts of variable consideration that are constrained. For the three months ended June 30, 2022 and 2021, net product sales outside of the United States were $86.9 million and $54.0 million, respectively, consisting of Translarna, Tegsedi, Waylivra, and Upstaza. Upstaza sales commenced during the three months period ended June 30, 2022. Translarna net revenues made up $77.0 million and $52.6 million of the net product sales outside of the United States for the three months ended June 30, 2022 and 2021, respectively. For the three months ended June 30, 2022 and 2021, net product sales in the United States were $56.8 million and $49.1 million, respectively, consisting solely of Emflaza. For the six months ended June 30, 2022 and 2021, net product sales outside of the United States were $168.1 million and $101.7 million, respectively, consisting of Translarna, Tegsedi, Waylivra, and Upstaza. Upstaza sales commenced during the six months period ended June 30, 2022. Translarna net revenues made up $156.2 million and $99.1 million of the net product sales outside of the United States for the six months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, net product sales in the United States were $105.4 million and $92.7 million, respectively, consisting solely of Emflaza.
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In relation to customer contracts, the Company incurs costs to fulfill a contract but does not incur costs to obtain a contract. These costs to fulfill a contract do not meet the criteria for capitalization and are expensed as incurred. The Company considers any shipping and handling costs that are incurred after the customer has obtained control of the product as a cost to fulfill a promise. Shipping and handling costs associated with finished goods delivered to customers are recorded as a selling expense.
Collaboration and grantroyalty revenue
The terms of these agreements typically include payments to the Company of one or more of the following: nonrefundable, upfront license fees; milestone payments; research funding and royalties on future product sales. In addition, the Company generates service revenue through agreements that generally provide for fees for research and development services and may include additional payments upon achievement of specified events.
At the inception of a collaboration arrangement, the Company evaluates if a milestone payment is substantive. The criteria requires that (1) the Company determinesneeds to first evaluate if the milestonearrangement meets the criteria in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 808 “Collaborative Arrangements” to then determine if ASC Topic 606 is commensurate with either its performance to achieveapplicable by considering whether the milestone orcollaborator meets the enhancementdefinition of value resulting from our activities to achievea customer. If the milestone; (2) the milestone be related to past performance; and (3) the milestone be reasonable relative to all deliverable and payment terms of the collaboration arrangement. If these criteria are met, the Company assesses the promises in the arrangement to identify distinct performance obligations.
For licenses of intellectual property, the Company assesses, at contract inception, whether the intellectual property is distinct from other performance obligations identified in the arrangement. If the licensing of intellectual property is determined to be distinct, revenue is recognized for nonrefundable, upfront license fees when the license is transferred to the customer and the customer can use and benefit from the license. If the licensing of intellectual property is determined not to be distinct, then the contingent milestones canlicense will be consideredbundled with other promises in the arrangement into one distinct performance obligation. The Company needs to determine if the bundled performance obligation is satisfied over time or at a substantive milestone andpoint in time. If the Company concludes that the nonrefundable, upfront license fees will be recognized over time, the Company will need to assess the appropriate method of measuring proportional performance.
For milestone payments, the Company assesses, at contract inception, whether the development or sales-based milestones are considered probable of being achieved. If it is probable that a significant revenue reversal will occur, the Company will not record revenue until the uncertainty has been resolved. Milestone payments that are contingent upon regulatory approval are not considered probable of being achieved until the applicable regulatory approvals or other external conditions are obtained as such conditions are not within the Company’s control. If it is probable that a significant revenue inreversal will not occur, the period thatCompany will estimate the milestone is achieved.payments using the most likely amount method. The Company will re-assess the development and sales-based milestones each reporting period to determine the probability of achievement. The Company recognizes royalties as earned in accordance withfrom product sales at the termslater of various research and collaboration agreements.when the related sales occur or when the performance obligation to which the royalty has been allocated has been satisfied. If it is probable that a significant revenue reversal will not substantive,occur, the contingent consideration is allocated toCompany will estimate the existing units of accounting based on relative selling price and recognized followingroyalty payments using the same basis previously established for the associated unit of accounting.
The Company recognizes revenue for reimbursements of research and development costs under collaboration agreements as the services are performed. The Company records these reimbursements as revenue and not as a reduction of research and development expenses as the Company has the risks and rewards as the principal in the research and development activities.
For the three months ended June 30, 2022 and 2021, the Company did 0t recognize collaboration revenue related to the SMA License Agreement with Roche. For the six months ended June 30, 2022 and 2021, the Company recognized collaboration revenue related to the SMA License Agreement with Roche of $0.0 million and $20.0 million, respectively. The first commercial sale of Evrysdi in the EU was made in March 2021. This event triggered a $20.0 million milestone payment to the Company from Roche for the six months ended June 30, 2021.
For the three and six months ended June 30, 2022, the Company has recognized $21.8 million and $40.7 million of royalty revenue, respectively, related to Evrysdi. For the three and six months ended June 30, 2021, the Company has recognized $13.6 million and $20.2 million of royalty revenue, respectively, related to Evrysdi.
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Allowance for doubtful accounts
The Company maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. The Company estimates uncollectible amounts based upon current customer receivable balances, the age of customer receivable balances, the customer’s financial condition and current economic trends. The Company also assesses whether an allowance for expected credit losses may be required which includes a review of the Company’s receivables portfolio, which are pooled on a customer basis or country basis. In making its assessment of whether an allowance for credit losses is required, the Company considers its historical experience with customers, current balances, levels of delinquency, regulatory and legal environments, and other relevant current and future forecasted economic conditions. For the three and six months ended June 30, 2022 and 2021, 0 allowance was recorded for credit losses. The allowance for doubtful accounts was $0.8$0.1 million as of SeptemberJune 30, 20172022 and $0.7$0.1 million as of December 31, 2016.
Liability for sale of future royalties
On July 17, 2020, the Company, RPI, and, for the limited purposes set forth in the agreement, Royalty Pharma PLC, entered into the Royalty Purchase Agreement. Pursuant to the Royalty Purchase Agreement, the Company sold to RPI 42.933% (the “Assigned Royalty Payment”) of the Company’s right to receive sales-based royalty payments (the “Royalty”) on worldwide net sales of Evrysdi and any other product developed pursuant to the SMA License Agreement. In consideration for the sale of the Assigned Royalty Payments, RPI paid the Company $650.0 million in cash consideration. The Company evaluates acquisitionshas retained a 57.067% interest in the Royalty and all economic rights to receive the remaining potential regulatory and sales milestone payments under the SMA License Agreement, which milestone payments equal $300.0 million in the aggregate as of assetsJune 30, 2022. The Royalty Purchase Agreement will terminate 60 days following the earlier of the date on which Roche is no longer obligated to make any payments of the Royalty pursuant to the SMA License Agreement and other similar transactionsthe date on which RPI has received $1.3 billion in respect of the Assigned Royalty Payments.
The cash consideration obtained pursuant to assess whether or notthe Royalty Purchase Agreement is classified as debt and is recorded as “liability for sale of future royalties-current” and “liability for sale of future royalties-noncurrent” on the Company’s consolidated balance sheet based on the timing of the expected payments to be made to RPI. The fair value for the liability for sale of future royalties at the time of the transaction shouldwas based on the Company’s estimates of future royalties expected to be accountedpaid to RPI over the life of the arrangement, which was determined using forecasts from market data sources, which are considered Level 3 inputs. The liability is being amortized using the effective interest method over the life of the arrangement, in accordance with the respective guidance. The Company utilizes the prospective method to account for assubsequent changes in the estimated future payments to be made to RPI. Refer to Note 9 for further details.
Indefinite-lived intangible assets
Indefinite-lived intangible assets consist of in process research and development ("IPR&D"). IPR&D acquired directly in a transaction other than a business combination is capitalized if the projects will be further developed or have an alternative future use; otherwise they are expensed. The fair values of IPR&D projects and license agreement assets acquired in business combinations are capitalized. Several methods may be used to determine the estimated fair value of the IPR&D and license agreement asset acquisition byacquired in a business combination. The Company utilizes the "income method” and uses estimated future net cash flows that are derived from projected sales revenues and estimated costs. These projections are based on factors such as relevant market size, patent protection, and expected pricing and industry trends. The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. These assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written off, as appropriate. Intangible assets with indefinite lives, including IPR&D, are tested for impairment if impairment indicators arise and, at a minimum, annually. However, an entity is permitted to first applying a screen (as adopted in the current period under Accounting Standards Update (ASU) No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business"; see "Impact of recently adopted accounting standards" and Note 11 for further details)assess qualitative factors to determine if substantially alla quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying amount. Otherwise, no further impairment testing is required. The indefinite-lived intangible asset impairment test consists of a one-step analysis that compares the fair value of the gross assets acquired is concentrated in a single identifiableintangible asset or group of similar identifiable assets.with its carrying amount. If the screen is met, the transaction is accounted for ascarrying amount of an intangible asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business. If determined to be a business combination, the Company accounts for the transaction under the acquisition method of accounting as indicated in ASC Topic 805, “Business Combinations”, which requires the acquiring entity in a business combination to recognize theexceeds its fair value, an impairment loss is recognized in
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an amount equal to that excess. The Company considers many factors in evaluating whether the value of its intangible assets acquired, liabilities assumed,with indefinite lives may not be recoverable, including, but not limited to, expected growth rates, the cost of equity and any non-controlling interest indebt capital, general economic conditions, the acquireeCompany’s outlook and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, and non-controlling interest in the acquiree based on the fair value estimates asmarket performance of the dateCompany’s industry and recent and forecasted financial performance.
Goodwill
Goodwill represents the amount of acquisition. In accordance with ASC 805, the Company recognizes and measures goodwill as of the acquisition date, as theconsideration paid in excess of the fair value of net assets acquired as a result of the consideration paid overCompany’s business acquisitions accounted for using the acquisition method of accounting. Goodwill is not amortized and is subject to impairment testing at a reporting unit level on an annual basis or when a triggering event occurs that may indicate the carrying value of the goodwill is impaired. The Company reassess its reporting units as part of its annual segment review. An entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that the fair value of the identifiedreporting unit is less than its carrying amount.
Income Taxes
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act, referred to herein as the CARES Act, as a response to the economic uncertainty resulting from a strain of novel coronavirus, COVID-19. The CARES Act includes modifications for net assets acquired.
Additionally, the fair value of contingent consideration obligations, other than changes due to payments, are recognized as a (gain) loss on fair value remeasurement of contingent consideration inOrganization for Economic Co-operation and Development (“OECD”), the condensed consolidated statements of operations.
On December 22, 2017, the U.S. government enacted the 2017 Tax Act, which significantly revised U.S. tax law by, among other provisions, lowering the U.S. federal statutory corporate income tax rate to 21%, imposing a mandatory one-time transition tax on previously deferred foreign earnings, and eliminating or reducing certain income tax deductions. The Global Intangible Low-Taxed Income ("GILTI") provisions of the finite-lived intangible asset would be reassessed.
Starting in 2022, TCJA amendments to IRC Section 174 will no longer permit an immediate deduction for research and accompanying notes.development (R&D) expenditures in the tax year that such costs are incurred. Instead, these IRC Section 174 development costs must now be capitalized and amortized over either a five- or 15-year period, depending on the location of the activities performed. The new amortization period begins with the midpoint of any taxable year that IRC Section 174 costs are first incurred, regardless of whether the expenditures were made prior to or after July 1, and runs until the midpoint of year five for activities conducted in the United States or year 15 in the case of development conducted on foreign soil. As a result of this tax law change, the Company recorded a federal tax provision for the six months ended June 30, 2022, in the amount
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of $1.6 million. Also, as a result of this tax law change, the Company recorded a state tax provision for the three months ended June 30, 2022, in the amount of $5.4 million.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured at rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. A valuation allowance is recorded when it is not more likely than not that all or a portion of the net deferred tax assets will be realized.
On August 23, 2018, the Company completed its acquisition of Agilis Biotherapeutics, Inc. (“Agilis”), pursuant to an Agreement and Plan of Merger, dated as of July 19, 2018 (the “Agilis Merger Agreement”), by and among the Company, Agility Merger Sub, Inc., a Delaware corporation and the Company’s wholly owned, indirect subsidiary, Agilis and, solely in its capacity as the representative, agent and attorney-in-fact of the equityholders of Agilis, Shareholder Representative Services LLC, (the “Agilis Merger”). The Company recorded a deferred tax liability in conjunction with the Agilis Merger of $122.0 million in 2018, related to the tax basis difference in the IPRD indefinite-lived intangibles acquired. The Company’s implementation approach includes performingpolicy is to record a detailed review of key contracts representativedeferred tax liability related to acquired IPR&D which may eventually be realized either upon amortization of the asset when the research is completed and a product being sold and services provided and assessingis successfully launched or the conformancewrite-off of historical accounting policies and practices with the standard. asset if it is abandoned or unsuccessful.
Leases
The Company expectsdetermines if an arrangement is a lease at inception. This determination generally depends on whether the adoptionarrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the new revenue standard to have an impact on its financial reporting disclosures and internal controls over financial reporting.economic benefits from using the underlying asset. The Company has establishedlease agreements which include lease and non-lease components, which the Company accounts for as a comprehensive change management project plansingle lease component for all leases. Operating and finance leases are classified as right of use ("ROU") assets, short term lease liabilities, and long term lease liabilities. Operating and finance lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. ROU assets are amortized and lease liabilities accrete to guideyield straight-line expense over the implementation.
Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented in the Company’s consolidated statements of operations in the same line item as expense arising from fixed lease payments for operating leases.
Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and Measurement of Financial Assets and Financial Liabilities”. This standard enhances the reporting modelCompany recognizes lease expense for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The new guidance affects all reporting organizations (whether public or private) that hold financial assets or owe financial liabilities. ASU 2016-1 is effective for years beginning after December 15, 2017, including interim periods within those fiscal years.these leases on a straight-line basis over the lease term. The Company expectsapplies this policy to adopt this guidanceall underlying asset categories.
A lessee is required to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when effectivecalculating its incremental borrowing rates.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Leasehold improvements are capitalized and depreciated over the lesser of useful life or lease term. See Note 3 Leases for additional information.
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3. Leases
The Company leases office space in South Plainfield, New Jersey for its principal office under 2 noncancelable operating leases through August 2024, in addition to office and laboratory space in Bridgewater, New Jersey and other locations throughout the United States and office space in various countries for international employees primarily through workspace providers. On May 31, 2022, the Company’s lease for office space at 4041 Hadley Road in South Plainfield, New Jersey expired.
The Company also leases approximately 220,500 square feet of office, manufacturing and laboratory space at a facility located in Hopewell Township, New Jersey pursuant to a Lease Agreement (the “Hopewell Lease”) with Hopewell Campus Owner LLC. The rental term of the Hopewell Lease commenced on July 1, 2020 and has an initial term of fifteen years (the “Hopewell Initial Term”), with 2 consecutive ten year renewal periods, each at the Company’s option. The aggregate rent for the Hopewell Initial Term will be approximately $111.5 million. The rental rate for the renewal periods will be 95% of the Prevailing Market Rate (as defined in the Hopewell Lease) and determined at the time of the exercise of the renewal. The Company is currently assessing what effectalso responsible for maintaining certain insurance and the adoptionpayment of ASU No. 2016-1proportional taxes, utilities and common area operating expenses. The Hopewell Lease contains customary events of default, representations, warranties and covenants.
In May 2022, the Company entered into a Lease Agreement (the “Warren Lease”) with Warren CC Acquisitions, LLC (the “Warren Landlord”) relating to the lease of 2 entire buildings comprised of approximately 360,000 square feet of shell condition, modifiable space (the “Warren Premises”) at a facility located in Warren, New Jersey. The rental term of the Warren Lease commenced on June 1, 2022, with an initial term of seventeen years (the “Warren Initial Term”), followed by 3 consecutive five-year renewal periods at the Company’s option. The aggregate base rent for the Warren Initial Term will havebe approximately $163.0 million; provided, however, that if the Company is not subject to an Event of Default (as defined in the Warren Lease), the Company will be entitled to a base rent abatement over the first three years of the Warren Initial Term of approximately $18.6 million, reducing the Company’s total base rent obligation to $144.4 million. The rental rate for the renewal periods will be at the Fair Market Rental Value (as defined in the Warren Lease) and determined at the time of the exercise of the renewal. Beginning in the second lease year, the Company is also responsible for the payment of all taxes and operating expenses for the Warren Premises. As a result, the Company recorded an operating lease ROU asset of $62.2 million and an operating lease ROU liability of $62.2 million as of the commencement date.
The Company plans on its consolidated financial statementsdeveloping the Warren Premises into office and accompanying notes.
The Company expects to adopt this guidance when effectivealso modified its Mountain View, California lease and is currently assessing what effectentered into a new operating lease for an office in Tokyo, Japan during the adoption of ASU No. 2016-2 will have on its consolidated financial statements and accompanying notes.
On June 19, 2020, the FASB issued ASU No. 2016-18, “StatementCompany entered into a commercial manufacturing service agreement for a term of Cash Flows (Topic 230): Restricted Cash”. This standard requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows and no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. This standard is effective for public companies who are SEC filers for fiscal years beginning after December 15, 2017, including interim periods within those12.5 years with early adoption permitted.MassBiologics of the University of Massachusetts Medical School ("MassBio"). The adoption of this guidance is not expectedagreement will expire on December 31, 2032 unless the Company terminates it with 24 months prior written notice to have a significant impact on the Company’s consolidated financial statements.
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determined to be $41.4 million, which exceeded the assessed fair value of the Company’s share of the building. Therefore, the Company determined that the agreement was a finance lease, for which the Company recorded a finance lease ROU asset and corresponding finance lease liability at the onset of the lease agreement. Given that the leased asset is designed for the production of PTC’s AADC program and would not have an alternate use outside the PTC gene therapy platform without incurring significant costs, the Company determined that the lease should be treated as research and development expense under ASC 730. Accordingly, the full $41.4 million relating to the finance lease ROU asset was written off and expensed to research and development during the twelve month period ending December 31, 2020. The remaining balance for the finance lease ROU asset related to this arrangement is $0 as of June 30, 2022. As of June 30, 2022, the balance of the finance lease liabilities-current and finance lease liabilities-non-current are required$2.2 million and $18.7 million, respectively, and are directly related to the Company’s MassBio agreement. As of December 31, 2021, the balance of the finance lease liabilities-current and finance lease liabilities-non current were $3.0 million and $20.1 million, respectively. The Company reported finance lease costs of $0.4 million and $0.8 million related to interest on the lease liability during the three and six month periods ending June 30, 2022, respectively. Additionally, the Company reported finance lease costs of $0.4 million and $0.8 million for the three and six month periods ending June 30, 2021, respectively.
The Company also leases certain vehicles, lab equipment, and office equipment under the current guidance, entities will be also requiredoperating leases. The Company’s leases have remaining operating lease terms ranging from 0.1 years to disclose that compensation expense has not changed if applicable. This standard is effective for public companies who are SEC
The guidance will be applied prospectively to awards modified on or after the adoption date. The Company expects to adopt this guidance when effective.
| | | | | | | | | | | | | |
|
| Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended | | ||||
| | | June 30, 2022 | | | June 30, 2021 | | | June 30, 2022 | | | June 30, 2021 | |
Operating Lease Cost |
| |
| | |
| | |
| | |
| |
Fixed lease cost | | $ | 4,764 | | $ | 4,115 | | $ | 8,890 | | $ | 8,219 | |
Variable lease cost | |
| 923 | |
| 993 | |
| 2,001 | |
| 2,087 | |
Short-term lease cost | |
| 257 | |
| 119 | |
| 338 | |
| 283 | |
Total operating lease cost | | $ | 5,944 | | $ | 5,227 | | $ | 11,229 | | $ | 10,589 | |
Total operating lease cost is a component of Deferred Taxes”. This standard requires all deferred tax assets and liabilities to be classified as non-currentoperating expenses on the balance sheet insteadconsolidated statements of separating deferred taxes into currentoperations.
Supplemental lease term and non-current amounts. In addition, valuation allowance allocations between current and non-current deferred tax assets are no longer required because those allowances also will be classifieddiscount rate information related to leases was as non-current. This standard is effective for public companies for annual periods beginning after December 15, 2016. The Company adopted the guidance on January 1, 2017 on a prospective basis. As the Company’s deferred tax assets are provided with full valuation allowancefollows as of SeptemberJune 30, 2017, adoption2022 and December 31, 2021:
| | | | | | |
|
| June 30, 2022 |
| | December 31, 2021 |
|
Weighted-average remaining lease terms - operating leases (years) |
| 13.03 | | | 10.87 | |
Weighted-average discount rate - operating leases | | 8.70 | % | | 8.91 | % |
Weighted-average remaining lease terms - finance lease (years) |
| 10.50 | | | 11.00 | |
Weighted-average discount rate - finance lease |
| 7.80 | % | | 7.80 | % |
Supplemental cash flow information related to leases was as follows as of this standard did not have a significant impact on the Company's financial statements.June 30, 2022 and 2021:
| | | | | | |
|
| Six Months Ended June 30, | ||||
|
| 2022 |
| 2021 | ||
Cash paid for amounts included in the measurement of lease liabilities: |
| |
| | |
|
Operating cash flows from operating leases | | $ | 7,089 | | $ | 6,816 |
Financing cash flows from finance lease | | | 1,276 | | | 2,224 |
Operating cash flows from finance leases | | | 1,724 | | | 776 |
| | | | | | |
Right-of-use assets obtained in exchange for lease obligations: | |
|
| |
|
|
Operating leases | | $ | 68,642 | | $ | 13 |
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Future minimum lease payments under non-cancelable leases as of June 30, 2022 were as follows:
| | | | | | | |
|
| Operating Leases |
| Finance Lease | | ||
2022 (excludes the six months ended June 30, 2022) | | $ | 7,665 | | $ | — | |
2023 | |
| 10,185 | |
| 3,000 | |
2024 | |
| 18,251 | |
| 3,000 | |
2025 | |
| 20,425 | |
| 3,000 | |
2026 and thereafter | |
| 213,775 | |
| 21,000 | |
Total lease payments | |
| 270,301 | |
| 30,000 | |
Less: Imputed Interest expense | |
| 124,050 | |
| 9,947 | |
Total | | $ | 146,251 | | $ | 20,053 | |
4. Fair value of financial instruments and marketable securities
The Company follows the fair value measurement rules, which provides provideguidance on the use of fair value in accounting and disclosure for assets and liabilities when such accounting and disclosure is called for by other accounting literature. These rules establish a fair value hierarchy for inputs to be used to measure fair value of financial assets and liabilities. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3 (lowest priority).
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the balance sheet date. |
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). |
Level 3—Inputs are unobservable and reflect the Company’s assumptions as to what market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available. |
Cash equivalents and investmentsmarketable securities are reflected in the accompanying financial statements at fair value. The carrying amount of receivables and accounts payable and accrued expenses and debt approximates fair value due to the short-term nature of those instruments.
In May 2019, the Company purchased $4.0 million of shares of ClearPoint Neuro, Inc.’s ("ClearPoint"), formerly known as MRI Interventions, Inc., common stock, at a purchase price of $3.10 per share, in connection with a securities purchase agreement that the Company entered into with ClearPoint, a publicly traded medical device company. In February 2021, the Company purchased $0.1 million of shares of ClearPoint’s common stock, at a purchase price of $23.50 per share, in connection with ClearPoint’s underwritten public offering of common stock. The Company determined that the May 2019 and February 2021 ClearPoint equity investments (collectively, the “ClearPoint Equity Investments”) represent financial instruments, and therefore, are recorded at fair value, which is readily determinable. The ClearPoint Equity Investments are components of deposits and other assets on the consolidated balance sheet. During the three and six months ended June 30, 2022, the Company recorded an unrealized gain of $3.4 million and an unrealized gain of $2.4 million, respectively. During the three and six months ended June 30, 2021, the Company recorded an unrealized loss of $2.7 million and an unrealized gain of $4.1 million, respectively. These unrealized gains and losses are components of other (expense) income, net within the consolidated statement of operations. The fair value of the ClearPoint Equity Investments was $16.9 million and $14.5 million as of June 30, 2022 and December 31, 2021, respectively. The Company classifies the ClearPoint Equity Investments as Level 1 assets within the fair value hierarchy, as the value is based on a quoted market price in an active market, which is not adjusted.
21
In January 2020, the Company purchased a $10.0 million convertible note from ClearPoint that the Company can convert into ClearPoint shares at a conversion rate of $6.00 per share at any point throughout the term of the loan, which matures five years from the purchase date. The Company determined that the convertible note represents an available for sale debt security and the Company has elected to record it at fair value under ASC 825. The Company classifies its ClearPoint convertible debt security as a Level 2 asset within the fair value hierarchy, as the value is based on inputs other than quoted prices that are observable. The fair value of the ClearPoint convertible debt security is determined at each reporting period by utilizing a Black-Scholes option pricing model, as well as a present value of expected cash flows from the debt security utilizing the risk free rate and the estimated credit spread as of the valuation date as the discount rate. During the three and six months ended June 30, 2022, the Company recorded unrealized gains of $3.5 million and $2.0 million, respectively. During the three and six months ended June 30, 2021, the Company recorded an unrealized loss of $3.5 million and an unrealized gain of $4.3 million, respectively. These unrealized gains and losses are components of other (expense) income, net within the consolidated statement of operations. The fair value of the convertible debt security was $23.0 million and $21.0 million as of June 30, 2022 and December 31, 2021, respectively. The convertible debt security is considered to be long term and is included as a component of deposits and other assets on the consolidated balance sheet. Other than the ClearPoint Equity Investments and the convertible debt security, no other items included in deposits and other assets on the consolidated balance sheets are fair valued.
In February 2021, the Company invested $200.0 million in 2 mutual funds. In August 2021, the Company made a $10.0 investment into a third mutual fund that is denominated in a foreign currency. All of these are equity investments and are classified as marketable securities on the Company’s consolidated balance sheets. These equity investments are reported at fair value, as it is readily available, and as such are classified as Level 1 assets. Unrealized holding gains and losses for these equity investments are included as components of other (expense) income, net within the consolidated statement of operations. For the three and six months ended June 30, 2022, the Company had $4.9 million and $11.4 million of unrealized net losses relating to the equity investments still held at the reporting date, respectively. For the three and six months ended June 30, 2021, the Company had $1.0 million and $0.7 million unrealized net gains relating to the equity investments still held at the reporting date, respectively. For the three and six months ended June 30, 2022, the Company had redemptions of $1.2 million and $3.6 million, respectively. The Company did 0t have any redemptions for the three and six months ended June 30, 2021. For the three and six months ended June 30, 2022, the Company had foreign currency unrealized losses of $0.3 million and foreign currency unrealized gains of $0.4 million, respectively, relating to these equity investments. For the three and six months ended June 30, 2021, the Company did 0t have any foreign currency gains or losses relating to these equity investments.
Fair value of certain marketable securities that are classified as available for sale debt securities is based upon market prices using quoted prices in active markets for identical assets quoted on the last day of the period. In establishing the estimated fair value of the remaining investments,available for sale debt securities, the Company used the fair value as determined by its investment advisors using observable inputs other than quoted prices.
22
The following represents the fair value using the hierarchy described above for the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis as of SeptemberJune 30, 20172022 and December 31, 2016:
September 30, 2017 | ||||||||||||||||
Total | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) | |||||||||||||
Marketable securities | $ | 27,472 | $ | — | $ | 27,472 | $ | — | ||||||||
Warrant liability | $ | 4 | $ | — | $ | — | $ | 4 | ||||||||
Stock appreciation rights liability | $ | 1,723 | $ | — | $ | — | $ | 1,723 |
December 31, 2016 | ||||||||||||||||
Total | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) | |||||||||||||
Marketable securities | $ | 173,345 | $ | — | $ | 173,345 | $ | — | ||||||||
Warrant Liability | $ | 1 | $ | — | $ | — | $ | 1 | ||||||||
Stock appreciation rights liability | $ | 865 | $ | — | $ | — | $ | 865 |
| | | | | | | | | | | | |
| | June 30, 2022 | ||||||||||
|
| | |
| Quoted prices |
| Significant |
| | | ||
| | | |
| in active |
| other |
| Significant | |||
| | | |
| markets for |
| observable |
| unobservable | |||
| | | |
| identical assets |
| inputs |
| inputs | |||
|
| Total |
| (level 1) |
| (level 2) |
| (level 3) | ||||
Marketable securities - available for sale | | $ | 154,973 | | $ | — | | $ | 154,973 | | $ | — |
Marketable securities - equity investments | | $ | 192,414 | | $ | 192,414 | | $ | — | | $ | — |
ClearPoint Equity Investments | | $ | 16,894 | | $ | 16,894 | | $ | — | | $ | — |
ClearPoint convertible debt security | | $ | 22,966 | | $ | — | | $ | 22,966 | | $ | — |
Contingent consideration payable- development and regulatory milestones | | $ | 78,700 | | $ | — | | $ | — | | $ | 78,700 |
Contingent consideration payable- net sales milestones and royalties | | $ | 84,300 | | $ | — | | $ | — | | $ | 84,300 |
| | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||
|
| | |
| Quoted prices |
| Significant |
| | | ||
| | | |
| in active |
| other |
| Significant | |||
| | | |
| markets for |
| observable |
| unobservable | |||
| | | |
| identical assets |
| inputs |
| inputs | |||
|
| Total |
| (level 1) |
| (level 2) |
| (level 3) | ||||
Marketable securities - available for sale | | $ | 376,685 | | $ | — | | $ | 376,685 | | $ | — |
Marketable securities - equity investments | | $ | 206,973 | | $ | 206,973 | | $ | — | | $ | — |
ClearPoint Equity Investments | | $ | 14,525 | | $ | 14,525 | | $ | — | | $ | — |
ClearPoint convertible debt security | | $ | 20,971 | | $ | — | | $ | 20,971 | | $ | — |
Contingent consideration payable- development and regulatory milestones | | $ | 139,300 | | $ | — | | $ | — | | $ | 139,300 |
Contingent consideration payable- net sales milestones and royalties | | $ | 100,600 | | $ | — | | $ | — | | $ | 100,600 |
NaN transfers of assets between Level 1, and Level 2, or Level 3 of the fair value measurement hierarchy occurred during the periods ended SeptemberJune 30, 20172022 and December 31, 2016.
The following is a summary of marketable securities accounted for as available-for-saleavailable for sale debt securities at SeptemberJune 30, 20172022 and December 31, 2016:2021:
| �� | | | | | | | | | | | |
| | June 30, 2022 | ||||||||||
|
| Amortized |
| Gross Unrealized | | | | |||||
|
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
Corporate debt securities | |
| 152,771 | | | 0 | | | (3,483) | | | 149,288 |
Government obligations | | | 5,873 | | | — | | | (188) | | | 5,685 |
Total | | $ | 158,644 | | $ | — | | $ | (3,671) | | $ | 154,973 |
| | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||
|
| Amortized |
| Gross Unrealized | | | | |||||
|
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
Commercial paper | | $ | 75,275 | | | 5 | | | (1) | | $ | 75,279 |
Corporate debt securities | |
| 268,246 | | | 81 | | | (644) | |
| 267,683 |
Asset-backed securities | |
| 15,287 | | | 16 | | | (5) | |
| 15,298 |
Government obligations | | | 18,479 | | | 5 | | | (59) | | | 18,425 |
Total | | $ | 377,287 | | $ | 107 | | $ | (709) | | $ | 376,685 |
23
September 30, 2017 | ||||||||||||||||
Amortized Cost | Gross Unrealized | Fair Value | ||||||||||||||
Gains | Losses | |||||||||||||||
Commercial paper | $ | — | $ | — | $ | — | $ | — | ||||||||
Corporate debt securities | 27,675 | 2 | (205 | ) | 27,472 | |||||||||||
Government obligations | — | — | — | — | ||||||||||||
$ | 27,675 | $ | 2 | $ | (205 | ) | $ | 27,472 |
December 31, 2016 | ||||||||||||||||
Amortized Cost | Gross Unrealized | Fair Value | ||||||||||||||
Gains | Losses | |||||||||||||||
Commercial paper | $ | 12,919 | $ | 47 | $ | — | $ | 12,966 | ||||||||
Corporate debt securities | 153,240 | 52 | (103 | ) | 153,189 | |||||||||||
Government obligations | 7,188 | 2 | — | 7,190 | ||||||||||||
$ | 173,347 | $ | 101 | $ | (103 | ) | $ | 173,345 |
For available for sale debt securities within an unrealized loss position, that were not considered to be other-than-temporarily impaired as the Company hasassesses whether it intends to sell or if it is more likely than not that the abilityCompany will be required to hold suchsell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value. For the three and six months ended June 30, 2022, 0 write downs occurred. The Company does not intend to sell the investments untiland it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. The Company also reviews its available for sale debt securities in an unrealized loss position and evaluates whether the decline in fair value.value has resulted from credit losses or other factors. This review is subjective, as it requires management to evaluate whether an event or change in circumstances has occurred in that period that may be related to credit issues. For the three and six months ended June 30, 2022 and 2021, 0 allowance was recorded for credit losses. Unrealized gains and losses are reported as a component of accumulated other comprehensive (loss) income in stockholders’ equity. As of September
For the three and six months ended June 30, 2017,2022, the Company had $0.03$0.3 million inand $0.4 million realized gains resulting from the sale of
| | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | ||||||||||||||||
|
| Securities in an unrealized loss |
| Securities in an unrealized loss |
| | | | | | ||||||||
|
| position less than 12 months |
| position greater than or equal to 12 months | | Total | ||||||||||||
|
| Unrealized losses |
| Fair Value |
| Unrealized losses |
| Fair Value |
| Unrealized losses |
| Fair Value | ||||||
Corporate debt securities | | | (3,173) | | | 133,542 | | | (310) | | | 10,745 | | | (3,483) | | | 144,287 |
Government obligations | | | (188) | | | 5,686 | | | — | | | — | | | (188) | | | 5,686 |
Total | | $ | (3,361) | | $ | 139,228 | | $ | (310) | | $ | 10,745 | | $ | (3,671) | | $ | 149,973 |
The unrealized losses and fair values of available for sale debt securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of December 31, 2021 are as follows:
| | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||||||||
|
| Securities in an unrealized loss |
| Securities in an unrealized loss |
| | | | | | ||||||||
|
| position less than 12 months |
| position greater than or equal to 12 months | | Total | ||||||||||||
|
| Unrealized losses |
| Fair Value |
| Unrealized losses |
| Fair Value |
| Unrealized losses |
| Fair Value | ||||||
Commercial paper | | $ | (1) | | | 12,992 | | | — | | | — | | | (1) | | | 12,992 |
Corporate debt securities | | | (608) | | | 217,540 | | | (36) | | | 4,985 | | | (644) | | | 222,525 |
Asset-backed securities | |
| (5) | | | 10,786 | | | — | | | — | |
| (5) | | | 10,786 |
Government obligations | | | (59) | | | 15,483 | | | — | | | — | | | (59) | | | 15,483 |
Total | | $ | (673) | | $ | 256,801 | | $ | (36) | | $ | 4,985 | | $ | (709) | | $ | 261,786 |
Available for sale debt securities at SeptemberJune 30, 20172022 and December 31, 20162021 mature as follows:
| | | | | | |
| | June 30, 2022 | ||||
|
| Less Than |
| More Than | ||
|
| 12 Months |
| 12 Months | ||
Corporate debt securities | |
| 86,892 | |
| 62,396 |
Government obligations | | | — | | | 5,685 |
Total | | $ | 86,892 | | $ | 68,081 |
24
September 30, 2017 | ||||||||
Less Than 12 Months | More Than 12 Months | |||||||
Commercial paper | $ | — | $ | — | ||||
Corporate debt securities | 27,472 | — | ||||||
Government obligations | — | — | ||||||
Total Marketable securities | $ | 27,472 | $ | — |
December 31, 2016 | ||||||||
Less Than 12 Months | More Than 12 Months | |||||||
Commercial paper | $ | 12,966 | $ | — | ||||
Corporate debt securities | 137,196 | 15,993 | ||||||
Government obligations | 7,190 | — | ||||||
Total Marketable securities | $ | 157,352 | $ | 15,993 |
| | | | | | |
| | December 31, 2021 | ||||
|
| Less Than |
| More Than | ||
|
| 12 Months |
| 12 Months | ||
Commercial paper | | $ | 75,279 | | $ | — |
Corporate debt securities | |
| 131,606 | |
| 136,077 |
Asset-backed securities | |
| 8,724 | |
| 6,574 |
Government obligations | | | 6,002 | | | 12,423 |
Total | | $ | 221,611 | | $ | 155,074 |
The Company classifies all of its marketable securities as current as they are all either available for sale debt securities or equity investments and are available for current operations.
Convertible senior notes
In August 2015, the Company issued $150.0 million of 3.00% convertible senior notes due August 15, 2022 (the “2022 Convertible Notes”). In September 2019, the Company issued $287.5 million of 1.50% convertible senior notes due September 15, 2026 (the “2026 Convertible Notes,” together with the “2022 Convertible Notes,” the “Convertible Notes”). The fair value of the Convertible Notes, which differs from their carrying values, is influenced by interest rates, the Company’s stock price and stock price volatility and is determined by prices for the Convertible Notes observed in market trading which are Level 2 inputs. The estimated fair value of the 2022 Convertible Notes at June 30, 2022 and December 31, 2021 was $150.6 million and $158.3 million, respectively. The estimated fair value of the 2026 Convertible Notes at June 30, 2022 and December 31, 2021 was $300.4 million and $305.3 million, respectively.
Level 3 valuation
The warrant liabilitycontingent consideration payable is classified in Other long-term liabilities on the Company’s consolidated balance sheets. The warrant liability is marked-to-marketfair valued each reporting period with the change in fair value recorded as a gain or loss within Other expense, net,the change in the fair value of deferred and contingent consideration on the Company’s consolidated statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified as an equity instrument.operations. The fair value of the warrant liabilitydevelopment and regulatory milestones is determined at each reporting period byestimated utilizing a probability adjusted, discounted cash flow approach. The discount rates are estimated utilizing Corporate B rated bonds maturing in the Black-Scholes option pricing model.
The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuations for the warrant liability and SARs liabilitycontingent consideration payable for the periodperiods ended SeptemberJune 30, 2017:2022 and June 30, 2021:
| | | | | | |
| | Level 3 liabilities | ||||
| | Contingent consideration payable- | | Contingent consideration payable- | ||
| | development and regulatory | | net sales milestones and royalties | ||
|
| milestones |
| | ||
Beginning balance as of December 31, 2021 | | $ | 139,300 | | $ | 100,600 |
Additions | |
| 0 | |
| 0 |
Change in fair value | |
| (10,600) | |
| (16,300) |
Reclass to accounts payable and accrued expenses | | | (50,000) | | | 0 |
Payments | | | 0 | | | 0 |
Ending balance as of June 30, 2022 | | $ | 78,700 | | $ | 84,300 |
25
Level 3 liabilities | ||||||||
Warrants | SARs | |||||||
Beginning balance as of December 31, 2016 | $ | 1 | $ | 865 | ||||
Change in fair value | 3 | 1,922 | ||||||
Payments | — | (1,064 | ) | |||||
Ending balance as of September 30, 2017 | $ | 4 | $ | 1,723 |
| | | | | | |
| | Level 3 liabilities | ||||
| | Contingent consideration payable- | | Contingent consideration payable- | ||
| | development and regulatory | | net sales milestones and royalties | ||
|
| milestones |
| | ||
Beginning balance as of December 31, 2020 | | $ | 139,200 | | $ | 101,200 |
Additions | |
| 0 | |
| 0 |
Change in fair value | |
| 400 | |
| 400 |
Payments | | | 0 | | | 0 |
Ending balance as of June 30, 2021 | | $ | 139,600 | | $ | 101,600 |
The following significant unobservable inputs were used in the valuation of the warrant liability iscontingent consideration payable for the periods ended June 30, 2022 and December 31, 2021:
| | | | | | | | |
| | June 30, 2022 | ||||||
| Fair Value | Valuation Technique | Unobservable Input | Range | ||||
Contingent consideration payable- | | $78,700 | Probability-adjusted discounted cash flow | Potential development and regulatory milestones | | $0 - $331 million | ||
Contingent considerable payable- net sales | | $84,300 | Option-pricing model with Monte Carlo simulation | Potential net sales milestones | | $0 - $150 million |
| | | | | | | | |
| | December 31, 2021 | ||||||
| Fair Value | Valuation Technique | Unobservable Input | Range | ||||
Contingent consideration payable- | | $139,300 | Probability-adjusted discounted cash flow | Potential development and regulatory milestones | | $0 - $381 million | ||
Contingent considerable payable- net sales | | $100,600 | Option-pricing model with Monte Carlo simulation | Potential net sales milestones | | $0 - $150 million |
The contingent consideration payables are classified Level 3 liabilities as their valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the various inputs to the valuation approaches, including but not limited to, assumptions involving probability adjusted sales estimates for the gene therapy platform and estimated using an option-pricing model, which includes variables such asdiscount rates, the expected volatility based on guideline public companies, the stockestimated fair value andcould be significantly higher or lower than the estimated time to a liquidity event. The significant assumptions used in preparing the option pricing model for valuing the Company’s warrants as of September 30, 2017 include (i) volatility (70%), (ii) risk free interest rate (1.47%), (iii) strike price ($128.00-$2,520.00), (iv) fair value of common stock ($20.01),determined.
5. Accounts payable and (v) expected life (1.9—2.0 years). The significant assumptions used in preparing the option pricing model for valuing the Company’s warrants as of December 31, 2016 include (i) volatility (62%-67%), (ii) risk free interest rate (0.62%—1.34%), (iii) strike price ($128.00—$2,520.00), (iv) fair value of common stock ($10.91), and (v) expected life (0.4—2.7 years).
Unrealized Gains/(Losses) On Marketable Securities, net of tax | Foreign Currency Translation | Total Accumulated Other Comprehensive Items | ||||||||||
Balance at June 30, 2017 | $ | (234 | ) | $ | 2,233 | $ | 1,999 | |||||
Other comprehensive income before reclassifications | 31 | 983 | 1,014 | |||||||||
Amounts reclassified from other comprehensive items | — | — | — | |||||||||
Other comprehensive income | 31 | 983 | 1,014 | |||||||||
Balance at September 30, 2017 | $ | (203 | ) | $ | 3,216 | $ | 3,013 |
Unrealized Gains/(Losses) On Marketable Securities, net of tax | Foreign Currency Translation | Total Accumulated Other Comprehensive Items | ||||||||||
Balance at December 31, 2016 | $ | (203 | ) | $ | (1,282 | ) | $ | (1,485 | ) | |||
Other comprehensive income before reclassifications | — | 4,498 | 4,498 | |||||||||
Amounts reclassified from other comprehensive items | — | — | — | |||||||||
Other comprehensive income | — | 4,498 | 4,498 | |||||||||
Balance at September 30, 2017 | $ | (203 | ) | $ | 3,216 | $ | 3,013 |
Accounts payable and accrued expenses at SeptemberJune 30, 20172022 and December 31, 20162021 consist of the following:
| | | | | | | |
| | June 30, | | December 31, | | ||
|
| 2022 |
| 2021 | | ||
Employee compensation, benefits, and related accruals | | $ | 35,834 | | $ | 55,733 | |
Income tax payable | | | 7,582 | | | 1,287 | |
Consulting and contracted research | |
| 30,866 | |
| 26,434 | |
Professional fees | |
| 5,196 | |
| 3,547 | |
Sales allowance | |
| 64,335 | |
| 61,662 | |
Sales rebates | |
| 71,776 | |
| 68,770 | |
Royalties | | | 34,230 | | | 35,679 | |
Accounts payable | |
| 22,881 | |
| 23,033 | |
26
September 30, 2017 | December 31, 2016 | |||||||
Employee compensation, benefits, and related accruals | $ | 12,915 | $ | 13,649 | ||||
Consulting and contracted research | 9,536 | 11,505 | ||||||
Professional fees | 1,873 | 1,237 | ||||||
Sales allowance and other costs | 29,190 | 13,245 | ||||||
Accounts payable | 5,994 | 6,298 | ||||||
Other | 4,546 | 2,825 | ||||||
$ | 64,054 | $ | 48,759 |
Milestone payable | | | 50,000 | | | — | |
Other | |
| 8,218 | |
| 12,639 | |
Total | | $ | 330,918 | | $ | 288,784 | |
6. Capitalization
In August 2019, the Company entered into an At the Market Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald and RBC Capital Markets, LLC (together, the “Sales Agents”), pursuant to which, the Company may offer and sell shares of its common stock, having an aggregate offering price of up to $125.0 million from time to time through the Sales Agents by any method that is deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. NaN shares were sold during the three and six months ended June 30, 2022 and 2021. The remaining shares of the Company’s outstanding warrants were classified as liabilitiescommon stock available to be issued and sold, under the At the Market Offering, have an aggregate offering price of up to $93.0 million as of SeptemberJune 30, 20172022.
7. Net loss per share
Basic and December 31, 2016 because they contained non-standard antidilution provisions.
September 30, 2017 | |||||||||
Warrant shares | Exercise price | Expiration | |||||||
Common stock | 7,030 | $ | 128.00 | 2019 | |||||
Common stock | 130 | $ | 2,520.00 | 2019 |
December 31, 2016 | |||||||||
Warrant shares | Exercise price | Expiration | |||||||
Common stock | 6,250 | $ | 128.00 | 2017 | |||||
Common stock | 7,030 | $ | 128.00 | 2019 | |||||
Common stock | 130 | $ | 2,520.00 | 2019 |
The following tables set forth the computation of basic and diluted net loss per share:
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | | ||||||||
|
| 2022 |
| 2021 |
| | 2022 |
| 2021 |
| | ||||
Numerator | | | | | | | | | | | | | | | |
Net loss | | $ | (152,087) |
| $ | (118,370) |
| | $ | (278,813) |
| $ | (247,012) |
| |
Denominator | | | | | | | | | | | | | | | |
Denominator for basic and diluted net loss per share | |
| 71,372,940 |
|
| 70,414,632 |
| |
| 71,294,458 |
|
| 70,302,241 |
| |
Net loss per share: | | | | | | | | | | | | | | | |
Basic and diluted | | $ | (2.13) | * | $ | (1.68) | * | | $ | (3.91) | * | $ | (3.51) | * | |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Numerator | ||||||||||||||||
Net loss | $ | (33,738 | ) | $ | (35,167 | ) | $ | (80,270 | ) | $ | (115,314 | ) | ||||
Denominator | ||||||||||||||||
Denominator for basic and diluted net loss per share | 41,296,740 | 34,088,741 | 38,433,749 | 34,002,952 | ||||||||||||
Net loss per share: | ||||||||||||||||
Basic and diluted | $ | (0.82 | ) | * | $ | (1.03 | ) | * | $ | (2.09 | ) | * | $ | (3.39 | ) | * |
*In the three and ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, the Company experienced a net loss and therefore did not report any dilutive share impact.
The following table shows historical dilutive common share equivalents outstanding, which are not included in the above historical calculation, as the effect of their inclusion is anti-dilutive during each period.
As of September 30, | |||||
2017 | 2016 | ||||
Stock Options | 6,612,765 | 5,832,166 | |||
Unvested restricted stock awards and units | 402,853 | 272,579 | |||
Total | 7,015,618 | 6,104,745 |
8. |
In May 2013, the Company’s Board of Directors and stockholders approved the 2013 Long TermLong-Term Incentive Plan, which became effective upon the closing of the Company’s IPO.initial public offering. On June 8, 2022 (the “Restatement Effective Date”), the Company’s stockholders approved the Amended and Restated 2013 Long-Term Incentive Plan (the “Amended 2013 LTIP”). The Amended 2013 LTIP provides for the grant of incentive stock options, nonstatutory stock options, restricted stock units and other stock-based awards. The number of shares of common stock reserved for issuance under the Amended 2013 LTIP is the sum of (A) the number of shares of the Company’s common stock (up to 16,724,212 shares) that is equal to the sum of (1) the number of shares issued under the 2013 Long-Term Incentive Plan prior to the Restatement Effective Date, (2) the number of shares that remain available for issuance under the 2013 Long-Term
27
Incentive Plan immediately prior to the Restatement Effective Date and (3) the number of shares subject to awards granted under the 2013 Long-Term Incentive Plan prior to the Restatement Effective Date that are outstanding as of the Restatement Effective Date, plus (B) from and after the Restatement Effective Date, an additional 8,475,000 shares of Common Stock. As of June 30, 2022, awards for 9,306,210 shares of common stock are available for issuance under the Amended 2013 LTIP.
There are 0 additional shares of common stock available for issuance under the Company’s 1998 Employee, Director and Consultant Stock Option Plan, 2009 Equity and Long Term Incentive Plan or 2013 Stock Incentive Plan.
In January 2020, the Company’s Board of Directors approved the 2020 Inducement Stock Incentive Plan. The 2020 Inducement Stock Incentive Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards and other stock-based awards. Theawards for up to, at the time, an aggregate of 1,000,000 shares of common stock. Any grants made under the 2020 Inducement Stock Incentive Plan must be made pursuant to the Nasdaq Listing Rule 5635(c)(4) inducement grant exception as a material component of the Company’s new hires’ employment compensation. In December 2020, the Company’s Board of Directors approved an additional 1,000,000 shares of common stock that may be issued under the 2020 Inducement Stock Incentive Plan. In April 2022, the Company’s Board of Directors approved a reduction in the total number of shares of common stock reserved for issuancethat may be issued under the 2013 Long Term2020 Inducement Stock Incentive Plan is the sumto 1,300,000 shares. As of (1) 122,296June 30, 2022, awards for 46,233 shares of common stock were available for issuance under the Company’s 2009 Equity and Long Term Incentive Plan and 20132020 Inducement Stock Incentive Plan, (2)Plan.
The Board of Directors has the numberauthority to select the individuals to whom options are granted and determine the terms of shares (up to 3,040,444 shares) equal to the sum ofeach option, including (i) the number of shares of common stock subject to outstanding awards underthe option; (ii) the date on which the option becomes exercisable; (iii) the option exercise price, which, in the case of incentive stock options, must be at least 100% (110% in the case of incentive stock options granted to a stockholder owning in excess of 10% of the Company’s 1998 Employee, Director and Consultant Stock Option Plan, 2009 Equity and Long Term Incentive Plan and 2013 Stock Incentive Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right plus (3) an annual increase, to be added on the first day of each fiscal year until the expirationstock) of the 2013 Long Term Incentive Plan, equal tofair market value of the lowest of 2,500,000 shares of common stock 4%as of the numberdate of shares of common stock outstanding ongrant; and (iv) the first dayduration of the fiscal year and an amount determined byoption (which, in the Company’s Boardcase of Directors. As of September 30, 2017, awards for 823,506 shares of commonincentive stock are available for issuance.
From January 1, 20172022 through SeptemberJune 30, 2017,2022, the Company issued a total of 1,809,8731,471,290 stock options to various employees. Of those, 541,550104,385 were inducement grants for non-statutory stock options. The inducement grant awardsoptions, all of which were made pursuant to the NASDAQ inducement grant exception as a material component of the Company's new hires’ employment compensation and not under the 2013 Long Term2020 Inducement Stock Incentive Plan.
A summary of stock option activity is as follows:
Number of options | Weighted- average exercise price | Weighted- average remaining contractual term | Aggregate intrinsic value | ||||||||||
(in thousands) | |||||||||||||
Outstanding at December 31, 2016 | 5,854,316 | $ | 34.71 | ||||||||||
Granted | 1,809,873 | $ | 12.12 | ||||||||||
Exercised | (132,795 | ) | $ | 10.82 | |||||||||
Forfeited/Cancelled | (918,629 | ) | $ | 33.20 | |||||||||
Outstanding at September 30, 2017 | 6,612,765 | $ | 29.21 | 7.43 years | $ | 22,786 | |||||||
Vested or Expected to vest at September 30, 2017 | 2,719,750 | $ | 24.50 | 8.59 years | $ | 11,858 | |||||||
Exercisable at September 30, 2017 | 3,718,713 | $ | 33.07 | 6.51 years | $ | 10,014 |
| | | | | | | | | | | |
|
| |
| | |
| Weighted- |
|
| | |
| | | | Weighted- | | average | | | Aggregate | ||
| | | | average | | remaining | | | intrinsic | ||
| | Number of | | exercise | | contractual | | | value(in | ||
| | options | | price | | term | | | thousands) | ||
| | | | | | | |
| | | |
Outstanding at December 31, 2021 |
| 10,772,582 | | $ | 43.66 |
|
|
| | |
|
Granted |
| 1,471,290 | | | 37.86 |
|
|
| | |
|
Exercised |
| (125,020) | | | 25.59 |
|
|
| | |
|
Forfeited/Cancelled |
| (302,900) | | | 49.52 |
|
|
| | |
|
Outstanding at June 30, 2022 |
| 11,815,952 | | $ | 42.98 |
| 6.79 | years | | $ | 52,784 |
Vested or Expected to vest at June 30, 2022 |
| 4,180,409 | | $ | 47.70 |
| 8.42 | years | | $ | 6,220 |
Exercisable at June 30, 2022 |
| 7,208,199 | | $ | 39.96 |
| 5.72 | years | | $ | 45,995 |
The fair value of grants made in the ninesix months ended SeptemberJune 30, 20172022 was contemporaneously estimated on the date of grant using the following assumptions:
| | | |
| Six months ended | ||
| June 30, | 2022 | |
Risk-free interest rate | 1.55% - 3.07% | ||
Expected volatility | 55.33% - 73.56% | ||
Expected term | 5.5 years |
28
The Company assumed no0 expected dividends for all grants. The weighted average grant date fair value of options granted during the nine-month periodsix months ended SeptemberJune 30, 20172022 was $8.30$23.60 per share.
The Company uses the “simplified method” to determine the expected term of options. Under this method, the expected term represents the average of the vesting period and the contractual term. The expected volatility of share options was estimated based on athe Company’s historical exercise data and the expected volatility analysis of peers that were similar tooptions was estimated based on the Company with respect to industry, stage of life cycle, size, and financial leverage.Company’s historical stock volatility. The risk-free rate of the option isoptions was based on U.S. Government Securities Treasury Constant Maturities yields at the date of grant for a term similar to the expected term of the option.
Restricted Stock Awards
and Restricted Stock Units—Restricted stock awardsThe following table summarizes information on the Company’s restricted stock awards and units:
Restricted Stock Awards and Units | |||||||
Number of Shares | Weighted Average Grant Date Fair Value | ||||||
January 1, 2017 | 271,651 | $ | 19.76 | ||||
Granted | 363,194 | $ | 11.64 | ||||
Vested | (180,861 | ) | $ | 14.19 | |||
Forfeited | (51,131 | ) | $ | 13.90 | |||
Unvested at September 30, 2017 | 402,853 | $ | 15.62 |
| | | | | |
| | Restricted Stock Awards and Units | |||
| | | | Weighted | |
| | | | Average | |
| | | | Grant | |
| | Number of | | Date | |
|
| Shares |
| Fair Value | |
Unvested at December 31, 2021 | | 1,519,831 | | $ | 55.43 |
Granted |
| 1,580,362 | | | 38.03 |
Vested |
| (476,223) | | | 50.44 |
Forfeited |
| (109,143) | | | 47.85 |
Unvested at June 30, 2022 |
| 2,514,827 | | $ | 45.74 |
Employee Stock Purchase Plan
—In June 2016, the Company established an Employee Stock Purchase PlanThe Company recorded share-based compensation expense in the statement of operations related to incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock units and the ESPP as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Research and development | $ | 3,624 | $ | 4,319 | $ | 11,986 | $ | 12,734 | ||||||||
Selling, general and administrative | 3,544 | 4,640 | 12,096 | 13,876 | ||||||||||||
Total | $ | 7,168 | $ | 8,959 | $ | 24,082 | $ | 26,610 |
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | | ||||
Research and development | | $ | 13,798 | | $ | 13,443 | | $ | 26,832 | | $ | 27,168 | |
Selling, general and administrative | |
| 13,932 | |
| 12,256 | |
| 27,487 | |
| 24,238 | |
Total | | $ | 27,730 | | $ | 25,699 | | $ | 54,319 | | $ | 51,406 | |
As of SeptemberJune 30, 2017,2022, there was approximately $45.6$227.4 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the 2009 Equity and Long Term Incentive Plan, the 2013 Long Term Incentive Plan and equity awards made pursuant to the NASDAQNasdaq Listing Rule 5635(c)(4) inducement grant exception
29
for new hires. This cost is expected to be recognized as share-based compensation expense over the weighted average remaining service period of approximately 2.052.47 years.
9. Debt
Liability for sale of future royalties
In May 2017,July 2020, the Company entered into a creditthe Royalty Purchase Agreement. As RPI’s interest is explicitly limited, the $650.0 million cash consideration was classified as debt and security agreement (the "Credit Facility") with MidCap Financial Trust, a Delaware statutory trust (“MidCap”),is recorded as administrative agent“liability for sale of future royalties-current” and MidCap and certain other financial institutions as lenders thereunder (the “Credit Agreement”) that provides“liability for a senior secured term loan facilitysale of $60.0 million,future royalties-noncurrent” on the Company’s consolidated balance sheet based on the timing of which $40.0 million was drawn by the Company on May 5, 2017.expected payments to be made to RPI. The remaining $20.0 million under the senior secured term loan facility will become available to the Company upon its demonstration (on or prior to December 31, 2018) of net product revenue equaling or exceeding $120.0 millionfair value for the trailing 12 month period. The Company capitalized approximately $0.4 millionliability for sale of debt issuance costs, which were netted againstfuture royalties at the carrying valuetime of the Credit Facility and willtransaction was based on the Company’s estimates of future royalties expected to be amortizedpaid to RPI over the termlife of the Credit Facility.
The following table shows the activity within the “liability for sale of future royalties- current” and “liability for sale of future royalties- noncurrent” accounts for the principal oversix months ended June 30, 2022:
| | | | |
|
| Six Months Ended June 30, | | |
Liability for sale of future royalties- (current and noncurrent) | | 2022 | | |
Beginning balance as of December 31, 2021 | | $ | 733,985 | |
Less: Non-cash royalty revenue payable to RPI | | | (17,482) | |
Plus: Non-cash interest expense recognized | | | 37,825 | |
Ending balance | | $ | 754,328 | |
Effective interest rate as of June 30, 2022 | |
| 10.1 | % |
Non-cash interest expense is recorded in the twenty-four month period. The maturity datestatement of the Credit Agreement is May 1, 2021, unless terminated earlier.
2026 Convertible Notes
In August 2015,September 2019, the Company issued, at par value, $150.0$287.5 million aggregate principal amount of 3.0%1.50% convertible senior notes due 2022 (the "Convertible Notes").2026, which included an option to purchase up to an additional $37.5 million in aggregate principal amount of the 2026 Convertible Notes, which was exercised in full by the initial purchasers. The 2026 Convertible Notes bear cash interest at a rate of 3.0%1.50% per year, payable semi-annually on FebruaryMarch 15 and AugustSeptember 15 of each year, beginning on FebruaryMarch 15, 2016.2020. The 2026 Convertible Notes will mature on AugustSeptember 15, 2022,2026, unless earlier repurchased or converted. The net proceeds to the Company from the offering were $145.4$279.3 million after deducting the initial purchasers’ discounts and commissions and the offering expenses payable by the Company.
The 2026 Convertible Notes are governed by an indenture (the "2026 Convertible Notes Indenture)Indenture") with U.S Bank National Association as trustee (the "2026 Convertible Notes Trustee)Trustee").
Holders of the 2026 Convertible Notes may convert their 2026 Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding FebruaryMarch 15, 20222026 only under the following circumstances:
● | during any calendar quarter commencing on or after December 31, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; |
30
● | during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the 2026 Convertible Notes Indenture) per $1,000 principal amount of 2026 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; |
● | during any period after the Company has issued notice of redemption until the close of business on the scheduled trading day immediately preceding the relevant redemption date; or |
● | upon the occurrence of specified corporate events. |
On or after FebruaryMarch 15, 2022,2026, until the close of business on the business day immediately preceding the maturity date, holders may convert their 2026 Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, up to the aggregate principal amountshares of the Convertible Notes to be converted and deliver shares of itsCompany’s common stock in respect ofor any combination thereof at the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of Convertible Notes being converted.
The conversion rate for the 2026 Convertible Notes was initially, and remains, 17.748719.0404 shares of the Company’s common stock per $1,000 principal amount of the 2026 Convertible Notes, which is equivalent to an initial conversion price of approximately $56.34$52.52 per share of the Company’s common stock.
The Company mayis not permitted to redeem the 2026 Convertible Notes prior to AugustSeptember 20, 2018.2023. The Company may redeem for cash all or any portion of the 2026 Convertible Notes, at its option, on or after August 20, 2018 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect on the last trading day of, and for at least 19 other trading days (whether or not consecutive) during, any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100% of the principal amount of the 2026 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. NoNaN sinking fund is provided for the 2026 Convertible Notes, which means that the Company is not required to redeem or retire the 2026 Convertible Notes periodically.
If the Company undergoes a “fundamental change” (as defined in the Indenture governing the2026 Convertible Notes Indenture), subject to certain conditions, holders of the 2026 Convertible Notes may require the Company to repurchase for cash all or part of their 2026 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The 2026 Convertible Notes represent senior unsecured obligations and will rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the notes, equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) incurred by the Company’s subsidiaries. The 2026 Convertible Notes Indenture contains customary events of default with respect to the 2026 Convertible Notes, including that upon certain events of default (including the Company’s failure to make any payment of principal or interest on the 2026 Convertible Notes when due and payable) occurring and continuing, the 2026 Convertible Notes Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding 2026 Convertible Notes by notice to the Company and the Convertible Notes Trustee, may, and the 2026 Convertible Notes Trustee at the request of such holders (subject to the provisions of the 2026 Convertible Notes Indenture) shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2026 Convertible Notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving the Company or a significant subsidiary, 100% of the principal of and accrued and unpaid interest on the 2026 Convertible Notes will automatically become due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately.
Prior to the adoption of ASU 2020-06, the Company accountsaccounted for the 2026 Convertible Notes as a liability and equity component where the carrying value of the liability component will bewas valued based on a similar instrument. In accounting for the issuance of the 2026 Convertible Notes, the Company separated the 2026 Convertible Notes into liability and equity
31
components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that doesdid not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2026 Convertible Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, iswas amortized to interest expense over the seven-year term of the 2026 Convertible Notes. The equity component iswas not re-measured as long as it continuescontinued to meet the conditions for equity classification. The equity component recorded at issuance related to the 2026 Convertible Notes is $57.5was $123.0 million and was recorded in additional paid-in capital.
In accounting for the transaction costs related to the issuance of the 2026 Convertible Notes, the Company allocated the total costs incurred to the liability and equity components of the 2026 Convertible Notes based on their relative values. Transaction costs attributable to the liability component arewere amortized to interest expense over the seven-year term of the 2026 Convertible Notes, and transaction costs attributable to the equity component were netted with the equity components in stockholders’ equity. Additionally, the Company initially recorded a net deferred tax liability of $25.3 million in connection with the 2026 Convertible Notes.
Effective January 1, 2021 the Company adopted ASU 2020-06. After adoption, the Company now accounts for the 2026 Convertible Notes as a single liability measured at amortized cost. As the equity component is no longer required to be split into a separate component, the Company recorded an adjustment for the initial $123.0 million that was allocated to additional paid in capital and $16.1 million of life to date interest expense recorded as amortization of debt discount. Additionally, the net deferred tax liability recorded for the 2026 Convertible Notes was reversed. The principal amount of the liability over its carrying amount is amortized to interest expense over the seven-year term of the 2026 Convertible Notes. Since the 2026 Convertible Notes are classified as a single liability, there is 0 debt discount required to be amortized.
The 2026 Convertible Notes consist of the following:
| | | | | | | |
|
| | | | | | |
Liability component | | June 30, 2022 | | December 31, 2021 | | ||
Principal | | $ | 287,500 | | $ | 287,500 | |
Less: Debt issuance costs | |
| (5,040) | |
| (5,606) | |
Net carrying amount | | $ | 282,460 | | $ | 281,894 | |
As of June 30, 2022, the remaining contractual life of the 2026 Convertible Notes is approximately 4.2 years.
The following table sets forth total interest expense recognized related to the 2026 Convertible Notes:
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
|
| | Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
| | 2022 | | 2021 |
| 2022 | | 2021 | | ||||
Contractual interest expense | | $ | 1,066 | | $ | 1,066 | | $ | 2,135 | | $ | 2,135 | |
Amortization of debt issuance costs | |
| 284 | | | 279 | | | 567 | | | 556 | |
Total | | $ | 1,350 | | $ | 1,345 | | $ | 2,702 | | $ | 2,691 | |
Effective interest rate of the liability component | |
| 1.9 | % | | 1.9 | % | | 1.9 | % | | 1.9 | % |
In April 2022, under the terms of the 2026 Convertible Notes Indenture, the Company paid additional interest on the 2026 Convertible Notes at a rate equal to 0.5% per annum, for a total interest payment of approximately $2.1 million, for the period beginning September 25, 2020 and ending March 14, 2022. This amount is not included in the table above, but was recorded as interest expense, net within the statement of operations for the three and six months ended June 30, 2022.
32
2022 Convertible Notes
In August 2015, the Company issued, at par value, $150.0 million aggregate principal amount of 3.00% convertible senior notes due 2022. The 2022 Convertible Notes bear cash interest at a rate of 3.00% per year, payable semi-annually on February 15 and August 15 of each year, beginning on February 15, 2016. The 2022 Convertible Notes will mature on August 15, 2022, unless earlier repurchased or converted. The net proceeds to the Company from the offering were $145.4 million after deducting the initial purchasers’ discounts and commissions and the offering expenses payable by the Company.
The 2022 Convertible Notes are governed by an indenture (the "2022 Convertible Notes Indenture") with U.S Bank National Association as trustee (the "2022 Convertible Notes Trustee").
As of February 15, 2022, until the close of business on the business day immediately preceding the maturity date, holders may convert their 2022 Convertible Notes at any time. Upon conversion, the Company will pay and deliver a combination of cash and shares of the Company’s common stock.
The conversion rate for the 2022 Convertible Notes was initially, and remains, 17.7487 shares of the Company’s common stock per $1,000 principal amount of the 2022 Convertible Notes, which is equivalent to an initial conversion price of approximately $56.34 per share of the Company’s common stock. The conversion rate may be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.
The Company was not permitted to redeem the 2022 Convertible Notes prior to August 20, 2018. As of August 20, 2018, the Company may redeem for cash all or any portion of the 2022 Convertible Notes, at its option, if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect on the last trading day of, and for at least 19 other trading days (whether or not consecutive) during, any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100% of the principal amount of the 2022 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. NaN sinking fund is provided for the 2022 Convertible Notes, which means that the Company is not required to redeem or retire the 2022 Convertible Notes periodically. There have been 0 redemptions to date.
If the Company undergoes a “fundamental change” (as defined in the 2022 Convertible Notes Indenture), subject to certain conditions, holders of the 2022 Convertible Notes may require the Company to repurchase for cash all or part of their 2022 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2022 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The 2022 Convertible Notes represent senior unsecured obligations and will rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the notes, equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) incurred by the Company’s subsidiaries. The 2022 Convertible Notes Indenture contains customary events of default with respect to the 2022 Convertible Notes, including that upon certain events of default (including the Company’s failure to make any payment of principal or interest on the 2022 Convertible Notes when due and payable) occurring and continuing, the 2022 Convertible Notes Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding 2022 Convertible Notes by notice to the Company and the Convertible Notes Trustee, may, and the 2022 Convertible Notes Trustee at the request of such holders (subject to the provisions of the 2022 Convertible Notes Indenture) shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2022 Convertible Notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving the Company or a significant subsidiary, 100% of the principal of and accrued and unpaid interest on the 2022 Convertible Notes will automatically become due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately.
33
Prior to the adoption of ASU 2020-06, the Company accounted for the 2022 Convertible Notes as a liability and equity component where the carrying value of the liability component was valued based on a similar instrument. In accounting for the issuance of the 2022 Convertible Notes, the Company separated the 2022 Convertible Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that did not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2022 Convertible Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, was amortized to interest expense over the seven-year term of the 2022 Convertible Notes. The equity component was not re-measured as long as it continued to meet the conditions for equity classification. The equity component recorded at issuance related to the 2022 Convertible Notes was $57.5 million and was recorded in additional paid-in capital.
In accounting for the transaction costs related to the issuance of the 2022 Convertible Notes, the Company allocated the total costs incurred to the liability and equity components of the 2022 Convertible Notes based on their relative values. Transaction costs attributable to the liability component were amortized to interest expense over the seven-year term of the 2022 Convertible Notes, and transaction costs attributable to the equity component are netted with the equity components in stockholders’ equity. Additionally, the Company initially recorded a net deferred tax liability of $22.3 million in connection with the 2022 Convertible Notes.
Effective January 1, 2021 the Company adopted ASU 2020-06. After adoption, the Company now accounts for the 2022 Convertible Notes as a single liability measured at amortized cost. As the equity component is no longer required to be split into a separate component, the Company recorded an adjustment for the initial $57.5 million that was allocated to additional paid in capital and $38.7 million of life to date interest expense recorded as amortization of debt discount. Additionally, the net deferred tax liability recorded for the 2022 Convertible Notes was reversed. The principal amount of the liability over its carrying amount is amortized to interest expense over the seven-year term of the 2022 Convertible Notes. Since the 2022 Convertible Notes are classified as a single liability, there is 0 debt discount required to be amortized.
The 2022 Convertible Notes consist of the following:
| | | | | | | |
| | | | | | | |
| | | | | | | |
Liability component |
| June 30, 2022 |
| December 31, 2021 | | ||
Principal | | $ | 150,000 | | $ | 150,000 | |
Less: Debt issuance costs | |
| (92) | |
| (460) | |
Net carrying amount | | $ | 149,908 | | $ | 149,540 | |
Liability component | September 30, 2017 | December 31, 2016 | ||||||
Principal | $ | 150,000 | $ | 150,000 | ||||
Less: Debt issuance costs | (2,208 | ) | (2,457 | ) | ||||
Less: Debt discount, net(1) | (44,329 | ) | (49,327 | ) | ||||
Net carrying amount | $ | 103,463 | $ | 98,216 |
As of SeptemberJune 30, 2017,2022, the remaining contractual life of the 2022 Convertible Notes is approximately 4.90.1 years.
The following table sets forth total interest expense recognized related to the 2022 Convertible Notes:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Contractual interest expense | $ | 1,134 | $ | 1,131 | $ | 3,375 | $ | 3,372 | ||||||||
Amortization of debt issuance costs | 86 | 77 | 249 | 224 | ||||||||||||
Amortization of debt discount | 1,725 | 1,546 | 4,999 | 4,487 | ||||||||||||
Total | $ | 2,945 | $ | 2,754 | $ | 8,623 | $ | 8,083 | ||||||||
Effective interest rate of the liability component | 11 | % | 11 | % | 11 | % | 11 | % |
| | | | | | | | | | | | | | |
| | | | | | |
| | | | | |
| |
| | Three Months Ended June 30, |
| Six Months Ended June 30, |
| | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| | ||||
Contractual interest expense | | $ | 1,131 | | $ | 1,131 | | $ | 2,241 | | $ | 2,241 | | |
Amortization of debt issuance costs | |
| 186 | |
| 180 | |
| 368 | |
| 355 | | |
Total | | $ | 1,317 | | $ | 1,311 | | $ | 2,609 | | $ | 2,596 | | |
Effective interest rate of the liability component | |
| 3.5 | % |
| 3.5 | % |
| 3.5 | % |
| 3.5 | % | |
10. Commitments and contingencies
Under various agreements, the Company will be required to pay royalties and milestone payments upon the successful development and commercialization of products. The Company has entered into funding agreements with The Wellcome Trust Limited ("Wellcome Trust") for the research and development of small molecule compounds in connection with the Company's cancer stem cell
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Company’s oncology and antibacterial programs. As the Company has discontinued development under its antibacterial program, it no longer expects that milestone and royalty payments from the Company to Wellcome Trust will apply under that agreement, resulting in a change to the total amount of development and regulatory milestone payments the Company may become obligated to pay for this program. Under the cancer stem celloncology program funding agreement, to the extent that the Company develops and commercializes program intellectual property on a for-profit basis itself or in collaboration with a partner (provided the Company retains overall control of worldwide commercialization), the Company may become obligated to pay to Wellcome Trust development and regulatory milestone payments and single-digit royalties on sales of any research program product. The Company’s obligation to pay such royalties would continue on a country-by-country basis until the longer of the expiration of the last patent in the program intellectual property in such country covering the research program product and the expiration of market exclusivity of such product in such country. The Company’sCompany made the first suchdevelopment milestone payment of $0.8 million payable to Wellcome Trust occurred inunder the oncology platform funding agreement during the second quarter of 2016. Additional milestone payments of up to an aggregate of $22.4 million may become payable by the Company to Wellcome Trust under this agreement.
The Company has also entered into a collaboration agreement with the SMA Foundation. The Company may becomeis obligated to pay the SMA Foundation single- digitsingle-digit royalties on worldwide net product sales of any collaboration product that is successfully developed and subsequently commercialized or, ifwith respect to collaboration products the Company outlicenses, rights to a collaboration product,including Evrysdi, a specified percentage of certain payments the Company receives from its licensee. The Company is not obligated to make such payments unlessAs of the six months ended June 30, 2022, the SMA Foundation earned $16.2 million, $12.1 million which was paid and until annual sales of a collaboration product exceed a designated threshold.$4.1 million which was accrued. The Company’s obligation to make such payments would end upon ourthe Company’s payment to the SMA Foundation of an aggregate of $52.5 million.
Pursuant to the asset purchase agreement ("Asset Purchase Agreement") between the Company and Marathon Pharmaceuticals, LLC (now known as Complete Pharma Holdings, LLC) (“Marathon”), Marathon is entitled to receive contingent payments from the Company based on annual net sales of Emflaza up to a specified amount.aggregate maximum amount over the expected commercial life of the asset. In addition, Marathon received a $50.0 million sales-based milestone during the six months ended June 30, 2022.
Pursuant to the Agilis Merger Agreement, Agilis equityholders were previously entitled to receive contingent consideration payments from the Company based on (i) the achievement of certain development milestones up to an aggregate maximum amount of $60.0 million, (ii) the achievement of certain regulatory approval milestones together with a milestone payment following the receipt of a priority review voucher up to an aggregate maximum amount of $535.0 million, (iii) the achievement of certain net sales milestones up to an aggregate maximum amount of $150.0 million, and (iv) a percentage of annual net sales for Friedreich ataxia and Angelman syndrome during specified terms, ranging from 2%-6%. The Company was required to pay $40.0 million of the development milestone payments upon the passing of the second anniversary of the closing of the Agilis Merger, regardless of whether the applicable milestones have been achieved.
Pursuant to the terms of a Rights Exchange Agreement, by and among the Company, the Rightholders set forth therein, and, for the limited purposes set forth therein, Shareholder Representatives Services LLC, dated as of April 29, 2020 (the “Rights Exchange Agreement”), the former equityholders of Agilis (the “Participating Rightholders”) canceled and forfeited their rights under the Agilis Merger Agreement to receive (i) $174.0 million, in the aggregate, of potential milestone payments based on the achievement of certain regulatory milestones and (ii) $37.6 million, in the aggregate, of $40.0 million in development milestone payments that would have been due upon the passing of the second anniversary of the closing of the Agilis Merger, regardless of whether the milestones are achieved.
The Rights Exchange Agreement has no effect on the Agilis Merger Agreement other than to provide for the cancellation and forfeiture of the Participating Rightholders’ rights to receive $211.6 million, in the aggregate, of the milestone payments described above. As a result, all other rights and obligations under the Agilis Merger Agreement remain in effect pursuant to their terms, including the Company’s obligation to pay up to an aggregate maximum amount of $20.0 million upon the achievement of certain development milestones (representing the remaining portion of potential development milestone payments for which rights were not canceled and forfeited pursuant to the Rights Exchange Agreement while excluding the remaining $2.4 million milestone payment that was due and paid upon the passing of the second anniversary of the closing of the Agilis Merger), up to an aggregate maximum amount of $361.0 million upon the achievement of certain regulatory milestones (representing the remaining portion of potential regulatory milestone payments for which
35
rights were not canceled and forfeited pursuant to the Rights Exchange Agreement), up to a maximum aggregate amount of $150.0 million upon the achievement of certain net sales milestones and a percentage of annual net sales for Friedreich ataxia and Angelman syndrome during specified terms, ranging from 2% to 6%, pursuant to the terms of the Agilis Merger Agreement.
Subject to the terms and conditions of the BioElectron Asset Acquisition Agreement, BioElectron may become entitled to receive contingent milestone payments of up to $200.0 million (in cash or in shares of the Company’s common stock, as determined by the Company) from the Company based on the achievement of certain regulatory and net sales milestones. Subject to the terms and conditions of the BioElectron Asset Acquisition Agreement, BioElectron may also become entitled to receive contingent payments based on a percentage of net sales of certain products.
Subject to the terms and conditions of the Agreement and Plan of Merger, dated as of May 5, 2020 (the “Censa Merger Agreement”) by and among the Company, Hydro Merger Sub, Inc., our wholly owned, indirect subsidiary, and, solely in its capacity as the representative, agent and attorney-in-fact of the securityholders of Censa, Shareholder Representative Services LLC (such merger pursuant thereto, the “Censa Merger”), former Censa securityholders may become entitled to receive contingent payments from the Company based on (i) the achievement of certain development and regulatory milestones up to an aggregate maximum amount of $217.5 million for PTC923’s two most advanced programs and receipt of a priority review voucher from the FDA as set forth in the Censa Merger Agreement, (ii) $109.0 million in development and regulatory milestones for each additional indication of PTC923, (iii) the achievement of certain net sales milestones up to an aggregate maximum amount of $160.0 million, (iv) a percentage of annual net sales during specified terms, ranging from single to low double digits of the applicable net sales threshold amount, and (v) any sublicense fees paid to the Company in consideration of any sublicense of Censa’s intellectual property to commercialize PTC923, on a country-by-country basis, which contingent payment shall equal to a mid-double digit percentage of any such sublicense fees. Pursuant to the Censa Merger Agreement, the Company has the option to pay the initial $30.0 million development milestone, for the completion of enrollment of a Phase 3 clinical trial for PTC923 for PKU, if achieved, in cash or shares of the Company’s common stock.
The Company also has the Tegsedi-Waylivra Agreement for the commercialization of Tegsedi and Waylivra, and products containing those compounds in countries in Latin America and the Caribbean. Pursuant to the Tegsedi-Waylivra Agreement, the Company paid Akcea an upfront licensing fee, which included an initial payment of $12.0 million. In 2019, a $6.0 million milestone was paid upon receipt of regulatory approval of Waylivra from the EMA and a $4.0 million milestone was paid upon regulatory approval of Tegsedi from ANVISA, the Brazilian health regulatory authority. In addition, a $4.0 million milestone was paid upon receipt of regulatory approval for Waylivra from ANVISA in August 2021. Akcea is also entitled to receive royalty payments subject to certain terms set forth in the Tegsedi-Waylivra Agreement.
The Company has employment agreements with certain employees which require the funding of a specific level of payments, if certain events, such as a change in control or termination without cause, occur. Additionally, the Company has royalty payments associated with Translarna, Emflaza, and EMFLAZAUpstaza product net sales, payable quarterly or annually in accordance with the terms of the related agreements.
From time to time in the ordinary course of its business, the Company is subject to claims, legal proceedings, and disputes. The Company is not currently involved in variousaware of any material legal proceedings (refer to Item 1. Legal Proceedings for further details on the lawsuits filed). against it.
11. Revenue recognition
Net product sales
The Company deniesviews its operations and manages its business in 1 operating segment.
During the three months ended June 30, 2022 and 2021, net product sales in the United States were $56.8 million and $49.1 million, respectively, consisting solely of Emflaza, and net product sales outside of the United States were $86.9 million and $54.0 million, respectively, consisting of Translarna, Tegsedi, Waylivra, and Upstaza. Upstaza sales commenced during the three months period ended June 30, 2022. Translarna net revenues made up $77.0 million and
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$52.6 million of the net product sales outside of the United States for the three months ended June 30, 2022 and 2021, respectively. For the three months ended June 30, 2022 and 2021, the Company had a total of 2 and 2 distributors, respectively, that each accounted for over 10% of the Company’s net product sales.
During the six months ended June 30, 2022 and 2021, net product sales in the United States were $105.4 million and $92.7 million, respectively, consisting solely of Emflaza, and net product sales outside of the United States were $168.1 million and $101.7 million, respectively, consisting of Translarna, Tegsedi, Waylivra, and Upstaza. Upstaza sales commenced during the six months period ended June 30, 2022. Translarna net revenues made up $156.2 million and $99.1 million of the net product sales outside of the United States for the six months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, the Company had a total of 2 and 2 distributors, respectively, that each accounted for over 10% of the Company's net product sales.
As of June 30, 2022 and December 31, 2021, the Company did 0t have any allegationscontract liabilities or assets. For the three and six months ended June 30, 2022, the Company did 0t recognize any revenue related to the amounts included in the contract liability balance at the beginning of wrongdoingthe period. During the three and intendssix months ended June 30, 2021, the Company recognized $1.9 million and $4.0 million of revenue, respectively, related to vigorously defend against these lawsuits.the amounts included in the contract liability balance at the beginning of the period. The Company has not made significant changes to the judgments made in applying ASC Topic 606 for the three and six months ended June 30, 2022 and 2021.
Remaining performance obligations
Remaining performance obligations represent the transaction price for goods the Company has yet to provide. As of June 30, 2022 and December 31, 2021 the Company does 0t have any remaining performance obligations relating to Translarna net product revenue.
Collaboration and Royalty revenue
In November 2011, the Company and the SMA Foundation entered into the SMA License Agreement with Roche. Under the terms of the SMA License Agreement, Roche acquired an exclusive worldwide license to the Company’s SMA program.
Under the SMA License Agreement, the Company is unable, however,eligible to predictreceive additional payments from Roche if specified events are achieved with respect to each licensed product, including up to $135.0 million in research and development event milestones, up to $325.0 million in sales milestones upon achievement of specified sales events, and up to double digit royalties on worldwide annual net sales of a commercial product.
The SMA program currently has one approved product, Evrysdi, which was approved in August 2020 by the outcomeFDA for the treatment of these matters at this time. Moreover,SMA in adults and children two months and older. As of June 30, 2022, the Company does 0t have any conclusionremaining research and development event milestones that can be received. The remaining potential sales milestones that can be received is $300.0 million.
For the three months ended June 30, 2022 and 2021, the Company did 0t recognize collaboration revenue related to the SMA License Agreement. For the six months ended June 30, 2022 and 2021, the Company recognized collaboration revenue related to the SMA License Agreement of this matter$0.0 million and $20.0 million, respectively. The first commercial sale of Evrysdi in the EU was made in March 2021. This event triggered a manner adverse$20.0 million milestone payment to the Company andfrom Roche for which it incurs substantial costs or damages not covered by the Company's directors’ and officers’ liability insurance would have a material adverse effect on its financial condition and business. six months ended June 30, 2021.
In addition to research and development and sales milestones, the litigation could adversely impactCompany is eligible to receive up to double-digit royalties on worldwide annual net sales of a commercial product under the Company's reputationSMA License Agreement. For the three and divert management’s attentionsix months ended June 30, 2022, the Company has recognized $21.8 million and resources from other priorities, including$40.7 million of royalty revenue, respectively, related to Evrysdi. For the executionthree and six months ended June 30, 2021, the Company has recognized $13.6 million and $20.2 million of business plansroyalty revenue, respectively, related to Evrysdi.
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12. Intangible assets and strategies that are important to the Company's ability to grow its business, any of which could have a material adverse effect on the Company's business.
Definite-lived intangibles
On April 20, 2017, the Company completed its previously announced acquisition of all rights to EMFLAZAEmflaza pursuant to anthe Asset Purchase Agreement, dated March 15, 2017, and amended on April 20, 2017, by and between the Company and Marathon. The
Marathon is entitled to receive contingent payments from the Company based on annual net sales of EMFLAZAEmflaza beginning in 2018, up to a specified aggregate maximum amount over the expected commercial life of the asset. In addition,accordance with the guidance for an asset acquisition, the Company records the milestone payment when it becomes payable to Marathon hasand increases the opportunity to receivecost basis for the Emflaza rights intangible asset. Marathon received a single $50.0 million sales-based milestone.milestone during the six month period ended June 30, 2022. For the three months ended June 30, 2022 and 2021, total milestone payments of $21.7 million and $17.1 million were recorded, respectively. For the six months ended June 30, 2022 and 2021, total milestone payments of $83.8 million and $26.0 million were recorded, respectively. These payments are being amortized over the remaining useful life of the Emflaza rights asset on a straight line basis. As of June 30, 2022, a milestone payable to Marathon of $24.5 million was recorded on the balance sheet within accounts payable and accrued expenses.
Pursuant to the Tegsedi-Waylivra Agreement, in May 2019 the Company made a $6.0 million milestone payment to Akcea upon regulatory approval of Waylivra from the EMA. In December 2019, the Company made a $4.0 million milestone payment to Akcea upon regulatory approval of Tegsedi from ANVISA. Both payments were recorded as intangible assets and are being amortized to cost of product sales over their expected useful life of approximately ten years on a straight line basis. Additionally, in August 2021, the Company made a $4.0 million milestone payment to Akcea upon regulatory approval of Waylivra from ANVISA. In accordance with the guidance for an asset acquisition, the Company recorded the milestone payment when it became payable to Akcea, and it increased the cost basis for the Waylivra intangible asset. This payment is being amortized to cost of product sales over the expected remaining useful life of the Waylivra asset on a straight line basis.
Akcea is also entitled to receive royalty payments subject to certain terms set forth in the Tegsedi-Waylivra Agreement related to sales of Waylivra and Tegsedi. In accordance with the guidance for an asset acquisition, the Company will record the milestone paymentroyalty payments when it becomesthey become payable to MarathonAkcea and increase the cost basis for the EMFLAZA rightsWaylivra and Tegsedi intangible asset.
Cash consideration | $ | 75,000 | ||
Fair value of PTC common stock issued to Marathon (6,683,598 shares) | 75,190 | |||
Acquisition costs | 2,163 | |||
Total preliminary consideration transferred | $ | 152,353 |
Purchase price | $ | 152,353 | ||
Total fair value of tangible assets acquired and liabilities assumed: | ||||
Inventory | 3,980 | |||
EMFLAZA rights | $ | 148,373 |
For the three months ended June 30, 2017. This amount is immaterial to the financial statements2022 and is recorded in the three months ended September 30, 2017.
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respectively, related to the Emflaza rights, Waylivra, and Tegsedi intangible assets. The estimated future amortization of the EMFLAZAEmflaza rights, Waylivra, and Tegsedi intangible assetassets is expected to be as follows:
As of September 30, 2017 | ||||
2017 (1) | $ | 5,428 | ||
2018 | 21,713 | |||
2019 | 21,713 | |||
2020 | 21,713 | |||
2021 and thereafter | 67,854 | |||
Total | $ | 138,421 |
| | | |
|
| As of June 30, 2022 | |
2022 | | $ | 52,733 |
2023 | |
| 105,466 |
2024 | |
| 18,089 |
2025 | |
| 1,700 |
2026 and thereafter | |
| 5,665 |
Total | | $ | 183,653 |
The weighted average remaining amortization period of the definite-lived intangibles as of June 30, 2022 is 2.0 years.
Indefinite-lived intangibles
In connection with the acquisition of the Company’s gene therapy platform from Agilis, the Company acquired rights to Upstaza, for the treatment of AADC deficiency. AADC deficiency is a rare CNS disorder arising from reductions in the enzyme AADC that result from mutations in the dopa decarboxylase gene. The gene therapy platform also includes an asset targeting Friedreich ataxia, a rare and life-shortening neurodegenerative disease caused by a single defect in the FXN gene which causes reduced production of the frataxin protein. Additionally, the gene therapy platform includes two other programs targeting CNS disorders, including Angelman syndrome, a rare, genetic, neurological disorder characterized by severe developmental delays.
In accordance with the acquisition method of accounting, the Company allocated the acquisition cost for the Agilis Merger to the underlying assets acquired and liabilities assumed, based upon the estimated fair values of those assets and liabilities at the date of acquisition. The Company classified the fair value of the acquired IPR&D as indefinite lived intangible assets until the successful completion or abandonment of the associated research and development efforts. The value allocated to the indefinite lived intangible assets was $576.5 million. There have been 0 changes to the balance of the indefinite-lived intangibles since the Agilis Merger.
Goodwill
As a result of the Agilis Merger on August 23, 2018, the Company recorded $82.3 million of goodwill, which included a measurement period adjustment of $18.0 million recorded during the three monthsmonth period ended December 31, 2017.2018. This adjustment was related to the finalization of the fair values assigned to the intangible assets and corresponding deferred tax liability, the contingent consideration, and the deferred consideration. As of June 30, 2022, there have been 0 changes to the balance of goodwill since the date of the Agilis Merger. Accordingly, the goodwill balance as of June 30, 2022 is $82.3 million.
13. Subsequent events
In July 2022, the European Commission approved Upstaza for the treatment of AADC deficiency for patients 18 months and older within the EEA. As a result of such approval, the Company is obligated to pay the former equityholders of Agilis $50.0 million in accordance with the terms of the Agilis Merger Agreement. Accordingly, the Company reclassified $50.0 million from contingent consideration payable to accounts payable and accrued expenses as of June 30, 2022.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is meant to provide material information relevant to an assessment of the financial condition and results of operations of our company, including an evaluation of the amounts and certainty of cash flows from operations and from outside resources, so as to allow investors to better view our company from management’s perspective. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 20162021 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2017.February 22, 2022, or our 2021 Annual Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth in Part II, Item 1A. (Risk Factors) of this Quarterly Report on Form 10-Q and Part I, Item 1A. (Risk Factors) of our 2021 Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.
Our Company
We are a science-driven global biopharmaceutical company focused on the discovery, development and commercialization of novelclinically differentiated medicines usingthat provide benefits to patients with rare disorders. Our ability to innovate to identify new therapies and to globally commercialize products is the foundation that drives investment in a robust and diversified pipeline of transformative medicines. Our mission is to provide access to best-in-class treatments for patients who have few or no treatment options. Our strategy is to leverage our strong scientific and clinical expertise in RNA biology.and global commercial infrastructure to bring therapies to patients. We have discoveredbelieve that this allows us to maximize value for all of our compounds currently understakeholders.
We have a portfolio pipeline that includes several commercial products and product candidates in various stages of development, using our proprietary technologies. We plan to continue to develop these compounds bothincluding clinical, pre-clinical and research and discovery stages, focused on our own and through selective collaboration arrangements with leading pharmaceutical and biotechnology companies. Our internally discovered pipeline addressesthe development of new treatments for multiple therapeutic areas for rare diseases.
Corporate Updates
COVID-19 Impact
The global pandemic caused by a strain of novel coronavirus, COVID-19, has impacted and is continuing to impact the timing of certain of our clinical trials and regulatory submissions as well as other aspects of our business operations. In addition to our previous disclosures regarding the impact of the COVID-19 pandemic, such as those set forth in our Annual Report on Form 10-K for the year ended December 31, 2021, the following expectations have been revised as a result of the impact or expected impact of the COVID-19 pandemic:
● | We have experienced additional delays in enrolling patients for our registration-directed Phase 2/3 placebo-controlled trial of vatiquinone in children with mitochondrial disease associated seizures as some patients have been unable or hesitant to travel to clinical sites due to the COVID-19 pandemic. We have also experienced delays in opening certain clinical trial sites. We now anticipate results from this trial to be available in the first quarter of 2023. |
● | As of the date of this Report on Form 10-Q, except as otherwise previously disclosed with respect to Translarna product revenue in Brazil, our ability to generate revenue has not been significantly affected by the COVID-19 pandemic. However, due to travel restrictions, social distancing and the continued global uncertainty resulting from the COVID-19 pandemic, we may have difficulty identifying and accessing new patients, supporting existing patients and meeting with regulatory authorities or other governmental entities, which may negatively affect our future revenue. We continue to support our existing patient base and remotely connect with them, as necessary. We have not encountered any material issues in supplying those patients. |
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● | As previously disclosed, in response to the global uncertainty caused by the COVID-19 pandemic, we are continuing to prioritize our expenses where we deem appropriate and strategically positioning our capital allocation. |
The COVID-19 pandemic and responsive measures thereto may result in further negative impacts, including additional delays in our clinical and regulatory activities and further fluctuations in our revenue. We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business and it has the potential to materially adversely affect our business, financial condition, results of operations, and prospects. For additional information, see “Item 1A. Risk Factors - We face risks related to health epidemics and other widespread outbreaks of contagious disease, which are, and may continue to, delay our ability to complete our ongoing clinical trials and initiate future clinical trials, disrupt regulatory activities and have other adverse effects on our business and operations, including the novel coronavirus (COVID-19) pandemic, which has disrupted, and may continue to disrupt, our operations and may significantly impact our operating results. In addition, the COVID-19 pandemic has caused substantial disruption in the financial markets and economies, which could result in adverse effects on our business and operations.” in our Annual Report on Form 10-K for the year ended December 31, 2021.
UpstazaTM (eladocagene exuparvovec) Approved in European Economic Area
In July 2022, the European Commission approved Upstaza, formerly known as PTC-AADC, for the treatment of Aromatic L-Amino Decarboxylase, or AADC, deficiency, a rare disorderscentral nervous system, or CNS, disorder arising from reductions in the enzyme AADC that results from mutations in the dopa decarboxylase gene, for patients 18 months and oncology.
Global Commercial Footprint
Global DMD Franchise
We have two products, Translarna™ (ataluren) and Emflaza® (deflazacort), for the treatment of Duchenne muscular dystrophy, or DMD, a rare, life threatening disorder. Translarna has marketing authorization in sales of Translarna
Our marketing authorization for Translarna for the treatment of nmDMD.
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trial and the open-label extension data that has been collected to date to the EMA by the end of the third quarter of 2021. We expect that2022, as part of the annual EMA assessment, the EMA will consider the ongoing status of Study 041.
Each country, including each member state of the EEA, has its own pricing and reimbursement regulations and system.regulations. In order to commence commercial sale of product pursuant to our Translarna marketing authorization in any particular country in the EEA, we must finalize pricing and reimbursement negotiations with the applicable government body in such country. As a result, our commercial launch will continue to be on a country-by-country basis. We also have made, and expect to continue to make, product available under early access programs, or EAP programs,Programs, both in countries in the EEA and other territories. Our ability to negotiate, secure and maintain reimbursement for product under commercial and EAP programsPrograms can be subject to challenge in any particular country and can also be affected by political, economic and regulatory developments in such country.
There is substantial risk that if we are unable to renew our business arising asEEA marketing authorization during any annual renewal cycle, or if our product label is materially restricted, or if Study 041 does not provide the data necessary to maintain our marketing authorization, we would lose all, or a resultsignificant portion of, matters relatingour ability to pharmaceutical pricing and reimbursementgenerate revenue from sales of Translarna see “Item 1A. Risk Factors,” including the risk factor titled “
Translarna is an investigational new drug in such regions
UpstazaTM (eladocagene exuparvovec)
We have a pipeline of gene therapy product candidates for rare monogenic diseases that affect the CNS, including Upstaza for the treatment of AADC deficiency. In July 2022, the European Commission approved Upstaza for the treatment of AADC deficiency for patients 18 months and older within the EEA. We are also preparing a biologics license application, or BLA, for Upstaza for the treatment of AADC deficiency in the United States
Tegsedi® (inotersen) and Waylivra™ (volanesorsen)
We hold the rights to EMFLAZAfor the commercialization of Tegsedi and Waylivra for the treatment of rare diseases in countries in Latin America and the Caribbean pursuant to an asset purchase agreement, dated March 15, 2017a Collaboration and amended on April 20, 2017,License Agreement, or the Asset PurchaseTegsedi-Waylivra Agreement, dated August 1, 2018, by and between us and Marathon Pharmaceuticals, LLC (now known as Complete Pharma Holdings, LLC)Akcea Therapeutics, Inc., or Marathon.Akcea, a subsidiary of Ionis Pharmaceuticals, Inc. Tegsedi has received marketing authorization in the United States, European Union, or EU, and Brazil for the treatment of stage 1 or stage 2 polyneuropathy in adult patients with hereditary transthyretin amyloidosis, or hATTR amyloidosis. We began to make commercial sales of Tegsedi for the treatment of hATTR amyloidosis in Brazil in the second quarter of 2022 and we continue to make Tegsedi available in certain other countries within Latin America and the Caribbean through EAP Programs. In August 2021, ANVISA, the Brazilian health regulatory authority, approved Waylivra as the first treatment for familial chylomicronemia syndrome, or FCS, in Brazil and we began to make commercial sales of Waylivra in Brazil in the third quarter of 2022 while continuing to make Waylivra available in certain other countries within Latin America and the Caribbean through EAP programs. Waylivra has also received marketing authorization in the EU for the treatment of FCS. Additionally, we submitted an application to ANVISA in December 2021 for the approval
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of Waylivra for the foundingtreatment of familial partial lipodystrophy, or FPL, and we expect a regulatory decision on approval in the Company nearly twenty years ago, wesecond half of 2022.
Evrysdi® (risdiplam)
We also have been committedan SMA collaboration with Roche and the SMA Foundation. The SMA program has one approved product, Evrysdi, which was approved by the FDA in August 2020 for the treatment of SMA in adults and children two months and older and by the European Commission in March 2021 for the treatment of 5q SMA in patients two months and older with a clinical diagnosis of SMA Type 1, Type 2 or Type 3 or with one to fundamentally changingfour SMN2 copies. Evrysdi also received marketing authorization for the livestreatment of patients livingSMA in Brazil in October 2020 and Japan in June 2021. In May 2022, the FDA approved a label expansion for Evrysdi to include infants under two months old with DMD. SMA.
Diversified Development Pipeline
Splicing Platform
In addition to our historical and continued investment in research and development, this commitment has included raising disease awareness, promoting diagnosis and early intervention, and supporting improved standards of care all with the goal of changing the course of the disease. ItSMA program, our splicing platform also includes PTC518, which is our continuing commitment to the Duchenne community that underpinned the acquisition of EMFLAZA. We are committed to make this important therapy available to all eligible patients in the United States and to study its long-term benefits.
Bio-e Platform
Our Bio-e platform consists of small molecule compounds that Translarna may have benefittarget oxidoreductase enzymes that regulate oxidative stress and inflammatory pathways central to the pathology of a number of CNS diseases. The two most advanced molecules in our Bio-e platform are vatiquinone and PTC857. We initiated a registration-directed Phase 2/3 placebo-controlled trial of vatiquinone in children with mitochondrial disease associated seizures in the treatmentthird quarter of patients with genetic disorders that arise as a result of a nonsense mutation. We are pursuing studies for Translarna in additional indications: nonsense mutation aniridia and nonsense mutation Dravet syndrome/CDKL5.2020. We have completed enrollment for our aniridia studyexperienced additional delays in enrolling this trial due to the COVID-19 pandemic and we anticipate results during 2018.from this trial to be available in the first quarter of 2023. We also initiated a registration-directed Phase 3 trial of vatiquinone in children and young adults with Friedreich ataxia in the fourth quarter of 2020 and anticipate results from this trial to be available in the second quarter of 2023. In the third quarter of 20172021, we stopped enrollmentcompleted a Phase 1 trial in healthy volunteers to evaluate the safety and beganpharmacology of PTC857. PTC857 was found to wind downbe well-tolerated with no reported serious adverse events while demonstrating predictable pharmacology. We initiated a Phase 2 trial of PTC857 for amyotrophic lateral sclerosis in the first quarter of 2022.
Metabolic Platform
The most advanced molecule in our studymetabolic platform is PTC923, an oral formulation of synthetic sepiapterin, a precursor to intracellular tetrahydrobiopterin, which is a critical enzymatic cofactor involved in metabolism and synthesis of numerous metabolic products, for Translarnaorphan diseases. We initiated a registration-directed Phase 3 trial for PTC923 for phenylketonuria, or PKU, in mucopolysaccharidosis type I causedthe third quarter of 2021 and expect results from this trial to be available by nonsense mutation,the end of 2022.
Oncology Platform
We also have two oncology agents that are in clinical development, unesbulin and emvododstat. We completed our Phase 1 trials evaluating unesbulin in leiomyosarcoma, or nmMPS I, as we have encountered difficulties identifying qualified patients for this study,LMS, and we determined it was best to move our resources to other areas.
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Emvododstat for COVID-19
In June 2020, we initiated a Phase 2/3 clinical study in infants with type 1 SMA. Both Sunfish and Firefish are
Multi-Platform Discovery
In addition, we have a pipeline of product candidates and discovery programs that are in type 2early clinical, pre-clinical and type 3 SMA patients who have been previously treated with a survival of motor neuron 2 (SMN2)-targeting therapy, initiated inresearch and development stages focused on the first quarter of 2017.
Funding
The success of Translarna, EMFLAZA, orour products and any other product candidates we may develop, and/or commercialize, depends largely on obtaining and maintaining reimbursement from governments and third-party insurers.
To date, we have financed our operations primarily through our offering of 3.00% convertible senior notes due August 15, 2022, or the 2022 Convertible Notes, our offering of 1.50% convertible senior notes due September 15, 2026, or the 2026 Convertible Notes, and, together with the 2022 Convertible Notes, the Convertible Notes, our public offerings of common stock in February 2014, and in October 2014, in April 2018, in January 2019, and in September 2019, the common stock issued in our “at the marketing offering”, our initial public offering of common stock in June 2013, proceeds from a Royalty Purchase Agreement dated as of July 17, 2020, by and among us, RPI 2019 Intermediate Finance Trust, or RPI, and, solely for the limited purposes set forth therein, Royalty Pharma PLC, or the Royalty Purchase Agreement, private placements of our preferred stock, collaborations, bank and institutional lender debt and convertible debt financings, and grants and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed by our product candidates. Since 2014, we have also relied on revenue generated from net sales of Translarna for the treatment of nmDMD in territories outside of the United States, and insince May 2017, we began to recognizehave generated revenue generated from net sales of EMFLAZAEmflaza for the treatment of DMD in the United States.
The 2022 Convertible Notes consist of $150.0 million in aggregate principal amount of 3.00% convertible senior notes due 2022. The 2022 Convertible Notes bear cash interest payable on February 15 and August 15 of each year, beginning on February 15, 2016. The 2022 Convertible Notes are senior unsecured obligations of ours and will mature on August 15, 2022, unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. As of February 15, 2022, until the close of business on the business day immediately preceding the maturity date, holders may convert their 2022 Convertible Notes at any time. Upon conversion, we will pay and deliver a combination of cash and shares of our common stock. We received net proceeds from the offering of approximately $145.4 million, after deducting the initial purchasers’ discounts and commissions and the offering expenses payable by us.
In August 2019, we entered into an At the Market Offering Sales Agreement, or the Sales Agreement, with Cantor Fitzgerald and RBC Capital Markets, LLC, or together, the Sales Agents, pursuant to which, we may offer and sell shares of our common stock, having an aggregate offering price of up to $125.0 million from time to time through the Sales Agents by any method that is deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under
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the Securities Act of 1933, as amended, or the Securities Act. During the three and six months ended June 30, 2022, we did not issue or sell any shares of common stock pursuant to the Sales Agreement. The remaining shares of our common stock available to be issued and sold, under the Sales Agreement, have an aggregate offering price of up to $93.0 million as of June 30, 2022.
The 2026 Convertible Notes consist of $287.5 million aggregate principal amount of 1.50% convertible senior notes due 2026. The 2026 Convertible Notes bear cash interest at a rate of 1.50% per year, payable semi-annually on March 15 and September 15 of each year, beginning on March 15, 2020. The 2026 Convertible Notes will mature on September 15, 2026, unless earlier repurchased or converted. We received net proceeds of $279.3 million after deducting the initial purchasers’ discounts and commissions and the offering expenses payable by us.
As of June 30, 2017,2022, we had an accumulated deficit of $815.4$2,376.8 million. We had a net loss of $80.3$278.8 million and $115.3$247.0 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.
We anticipate that our expenses will continue to increase in connection with our commercialization efforts in the United States, the EEA, Latin America and other territories, including the expansion of our infrastructure and corresponding sales and marketing, legal and regulatory, distribution and manufacturing, including expanding our direct manufacturing capabilities at our leased biologics manufacturing facility and administrative and employee-based expenses. In addition to the foregoing, we expect to continue to incur significant costs in connection with Study 041 and our open label extension trials of Translarna for the
We may seek to expand and diversify our product pipeline through opportunistically in-licensing or acquiring the rights to products, product candidates or technologies and we may incur expenses, including with respect to transaction costs, subsequent development costs or any upfront, milestone or other payments or other financial obligations associated with any such transaction, which would increase our future capital requirements.
With respect to our outstanding 2022 Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears, which require total funding of $4.5 million annually. The 2022 Convertible Notes will mature on August 15, 2022 and we will be required to pay any outstanding principal amount of the 2022 Convertible Notes at that time, unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. As of February 15, 2022, until the close of business on the business day immediately preceding the maturity date, holders may convert their 2022 Convertible Notes at any time. Upon conversion, we will pay and deliver a combination of cash and shares of our common stock. With respect to our outstanding 2026 Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears, which will require total funding of $4.5$4.3 million annually. Additionally, under
We are obligated to pay the termsformer equityholders of our Credit Agreement cash interest payments are payable monthly in arrears. Furthermore,Agilis $50.0 million as a result of the European Commission’s marketing approval of Upstaza for the treatment of AADC deficiency in July 2022 and we expect to pay such former equityholders an additional $20.0 million upon the acceptance for filing by the FDA of a BLA for Upstaza for the treatment of AADC deficiency, which we expect to occur in the fourth quarter of 2022. We also expect to pay the former securityholders of Censa Pharmaceuticals, Inc., or Censa, a $30.0 million development milestone for the completion of enrollment of a Phase 3 clinical trial for PTC923 for PKU in 2022. If achieved, we have the option to pay such milestone payment in cash or shares of our common stock.
We also have certain significant contractual obligations and commercial commitments that require funding and we have disclosed these items under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Funding requirements” in our 2021 Annual Report on Form 10-K. In addition to those obligations previously
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disclosed, we entered into a Lease Agreement, or the Warren Lease, on May 24, 2022 with Warren CC Acquisitions, LLC, relating to the lease of two entire buildings comprised of approximately 360,000 square feet of shell condition, modifiable space, or the Premises, at a facility located in Warren, New Jersey. The rental term of the Warren Lease commenced on June 1, 2022, with an initial term of seventeen years, or the Initial Term, followed by three consecutive five-year renewal periods at our option. The aggregate base rent for the Initial Term will be approximately $163.0 million; provided, however, that if we are not subject to an Event of Default (as defined in the Warren Lease), we will be entitled to a base rent abatement over the first three years of the Initial Term of approximately $18.6 million, reducing our total base rent obligation to $144.4 million. The rental rate for the renewal periods will be at the Fair Market Rental Value (as defined in the Warren Lease) and determined at the time of the exercise of the renewal. Beginning in the second lease year, we are also responsible for the payment of all taxes and operating expenses for the Premises. There were no other material changes to the contractual obligations and commercial commitments set forth in our 2021 Annual Report on Form 10-K during the period ended June 30, 2022. Furthermore, since we are a public offering in June 2013,company, we have incurred and expect to continue to incur additional costs associated with operating as a public company. These costs includesuch including significant legal, accounting, investor relations and other expenses thatexpenses.
We have never been profitable and we did not incur as a private company. Additionally, we could be forced to expend significant resources in the defense of the pending securities class action lawsuits brought against us and certain of our current and former executive officers and the derivative lawsuits brought against us, as a nominal defendant, certain of our current and former executive officers and certain of our current and former directors, as described under Part II, Item 1. Legal Proceedings in this Quarterly Report on Form 10-Q. See also, “The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock and lawsuits against us and our officers and directors” under Part II, Item 1A. Risk Factors - Risks Related to Our Common Stock.
Revenues
Net product revenues. To date, our net product salesrevenues have consisted primarily of sales of Translarna for the treatment of nmDMD in territories outside of the U.S. We also beganUnited States and sales of Emflaza for the commercializationtreatment of EMFLAZADMD in the U.S. shortlyUnited States. We recognize revenue when performance obligations with customers have been satisfied. Our performance obligations are to provide products based on customer orders from distributors, hospitals, specialty pharmacies or retail pharmacies. The performance obligations are satisfied at a point in time when our customer obtains control of the product, which is typically upon delivery. We invoice customers after the completionproducts have been delivered and invoice payments are generally due within 30 to 90 days of invoice date. We determine the transaction price based on fixed consideration in its contractual agreements. Contract liabilities arise in certain circumstances when consideration is due for goods not yet provided. As we have identified only one distinct performance obligation, the transaction price is allocated entirely to the product sale. In determining the transaction price, a significant financing component does not exist since the timing from when we deliver product to when the customers pay for the product is typically less than one year. Customers in certain countries pay in advance of product delivery. In those instances, payment and delivery typically occur in the same month.
We record product sales net of any variable consideration, which includes discounts, allowances, rebates related to Medicaid and other government pricing programs, and distribution fees. We use the expected value or most likely amount method when estimating variable consideration, unless discount or rebate terms are specified within contracts. The identified variable consideration is recorded as a reduction of revenue at the time revenues from product sales are recognized. These estimates for variable consideration are adjusted to reflect known changes in factors and may impact such estimates in the quarter those changes are known. Revenue recognized does not include amounts of variable consideration that are constrained. For the three months ended June 30, 2022 and 2021, net product sales outside of the acquisitionUnited States were $86.9 million and $54.0 million, respectively consisting of all rightsTranslarna, Tegsedi, Waylivra, and Upstaza. Upstaza sales commenced during the three months period ended June 30, 2022. Translarna net revenues made up $77.0 million and $52.6 million of the net product sales outside of the United States for the three months ended June 30, 2022 and 2021, respectively. For the three months ended June 30, 2022 and 2021, net product sales in the United States were $56.8 million and $49.1 million, respectively, consisting solely of Emflaza. For the six months ended June 30, 2022 and 2021, net product sales outside of the United States were $168.1 million and $101.7 million, respectively, consisting of Translarna, Tegsedi, Waylivra, and Upstaza. Upstaza sales commenced during the six months period ended June 30, 2022. Translarna net revenues made up $156.2 million and $99.1 million of the net product sales outside of the United States for
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the six months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, net product sales in the United States were $105.4 million and $92.7 million, respectively, consisting solely of Emflaza.
In relation to EMFLAZA. Our processcustomer contracts, we incur costs to fulfill a contract but do not incur costs to obtain a contract. These costs to fulfill a contract do not meet the criteria for recognizing revenue is described below under “Critical accounting policiescapitalization and significant judgmentsare expensed as incurred. We consider any shipping and estimates—Revenue recognition”.
Roche and the SMA Foundation Collaboration.
In November 2011, we entered intoFor the three months ended June 30, 2022 and 2021, we did not recognize collaboration revenue related to the SMA License Agreement with Roche. For the six months ended June 30, 2022 and 2021, we recognized $0.0 million and $20.0 million of collaboration revenue related to the SMA License Agreement with Roche, respectively. The first commercial sale of Evrysdi in the EU was made in March 2021. This event triggered a $10.0 million payment to us from Roche, which we recorded as collaboration revenue for the year ended December 31, 2013.
For the three months ended June 30, 2022 and 2021, we announced thathave recognized $21.8 million and $13.6 million of royalty revenue, respectively, related to Evrysdi. For the six months ended June 30, 2022 and 2021, we have recognized $40.7 million and $20.2 million of royalty revenue, respectively, related to Evrysdi.
Pursuant to the Royalty Purchase Agreement, we sold to RPI 42.933%, or the Assigned Royalty Payment, of our joint development programright to receive sales-based royalty payments, or the Royalty, on worldwide net sales of Evrysdi and any other product developed pursuant to the SMA License Agreement in consideration for $650.0 million. We have retained a 57.067% interest in the Royalty and all economic rights to receive the remaining potential regulatory and sales milestone payments under the SMA withLicense Agreement. The Royalty Purchase Agreement will terminate 60 days following the earlier of the date on which Roche is no longer obligated to make any payments of the Royalty pursuant to the SMA License Agreement and the SMA Foundation (SMAF) had started a Phase 2 studydate on which RPI has received $1.3 billion in adult and pediatric patients. The achievementrespect of this milestone triggered a $10.0 million payment to us from Roche which we recorded as collaboration revenue for the year ended December 31, 2014.
Research and development expense
Research and development expenses consist of the costs associated with our research activities, as well as the costs associated with our drug discovery efforts, conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings. Our research and development expenses consist of:
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We use our employee and infrastructure resources across multiple research projects, including our drug development programs. We track expenses related to our clinical programs and certain preclinical programs on a per project basis.
We expect our research and development expenses to increasefluctuate in connection with our ongoing activities, particularly in connection with Study 041 and other studies for Translarna for the treatment of nmDMD, our studies of Translarna in nonsense mutation aniridia and nonsense mutation Dravet syndrome/CDKL5, activities under our cancer stem cell program,splicing, gene therapy, Bio-e, metabolic and oncology programs and our studies of emvododstat for COVID-19 and performance of our FDA post-marketing requirements imposed by regulatory agencies with respect to EMFLAZA in the United States.our products. The timing and amount of these expenses will depend upon the outcome of our ongoing clinical trials and the costs associated with our planned clinical trials. The timing and amount of these expenses will also depend on the costs associated with potential future clinical trials of our products or product candidates and the related expansion of our research and development organization, regulatory requirements, advancement of our preclinical programs, and product and product candidate manufacturing costs.
The following tables provide research and development expense for our most advanced principal product development programs, for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016.
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(in thousands) | ||||||||
Translarna (nmDMD, nmCF, nmMPS I, aniridia and Dravet) | $ | 20,834 | $ | 22,088 | ||||
Cancer stem cell | 555 | 1,689 | ||||||
Next generation nonsense readthrough | 1,365 | 1,621 | ||||||
EMFLAZA | 1,859 | — | ||||||
Other research and preclinical | 5,411 | 5,998 | ||||||
Total research and development | $ | 30,024 | $ | 31,396 |
Nine Months Ended September 30, 2017 | ||||||||
2017 | 2016 | |||||||
(in thousands) | ||||||||
Translarna (nmDMD, nmCF, nmMPS I, aniridia and Dravet) | $ | 61,276 | $ | 66,133 | ||||
Cancer stem cell | 2,735 | 5,523 | ||||||
Next generation nonsense readthrough | 4,145 | 5,577 | ||||||
EMFLAZA | 4,303 | — | ||||||
Other research and preclinical | 15,763 | 14,389 | ||||||
Total research and development | $ | 88,222 | $ | 91,622 |
| | | | | | | |
| | | | | | | |
| | Three Months Ended June 30, | | ||||
|
| 2022 |
| 2021 | | ||
| | (in thousands) | | ||||
Global DMD Franchise | | $ | 17,111 | | $ | 17,887 | |
Metabolic | |
| 15,184 | |
| 10,476 | |
Gene Therapy | |
| 49,556 | |
| 35,619 | |
Bio-e | | | 12,880 | | | 14,863 | |
Oncology | |
| 8,979 | |
| 3,625 | |
Splicing | |
| 18,355 | | | 12,008 | |
Emvododstat for COVID-19 | | | 7,459 | | | 9,273 | |
Discovery | |
| 27,739 | |
| 21,731 | |
Total research and development | | $ | 157,263 | | $ | 125,482 | |
| | | | | | |
| | Six Months Ended June 30, | ||||
|
| 2022 |
| 2021 | ||
| | (in thousands) | ||||
Global DMD Franchise | | $ | 34,692 | | $ | 36,258 |
Metabolic | |
| 30,974 | |
| 23,665 |
Gene Therapy | |
| 91,547 | |
| 76,585 |
Bio-e | |
| 27,612 | |
| 30,198 |
Oncology | |
| 15,199 | |
| 7,453 |
Splicing | |
| 33,076 | |
| 24,115 |
Emvododstat for COVID-19 | | | 9,831 | | | 21,489 |
Discovery | |
| 54,410 | |
| 40,232 |
Total research and development | | $ | 297,341 | | $ | 259,995 |
The successful development of Translarnaour products and our other product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
the scope, rate of progress and expense of our clinical trials and other research and development activities; |
the potential benefits of our products and product candidates over other therapies; |
our ability to market, commercialize and achieve market acceptance for any of our products or product candidates that we are developing or may develop in the future, including our ability to negotiate pricing and reimbursement terms acceptable to |
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clinical trial results; |
the terms and timing of regulatory approvals; and |
the expense of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights. |
A change in the outcome of any of these variables with respect to the development of our products or product candidates could mean a significant change in the costs and timing associated with the development of that product or product candidate. For example, if the EMA or FDA or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of Translarnaany of our products or any other product candidatecandidates or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.
Selling, general and administrative expense
Selling, general and administrative expenses consist primarily of salaries and other related costs for personnel, including share-based compensation expenses, in our executive, legal, business development, commercial, finance, accounting, information technology and human resource functions. Other selling, general and administrative expenses include facility-related costs not otherwise included in research and development expense; advertising and promotional expenses; costs associated with industry and trade shows; and professional fees for legal services, including patent-related expenses, accounting services and miscellaneous selling costs.
We expect that selling, general and administrative expenses will increase in future periods in connection with our efforts to commercialize EMFLAZA in the United States, and our continued efforts to commercialize Translarna for the treatment of nmDMD,our products, including increased payroll, expanded infrastructure, commercial operations, increased consulting, legal, accounting and investor relations expenses.
Interest (expense) income,expense, net
Interest (expense) income,expense, net consists of interest income earned on investmentsexpense from the liability for the sale of future royalties related to the Royalty Purchase Agreement, and interest expense from the Convertible Notes outstanding and interest expense from the Credit Agreement.
Critical accounting policies and significant judgments and estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. Actual results may differ from these estimates under different assumptions or conditions.
During the three and earned. Revenue is considered realizable and earned when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price is fixed or determinable; and (4) collection of the amounts due are reasonably assured.
September 30, 2017 | December 31, 2016 | |||||||
Raw materials | $ | 182 | $ | — | ||||
Work in progress | 2,715 | — | ||||||
Finished goods | 4,895 | — | ||||||
Total inventory | $ | 7,792 | $ | — |
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Restricted Stock Awards and Units | |||||||
Number of Shares | Weighted Average Grant Date Fair Value | ||||||
January 1, 2017 | 271,651 | $ | 19.76 | ||||
Granted | 363,194 | $ | 11.64 | ||||
Vested | (180,861 | ) | $ | 14.19 | |||
Forfeited | (51,131 | ) | $ | 13.90 | |||
September 30, 2017 | 402,853 | $ | 15.62 |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Research and development | $ | 3,624 | $ | 4,319 | $ | 11,986 | $ | 12,734 | ||||||||
Selling, general and administrative | 3,544 | 4,640 | 12,096 | 13,876 | ||||||||||||
Total | $ | 7,168 | $ | 8,959 | $ | 24,082 | $ | 26,610 |
Results of operations
Three months ended SeptemberJune 30, 20172022 compared to three months ended SeptemberJune 30, 2016
The following table summarizes revenues and selected expense and other income data for the three months ended SeptemberJune 30, 20172022 and 2016.
Three Months Ended September 30, | Change 2017 vs. 2016 | |||||||||||
(in thousands) | 2017 | 2016 | ||||||||||
Net product revenue | $ | 41,780 | $ | 22,013 | $ | 19,767 | ||||||
Collaboration and grant revenue | 73 | 973 | (900 | ) | ||||||||
Cost of product sales, excluding amortization of acquired intangible asset | 1,582 | — | 1,582 | |||||||||
Amortization of acquired intangible asset | 9,716 | — | 9,716 | |||||||||
Research and development expense | 30,024 | 31,396 | (1,372 | ) | ||||||||
Selling, general and administrative expense | 31,423 | 23,654 | 7,769 | |||||||||
Interest expense, net | (3,421 | ) | (2,133 | ) | (1,288 | ) | ||||||
Other income (expense), net | 766 | (786 | ) | 1,552 | ||||||||
Income tax expense | (191 | ) | (184 | ) | (7 | ) |
| | | | | | | | | |
| | Three Months Ended | | | | ||||
| | June 30, | | Change | |||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 vs. 2021 | |||
Net product revenue | | $ | 143,701 | | $ | 103,113 | | $ | 40,588 |
Royalty revenue | | | 21,825 | | | 13,563 | | | 8,262 |
Cost of product sales, excluding amortization of acquired intangible asset | |
| 9,639 | |
| 7,358 | | | 2,281 |
Amortization of acquired intangible asset | |
| 26,294 | |
| 12,751 | | | 13,543 |
Research and development expense | |
| 157,263 | |
| 125,482 | | | 31,781 |
Selling, general and administrative expense | |
| 79,892 | |
| 68,878 | | | 11,014 |
Change in the fair value of deferred and contingent consideration | |
| (15,200) | |
| 700 | | | (15,900) |
Interest expense, net | |
| (21,976) | |
| (22,559) | | | 583 |
Other (expense) income, net | |
| (34,357) | |
| 3,170 | | | (37,527) |
Income tax expense | | | (3,392) | | | (488) | | | (2,904) |
Net product revenues.
Net product revenues wereRoyalty revenue. Royalty revenue was $21.8 million for the three months ended June 30, 2022, an increase of $8.3 million, or 61%, from $13.6 million for the three months ended June 30, 2021. The increase in royalty revenue was due to higher Evrysdi sales in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. In accordance with the SMA License Agreement, we are primarily from ongoing collaboration arrangements with Roche.
Cost of product sales, excluding amortization of acquired intangible asset
. Cost of product sales, excluding amortization of acquired intangible asset, wereAmortization of acquired intangible asset
. Amortization of50
life of the Emflaza intangible asset. The Waylivra and Tegsedi assets are amortized on a straight-line basis over their estimated useful life of approximately ten years, respectively. Additionally, in August 2021, we made a $4.0 million milestone payment to Akcea upon regulatory approval of Waylivra from ANVISA. In accordance with the guidance for an asset acquisition, we recorded the milestone payment when it became payable to Akcea, and it increased the cost basis for the Waylivra intangible asset. This payment is being amortized to cost of product sales over the expected remaining useful life of the Waylivra asset on a straight line basis.
Research and development expense. Research and development expense was $30.0$157.3 million for the three months ended SeptemberJune 30, 2017, a decrease2022, an increase of $1.4$31.8 million, or 4%25%, from $31.4$125.5 million for the three months ended SeptemberJune 30, 2016.2021. The decrease resultedincrease in research and development expenses is primarily duerelated to toincreased investment in research programs and advancement of the completion of our Phase 3 Translarna trials at the end of 2016, partially offset by start-up clinical activities and regulatory spend.
Selling, general and administrative expense.
Selling, general and administrative expense wasChange in the fair value of deferred and contingent consideration. The change in the fair value of deferred and contingent consideration was a gain of $15.2 million for the three months ended June 30, 2022, a change of $15.9 million, or over 100%, from a loss of $0.7 million for the three months ended June 30, 2021. The change is related to the fair valuation of the potential future consideration to be paid to former equityholders of Agilis as a result of our merger with Agilis which closed in August 2018. Changes in the fair value were due to the re-calculation of discounted cash flows for the passage of time and changes to certain other estimated assumptions.
Interest expense, net. Interest expense, net was $22.0 million for the three months ended June 30, 2022, a decrease of $0.6 million, or 3%, from $22.6 million for the three months ended June 30, 2021. The decrease in interest expense, net was primarily due to interest expense recorded from the liability for the sale of future royalties related to the Royalty Purchase Agreement.
Other (expense) income, net. Other expense, net was $34.4 million for the three months ended June 30, 2022, a change of $37.5 million, or over 100%, from other income, net of $3.2 million for the three months ended June 30, 2021. The change in other (expense) income, net resulted primarily from an unrealized foreign exchange loss from the expansionremeasurement of the U.S. commercial sales teamour intercompany loan, offset by unrealized gains on our equity investments and convertible debt security in supportClearPoint Neuro, Inc. of the domestic product launch of EMFLAZA.
Income tax expense. Income tax expense net.
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Six months ended SeptemberJune 30, 2017 differed from the amounts computed by applying the U.S. federal income tax rate of 34%2022 compared to loss before tax expense as a result of the favorable amount of profit mix in foreign jurisdictions which have lower tax rates, as well as by having a full valuation allowance in jurisdictions where we have net operating losses. We review the expected annual effective income tax rate and make changes on a quarterly basis as necessary based on certain factors such as changes in forecasted annual operating income, changes to the actual and permanent book-to-tax differences, and changes resulting from the impact of tax law changes.
The following table summarizes revenues and selected expense and other income data for the ninesix months ended SeptemberJune 30, 20172022 and 2016.
Nine Months Ended September 30, | Change 2017 vs. 2016 | |||||||||||
(in thousands) | 2017 | 2016 | ||||||||||
Net product revenue | $ | 116,113 | $ | 56,328 | $ | 59,785 | ||||||
Collaboration and grant revenue | 249 | 1,186 | (937 | ) | ||||||||
Cost of product sales, excluding amortization of acquired intangible asset | 2,142 | — | 2,142 | |||||||||
Amortization of acquired intangible asset | 9,952 | — | 9,952 | |||||||||
Research and development expense | 88,222 | 91,622 | (3,400 | ) | ||||||||
Selling, general and administrative expense | 85,788 | 72,958 | 12,830 | |||||||||
Interest expense, net | (8,648 | ) | (6,149 | ) | (2,499 | ) | ||||||
Other expense, net | (1,373 | ) | (1,893 | ) | 520 | |||||||
Income tax expense | (507 | ) | (206 | ) | (301 | ) |
| | | | | | | | | |
| | Six Months Ended | | | | ||||
| | June 30, | | Change | |||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 vs. 2021 | |||
Net product revenue | | $ | 273,534 | | $ | 194,393 | | $ | 79,141 |
Collaboration revenue | |
| 7 | |
| 20,007 | | | (20,000) |
Royalty revenue | | | 40,721 | | | 20,220 | | | 20,501 |
Cost of product sales, excluding amortization of acquired intangible assets | |
| 19,774 | |
| 16,462 | | | 3,312 |
Amortization of acquired intangible assets | |
| 49,767 | |
| 24,028 | | | 25,739 |
Research and development expense | |
| 297,341 | |
| 259,995 | | | 37,346 |
Selling, general and administrative expense | |
| 153,162 | |
| 129,973 | | | 23,189 |
Change in the fair value of deferred and contingent consideration | |
| (26,900) | |
| 800 | | | (27,700) |
Interest expense, net | |
| (45,490) | |
| (41,718) | | | (3,772) |
Other expense, net | |
| (46,214) | |
| (7,716) | | | (38,498) |
Income tax expense | | | (8,227) | | | (940) | | | (7,287) |
Net product revenues.
Net product revenues wereCollaboration revenues. Collaboration revenues was $0.0 million for the six months ended June 30, 2022, a decrease of $0.9$20.0 million, or 79%100%, from $1.2$20.0 million for the ninesix months ended SeptemberJune 30, 2016. These revenues2021. The decrease is due to a $20.0 million milestone that was triggered from Roche in the six months ended June 30, 2021 relating to the first commercial sale of Evrysdi in the EU, which was made in March 2021. No milestones were triggered in the six months ended June 30, 2022.
Royalty revenue. Royalty revenue was $40.7 million for the six months ended June 30, 2022, an increase of $20.5 million, or over 100%, from $20.2 million for the six months ended June 30, 2021. The increase in royalty revenue was due to higher Evrysdi sales in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. In accordance with the SMA License Agreement, we are primarily from ongoing collaboration arrangements with Roche.
Cost of product sales, excluding amortization of acquired intangible asset.Cost of product sales, excluding amortization of acquired intangible asset,
Amortization of acquired intangible asset
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over its estimated useful life of approximately seven years from the date of the completion of ourthe acquisition of all rights to EMFLAZA,Emflaza, the period of estimated future cash flows.
Research and development expense.
Research and development expense wasSelling, general and administrative expense.
Selling, general and administrative expense wasChange in the fair value of deferred and contingent consideration. The change in the fair value of deferred and contingent consideration was a gain of $26.9 million for the six months ended June 30, 2022, a change of $27.7 million, or over 100%, from a loss of $0.8 million for the expansionsix months ended June 30, 2021. The change is related to the fair valuation of the U.S. commercial sales teampotential future consideration to be paid to former equityholders of Agilis as a result of our merger with Agilis which closed in supportAugust 2018. Changes in the fair value were due to the re-calculation of discounted cash flows for the domestic product launchpassage of EMFLAZA.
Interest expense, net.
Interest expense, net wasOther expense, net
Income tax expense.
Income tax expense wasLiquidity and capital resources
Sources of liquidity
Since inception, we have incurred significant operating losses.
As a growing commercial-stage biopharmaceutical company, we are engaging in significant commercialization efforts for Translarna for nmDMD and EMFLAZA for the treatment of DMDour products while also devoting a substantial portion of our efforts on research and development programs related to Translarnaour products, product candidates and our other product candidates.
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of the authorization and is subject to the specific obligation to conduct Study 041. Although we have begun to commercialize and market EMFLAZA in the United States, to date, we have not generated significant revenue from EMFLAZA. Our ability to generate product revenue from EMFLAZAEmflaza will largely depend on the coverage and reimbursement levels set by governmental authorities, private health insurers and other third-party payors.
We have historically financed our operations primarily through the issuance and sale of our common stock in public offerings, our “at the market offering” of our common stock, proceeds from the Royalty Purchase Agreement, the private placements of our preferred stock, collaborations, bank and institutional lender debt, convertible debt financings and grants and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed by our product candidates. Since 2014, we have also relied on revenues generated from net sales of Translarna for the treatment of nmDMD in territories outside of the United States, and in May 2017, we began to recognize revenue generated from net sales of EMFLAZA for the treatment of DMD in the United States. Based on our current commercial, research and development plans, weWe expect to continue to incur significant operating expenses for the foreseeable future, which we anticipate will be partially offset by revenues generated from the sale of both Translarna and EMFLAZA. As a result, while we expect to continue to generate operating losses in 2017, we anticipate that operating losses generated in future periods should decline versus prior periods.for at least the next fiscal year. The net losses we incur may fluctuate significantly from quarter to quarter.
In August 2015, we closed a private offering of $150$150.0 million in aggregate principal amount of 3.00% convertible senior notes due 2022 including the exercise by the initial purchasers of an option to purchase an additional $25$25.0 million in aggregate principal amount of the 2022 Convertible Notes. The 2022 Convertible Notes bear cash interest payable on February 15 and August 15 of each year, beginning on February 15, 2016. The 2022 Convertible Notes are senior unsecured obligations of ours and will mature on August 15, 2022, unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. We received net proceeds from the offering of approximately $145.4 million, after deducting the initial purchasers’ discounts and commissions and the estimated offering expenses payable by us.
In August 2019, we entered into the Sales Agreement, pursuant to which, we may offer and sell shares of our common stock, having an aggregate offering price of up to $125.0 million from time to time through the Sales Agents by any method that is deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Corporate Updates—Funding” for additional information.
In September 2019, we closed a private offering of $287.5 million aggregate principal amount of 1.50% convertible senior notes due 2026 including the full exercise by the initial purchasers of an option to purchase an additional $37.5 million in aggregate principal amount of the 2026 Convertible Notes. The 2026 Convertible Notes bear cash interest at a rate of 1.50% per year, payable semi-annually on March 15 and September 15 of each year, beginning on March 15, 2020. The 2026 Convertible Notes will mature on September 15, 2026, unless earlier repurchased or converted. We received net proceeds of $279.3 million after deducting the initial purchasers’ discounts and commissions and the offering expenses payable by us.
In July 2020, we entered into the Royalty Purchase Agreement. Pursuant to the Royalty Purchase Agreement, we sold to RPI the Assigned Royalty Payment in consideration for $650.0 million.
Cash flows
As of SeptemberJune 30, 2017,2022, we had cash, cash equivalents and marketable securities of $169.3$505.5 million.
The following table provides information regarding our cash flows and our capital expenditures for the periods indicated.
Nine Months Ended September 30, | ||||||
(in thousands) | 2017 | 2016 | ||||
Cash provided by (used in): | ||||||
Operating activities | (31,351 | ) | (90,247 | ) | ||
Investing activities | 67,159 | 81,350 | ||||
Financing activities | 42,367 | 926 |
| | | | | |
| | Six Months Ended | | ||
| | June 30, | | ||
(in thousands) |
| 2022 |
| 2021 | |
Cash (used in) provided by: |
|
|
|
| |
Operating activities | | (152,646) | | (131,302) | |
Investing activities | | 121,297 | | 86,204 | |
Financing activities | | 5,029 | | 13,547 | |
Net cash used in operating activities was $31.4$152.6 million for the ninesix months ended SeptemberJune 30, 20172022 and $90.2$131.3 million for the ninesix months ended SeptemberJune 30, 2016.2021. The net cash used in operating activities primarily relates to supporting clinical development and commercial activities, partially offset by increased cash receipts resulting from higher net product revenues.activities.
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Net cash provided by investing activities was $67.2$121.3 million for the ninesix months ended SeptemberJune 30, 20172022 and $81.4$86.2 million for the ninesix months ended SeptemberJune 30, 2016.2021. Cash provided by investing activities wasfor the six months ended June 30, 2022 and 2021 were primarily related to the salenet sales and redemption of marketable securities, to fund operations, partially offset by the cash used in purchases of marketable securities, purchases of fixed assets and the acquisition of EMFLAZA.
Net cash provided by financing activities was $42.4$5.0 million for the ninesix months ended SeptemberJune 30, 20172022 and $0.9$13.5 million for the ninesix months ended SeptemberJune 30, 2016.2021. Cash provided by financing activities infor the current period issix months ended June 30, 2022 and 2021 were primarily attributable to entry into the Credit Agreement andcash received from the exercise of options and issuance of stock under the ESPP.
Funding requirements
We anticipate that our expenses will continue to increase in connection with our commercialization efforts in the United States, the EEA, Latin America and other territories, including the expansion of our infrastructure and corresponding sales and marketing, legal and regulatory, distribution and manufacturing and administrative and employee-based expenses.
In addition, our expenses will increase if and as we:
● | seek to satisfy contractual and regulatory obligations we assumed in connection with the Agilis Merger; |
● | seek to satisfy contractual and regulatory obligations in conjunction with the Tegsedi-Waylivra Agreement; |
● | satisfy contractual and regulatory obligations that we assumed through our other acquisitions and collaborations; |
● | execute our commercialization strategy for our products and product candidates that may receive marketing authorization; |
● | are required to complete any additional clinical trials, non-clinical studies or Chemistry, Manufacturing and Controls, or CMC, assessments or analyses in order to advance Translarna for the treatment of nmDMD in the United States or elsewhere; |
● | utilize the Hopewell Facility to manufacture program materials for certain of our gene therapy product candidates; |
● | initiate or continue the research and development of our splicing, gene therapy, Bio-e, metabolic and oncology programs and our studies of emvododstat for COVID-19 as well as studies in our products for maintaining authorizations, including Study 041, label extensions and additional indications; |
● | seek to discover and develop additional product candidates; |
● | seek to expand and diversify our product pipeline through strategic transactions; |
● | maintain, expand and protect our intellectual property portfolio; and |
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● | add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts. |
We believe that our cash flows from product sales, together with existing cash and cash equivalents, including the net proceeds from our term loan facility with MidCap Financial Trust, our offeringofferings of the Convertible Notes, public offerings of common stock, our “at the market offering” of our common stock, proceeds from the Royalty Purchase Agreement and marketable securities, and research funding that we expect to receive under our collaborations, will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next twelve months. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
Our future capital requirements will depend on many factors, including:
● | our ability to commercialize and market our products and product candidates that may receive marketing authorization; |
● | our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms, on a timely basis, with third-party payors for our products and products candidates; |
● | our ability to maintain the marketing authorization for our products, including in the EEA for Translarna for the treatment of nmDMD and whether the EMA determines on an annual basis that the benefit-risk balance of Translarna supports renewal of our marketing authorization in the EEA, on the current approved label; |
● | the costs, timing and outcome of Study 041; |
● | the costs, timing and outcome of our efforts to advance Translarna for the treatment of nmDMD in the United States, including, whether we will be required to perform additional clinical trials, non-clinical studies or CMC assessments or analyses at significant cost which, if successful, may enable FDA review of an NDA re-submission by us and, ultimately, may support approval of Translarna for nmDMD in the United States; |
● | unexpected decreases in revenue or increases in expenses resulting from the COVID-19 pandemic; |
● | our ability to maintain orphan exclusivity in the United States for Emflaza; |
● | our ability to successfully complete all post-marketing requirements imposed by regulatory agencies with respect to our products; |
● | the progress and results of activities under our splicing, gene therapy, Bio-e, metabolic and oncology programs and our studies of emvododstat for COVID-19 as well as studies in our products for maintaining authorizations, label extensions and additional indications; |
● | the scope, costs and timing of our commercialization activities, including product sales, marketing, legal, regulatory, distribution and manufacturing, for any of our products and for any of our other product candidates that may receive marketing authorization or any additional territories in which we receive authorization to market Translarna; |
● | the costs, timing and outcome of regulatory review of our splicing, gene therapy, Bio-e, metabolic and oncology programs and our studies of emvododstat for COVID-19 and Translarna in other territories; |
● | our ability to utilize the Hopewell Facility to manufacture program materials for certain of our gene therapy product candidates; |
● | our ability to satisfy our obligations under the indentures governing the Convertible Notes; |
● | the timing and scope of growth in our employee base; |
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● | the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our other product candidates, including those in our splicing, gene therapy, Bio-e, metabolic and oncology programs; |
● | revenue received from commercial sales of our products or any of our product candidates; |
● | our ability to obtain additional and maintain existing reimbursed named patient and cohort EAP Programs for Translarna for the treatment of nmDMD on adequate terms, or at all; |
● | the ability and willingness of patients and healthcare professionals to access Translarna through alternative means if pricing and reimbursement negotiations in the applicable territory do not have a positive outcome; |
● | the costs of preparing, filing and prosecuting patent applications, maintaining, and protecting our intellectual property rights and defending against intellectual property-related claims; |
● | the extent to which we acquire or invest in other businesses, products, product candidates, and technologies, including the success of any acquisition, in-licensing or other strategic transaction we may pursue, and the costs of subsequent development requirements and commercialization efforts, including with respect to our acquisitions of Emflaza, Agilis, our Bio-E platform and Censa and our licensing of Tegsedi and Waylivra; and |
● | our ability to establish and maintain collaborations, including our collaborations with Roche and the SMA Foundation, and our ability to obtain research funding and achieve milestones under these agreements. |
With respect to our outstanding 2022 Convertible Notes, cash interest payments are payable on a timelysemi-annual basis with third-party payors for EMFLAZA for the treatmentin arrears, which require total funding of DMD in the United States$4.5 million annually. The 2022 Convertible Notes will mature on August 15, 2022 and for Translarna for the treatment of nmDMD in the EEA and other territories outside of the United States;
We are obligated to pay the termsformer equityholders of our Credit Agreement cash interest payments are payable monthly in arrears. Furthermore,Agilis $50.0 million as a result of the European Commission’s marketing approval of Upstaza for the treatment of AADC deficiency in July 2022 and we expect to pay such former equityholders an additional $20.0 million upon the acceptance for filing by the FDA of a BLA for Upstaza for the treatment of AADC deficiency, which we expect to occur in the fourth quarter of 2022. We also expect to pay the former securityholders of Censa a $30.0 million development milestone for the completion of enrollment of a Phase 3 clinical trial for PTC923 for PKU in 2022. If achieved, we have the option to pay such milestone payment in cash or shares of our common stock.
We also have certain significant contractual obligations and commercial commitments that require funding and we have disclosed these items under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Funding requirements” in our 2021 Annual Report on Form 10-K. In addition to those obligations previously disclosed, we entered into the Warren Lease relating to the lease of two entire buildings comprised of approximately 360,000 square feet of shell condition, modifiable space at a facility located in Warren, New Jersey. The rental term of the Warren Lease commenced on June 1, 2022, with an initial term of seventeen years followed by three consecutive five-year renewal periods at our option. The aggregate base rent for the Initial Term will be approximately $163.0 million; provided, however, that if we are not subject to an Event of Default (as defined in the Warren Lease), we will be entitled to a base rent abatement over the first three years of the Initial Term of approximately $18.6 million, reducing our total base rent obligation to $144.4 million. The rental rate for the renewal periods will be at the Fair Market Rental Value (as defined in the Warren Lease) and determined at the time of the exercise of the renewal. Beginning in the second lease year, we are also responsible for the payment of all taxes and operating expenses for the Premises. There were no other material changes to the contractual obligations and commercial commitments set forth in our 2021 Annual Report on Form 10-K during the period ended June 30, 2022. Furthermore, since we are a public offering in June 2013,company, we have incurred and expect to
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continue to incur additional costs associated with operating as a public company. These costs includesuch including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. Additionally, we could be forced to expend significant resources in the defense of the pending securities class action lawsuits brought against us and certain of our current and former executive officers and the derivative lawsuits brought against us, as a nominal defendant, certain of our current and former executive officers and certain of our current and former directors, as described under Part II, Item 1. Legal Proceedings in this Quarterly Report on Form 10-Q.
We will need to generate significant revenues to achieve and sustain profitability, and we may never do so. We may need to obtain substantial additional funding in connection with our continuing operations. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs primarily through a combination of equity offerings, debt financings, collaborations, strategic alliances, grants and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed by our product and product candidates and marketing, distribution or licensing arrangements. Adequate additional financing may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our shareholders ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
If we are unable to raise additional funds through equity, debt or debtother financings when needed or on attractive terms, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
(in thousands) | Total | Less than 1 year | 1 - 3 years | 4 - 5 years | More than 5 years | ||||||||||||||
Minimum royalty (1) | $ | 10,232 | $ | 1,082 | $ | 3,394 | $ | 3,542 | $ | 2,214 | |||||||||
Credit agreement, including interest (2) | 47,616 | 2,900 | 31,101 | 13,615 | — | ||||||||||||||
Total contractual obligations | $ | 57,848 | $ | 3,982 | $ | 34,495 | $ | 17,157 | $ | 2,214 |
During the period ended SeptemberJune 30, 2017,2022, there were no material changes in our market risk or how our market risk is managed, compared to those disclosed under the heading “Quantitative and Qualitative Disclosures about Market Risk” in our 2021 Annual Report on Form 10-K for the year ended December 31, 2016.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our PrincipalChief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2017.2022. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of SeptemberJune 30, 2017,2022, our Chief Executive Officer and PrincipalChief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the quarter ended SeptemberJune 30, 20172022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Item 1. Legal Proceedings.
From time to time in the United States District Court for the Districtordinary course of New Jersey (one each on March 3, 10,our business, we are subject to claims, legal proceedings and 11), naming as defendants the Company, our Chief Executive Officer, and our former Chief Financial Officer. The lawsuits have been consolidated into one action captioned
We have set forth in this QuarterlyItem 1A to our Annual Report on Form 10-Q should be carefully considered. The risks and uncertainties described below are not10-K for the only ones we face. Additional risks and uncertainties not presently knownyear ended December 31, 2021, risk factors relating to us or that we presently deem less significant may also impair our business, operations. Please see page 1our industry, our structure and our common stock. Readers of this Quarterly Report on Form 10-Q are referred to such Item 1A for a discussionmore complete understanding of somerisks concerning us.
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Item 6. Exhibits.
| | |
Exhibit Number | Description of Exhibit | |
| | |
10.1*† | | Lease Agreement dated May 24, 2022, between Warren CC Acquisitions, LLC and PTC Therapeutics, Inc. |
10.2* | | |
10.3 | | |
31.1 | ||
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
101.INS | Inline XBRL Instance Document* | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Database* | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
104 | | The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL |
* Submitted electronically herewith.
† Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |
PTC THERAPEUTICS, INC. | |||
Date: | By: | /s/ | |
| | Emily Hill | |
| | Chief Financial Officer | |
| | (Principal Financial |
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