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.
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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 1, 2023, there were 41,489,58075,344,951 shares of Common Stock, $0.001 par value per share, outstanding.
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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 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 ability to commercialize UpstazaTM (eladocagene exuparvovec) 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 for our product candidates, 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 conversion of the conditional marketing authorization for Translarna for the treatment of nmDMD in the EEA to a standard marketing authorization and 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 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 ability to obtain additional and maintain existing reimbursed named patient and cohort early access programs for our products on adequate terms, or at all; |
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● | 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, metabolic, Bio-e and oncology programs 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 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; |
● | the potential receipt of revenues from future sales of our products or product candidates; |
● | 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; |
● | the extent, timing and financial aspects of the discontinuation of our preclinical and early research programs in gene therapy and reduction in workforce; |
● | 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 complete any post-marketing requirements imposed by regulatory agencies with respect to our products; |
● | 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; |
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● | our ability to satisfy our obligations under the terms of the credit agreement with funds and other affiliated entities advised or managed by Blackstone Life Sciences and Blackstone Credit and Wilmington Trust, National Association, as the administrative agent; |
● | our ability to satisfy our obligations 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, metabolic, Bio-e 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, 20162022 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, | | ||
|
| 2023 |
| 2022 | | ||
Assets | | | | | | | |
Current assets: |
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Cash and cash equivalents | | $ | 208,393 | | $ | 279,834 | |
Marketable securities | |
| 129,550 | |
| 130,871 | |
Trade and royalty receivables, net | |
| 177,503 | |
| 155,614 | |
Inventory, net | |
| 32,018 | |
| 21,808 | |
Prepaid expenses and other current assets | |
| 42,227 | |
| 105,658 | |
Total current assets | |
| 589,691 | |
| 693,785 | |
Fixed assets, net | |
| 82,129 | |
| 72,590 | |
Intangible assets, net | |
| 451,629 | |
| 705,891 | |
Goodwill | |
| 82,341 | |
| 82,341 | |
Operating lease ROU assets | | | 96,686 | | | 102,430 | |
Deposits and other assets | |
| 35,648 | |
| 48,582 | |
Total assets | | $ | 1,338,124 | | $ | 1,705,619 | |
Liabilities and stockholders’ deficit | |
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Current liabilities: | |
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Accounts payable and accrued expenses | | $ | 358,562 | | $ | 320,366 | |
Deferred revenue | |
| — | |
| 1,351 | |
Operating lease liabilities- current | | | 10,199 | | | 9,370 | |
Finance lease liabilities- current | | | 2,230 | | | 3,000 | |
Liability for sale of future royalties- current | | | 105,351 | | | 72,149 | |
Total current liabilities | |
| 476,342 | |
| 406,236 | |
Long-term debt | |
| 572,643 | |
| 571,722 | |
Contingent consideration payable | |
| 37,500 | |
| 164,000 | |
Deferred tax liability | |
| 51,928 | |
| 102,834 | |
Operating lease liabilities- noncurrent | | | 100,425 | | | 100,860 | |
Finance lease liabilities- noncurrent | | | 17,184 | | | 18,675 | |
Liability for sale of future royalties- noncurrent | | | 661,229 | | | 685,737 | |
Other long-term liabilities | | | 141 | | | 2,641 | |
Total liabilities | |
| 1,917,392 | |
| 2,052,705 | |
Stockholders’ deficit: | |
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Common stock, $0.001 par value. Authorized 250,000,000 shares; issued and outstanding 75,318,233 shares at June 30, 2023. Authorized 250,000,000 shares; issued and outstanding 73,104,692 shares at December 31, 2022. | |
| 75 | |
| 72 | |
Additional paid-in capital | |
| 2,416,904 | |
| 2,305,020 | |
Accumulated other comprehensive (loss) income | |
| (1,431) | |
| 4,796 | |
Accumulated deficit | |
| (2,994,816) | |
| (2,656,974) | |
Total stockholders’ deficit | |
| (579,268) | |
| (347,086) | |
Total liabilities and stockholders’ deficit | | $ | 1,338,124 | | $ | 1,705,619 | |
See accompanying unaudited notes.
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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, | | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||
Revenues: |
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Net product revenue | | $ | 174,592 | | $ | 143,701 | | $ | 362,149 | | $ | 273,534 | |
Collaboration revenue | |
| — | | | — | |
| 6 | |
| 7 | |
Royalty revenue | | | 36,853 | | | 21,825 | | | 67,684 | | | 40,721 | |
Manufacturing revenue | | | 2,363 | | | — | | | 4,351 | | | — | |
Total revenues | |
| 213,808 | |
| 165,526 | |
| 434,190 | |
| 314,262 | |
Operating expenses: | | | | | | | | | | | | | |
Cost of product sales, excluding amortization of acquired intangible assets | |
| 12,731 | | | 9,639 | |
| 26,875 | |
| 19,774 | |
Amortization of acquired intangible assets | |
| 47,397 | | | 26,294 | |
| 86,812 | |
| 49,767 | |
Research and development | |
| 185,874 | | | 157,263 | |
| 380,998 | |
| 297,341 | |
Selling, general and administrative | |
| 88,449 | | | 79,892 | |
| 175,363 | |
| 153,162 | |
Change in the fair value of contingent consideration | |
| (128,900) | | | (15,200) | |
| (126,500) | |
| (26,900) | |
Intangible asset impairment | | | 217,800 | | | — | | | 217,800 | | | — | |
Total operating expenses | |
| 423,351 | |
| 257,888 | |
| 761,348 | |
| 493,144 | |
Loss from operations | |
| (209,543) | |
| (92,362) | |
| (327,158) | |
| (178,882) | |
Interest expense, net | |
| (29,415) | | | (21,976) | |
| (56,745) | |
| (45,490) | |
Other income (expense), net | |
| 1,479 | | | (34,357) | |
| 11,434 | |
| (46,214) | |
Loss before income tax benefit (expense) | |
| (237,479) | |
| (148,695) | |
| (372,469) | |
| (270,586) | |
Income tax benefit (expense) | |
| 38,596 | | | (3,392) | |
| 34,627 | |
| (8,227) | |
Net loss attributable to common stockholders | | $ | (198,883) | | $ | (152,087) | | $ | (337,842) | | $ | (278,813) | |
Weighted-average shares outstanding: | | | | | | | | | | | | | |
Basic and diluted (in shares) | |
| 74,730,433 | | | 71,372,940 | |
| 74,232,624 | |
| 71,294,458 | |
Net loss per share—basic and diluted (in dollars per share) | | $ | (2.66) | | $ | (2.13) | | $ | (4.55) | | $ | (3.91) | |
See accompanying unaudited notes.
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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, | | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||
Net loss | | $ | (198,883) | | $ | (152,087) | | $ | (337,842) | | $ | (278,813) | |
Other comprehensive income (loss): | |
|
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|
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|
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Unrealized gain (loss) on marketable securities, net of tax | |
| 397 | | | (156) | |
| 451 | |
| (3,069) | |
Foreign currency translation (loss) gain, net of tax | |
| (241) | | | 29,015 | |
| (6,678) | |
| 37,602 | |
Comprehensive loss | | $ | (198,727) | | $ | (123,228) | | $ | (344,069) | | $ | (244,280) | |
See accompanying unaudited notes.
6
PTC Therapeutics, Inc.
Consolidated Statements of Stockholders’ (Deficit) Equity (unaudited)
In thousands (except shares)
| | | | | | | | | | | | | | | | | |
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| | |
| Accumulated |
| | |
| | | |
| | | | | |
| Additional |
| other | | | |
| Total | |||
Three months ended June 30, 2023 | | Common stock | | paid-in |
| comprehensive | | Accumulated | | stockholders’ | |||||||
|
| Shares |
| Amount |
| capital |
| (loss) income |
| deficit |
| deficit | |||||
Balance, March 31, 2023 | | 74,012,034 |
| $ | 73 |
| $ | 2,339,886 |
| $ | (1,587) |
| $ | (2,795,933) |
| $ | (457,561) |
Exercise of options |
| 481,051 | | | 1 | | | 14,273 | | | — | | | — | | | 14,274 |
Restricted stock vesting and issuance, net |
| 50,382 | | | — | | | — | | | — | | | — | | | — |
Issuance of common stock in connection with an employee stock purchase plan |
| 117,304 | | | — | | | 3,805 | | | — | | | — | | | 3,805 |
Issuance of common stock in connection with a milestone payable | | 657,462 | | | 1 | | | 29,569 | | | — | | | — | | | 29,570 |
Share-based compensation expense |
| — | | | — | | | 29,371 | | | — | | | — | | | 29,371 |
Net loss |
| — | | | — | | | — | | | — | | | (198,883) | | | (198,883) |
Comprehensive income |
| — | | | — | | | — | | | 156 | | | — | | | 156 |
Balance, June 30, 2023 |
| 75,318,233 | | $ | 75 | | $ | 2,416,904 | | $ | (1,431) | | $ | (2,994,816) | | $ | (579,268) |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | |
| 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) |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | |
| Accumulated |
| | |
| | | |
| | | | | |
| Additional |
| other | | | |
| Total | |||
Six months ended June 30, 2023 | | Common stock | | paid-in |
| comprehensive | | Accumulated | | stockholders’ | |||||||
|
| Shares |
| Amount |
| capital |
| income (loss) |
| deficit |
| deficit | |||||
Balance, December 31, 2022 |
| 73,104,692 | | $ | 72 | | $ | 2,305,020 | | $ | 4,796 | | $ | (2,656,974) | | $ | (347,086) |
Exercise of options |
| 692,612 | | | 1 | | | 20,324 | | | — | | | — | |
| 20,325 |
Restricted stock vesting and issuance, net |
| 746,163 | | | 1 | | | — | | | — | | | — | |
| 1 |
Issuance of common stock in connection with an employee stock purchase plan |
| 117,304 | | | — | | | 3,805 | | | — | | | — | |
| 3,805 |
Issuance of common stock in connection with a milestone payable | | 657,462 | | | 1 | | | 29,569 | | | — | | | — | | | 29,570 |
Share-based compensation expense |
| — | | | — | | | 58,186 | | | — | | | — | |
| 58,186 |
Net loss |
| — | | | — | | | — | | | — | | | (337,842) | |
| (337,842) |
Comprehensive loss |
| — | | | — | | | — | | | (6,227) | | | — | |
| (6,227) |
Balance, June 30, 2023 |
| 75,318,233 | | $ | 75 | | $ | 2,416,904 | | $ | (1,431) | | $ | (2,994,816) | | $ | (579,268) |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | |
| 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) |
See accompanying unaudited notes.
7
In thousands
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, | | ||||
|
| 2023 |
| 2022 | | ||
Cash flows from operating activities | | | | | | | |
Net loss | | $ | (337,842) | | $ | (278,813) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| |
Depreciation and amortization | |
| 93,830 | | | 55,494 | |
Non-cash operating lease expense | |
| 5,674 | | | 4,295 | |
Non-cash royalty revenue related to sale of future royalties | | | (29,059) | | | (17,482) | |
Non-cash interest expense on liability related to sale of future royalties | | | 37,753 | | | 37,825 | |
Intangible asset impairment | | | 217,800 | | | — | |
Change in valuation of contingent consideration | |
| (126,500) | | | (26,900) | |
Unrealized loss (gain) on ClearPoint Equity Investments | |
| 1,112 | | | (2,369) | |
Unrealized loss (gain) on ClearPoint convertible debt security | | | 1,539 | | | (1,995) | |
Unrealized (gain) loss on marketable securities- equity investments | | | (4,364) | | | 11,356 | |
Realized loss for the sale of Clearpoint Equity Investment | | | 782 | | | — | |
Non-cash stock consideration, milestone payment | | | 29,570 | | | — | |
Disposal of asset | | | 133 | | | 82 | |
Deferred income taxes | | | (50,907) | | | — | |
Amortization of (discounts) premiums on investments, net | |
| (88) | | | 1,540 | |
Amortization of debt issuance costs | |
| 1,001 | | | 935 | |
Share-based compensation expense | |
| 58,186 | | | 54,319 | |
Unrealized foreign currency transaction (gains) losses, net | |
| (13,332) | | | 36,359 | |
Changes in operating assets and liabilities: | |
| | | | | |
Inventory, net | |
| (9,795) | | | 27 | |
Prepaid expenses and other current assets | |
| 63,951 | | | 16,431 | |
Trade and royalty receivables, net | |
| (18,022) | | | (29,549) | |
Deposits and other assets | |
| 6,936 | | | (974) | |
Accounts payable and accrued expenses | |
| 32,437 | | | (9,060) | |
Other liabilities | |
| (3,055) | | | (4,167) | |
Deferred revenue | |
| (1,351) | | | — | |
Net cash used in operating activities | | $ | (43,611) | | $ | (152,646) | |
Cash flows from investing activities | |
| | |
| | |
Purchases of fixed assets | | $ | (16,515) | | $ | (18,012) | |
Purchases of marketable securities- available for sale | | | — | | | (40,429) | |
Purchases of marketable securities- equity investments | | | (18,159) | | | — | |
Sale and redemption of marketable securities- available for sale | | | 21,544 | | | 257,534 | |
Sale and redemption of marketable securities- equity investments | | | 4,249 | | | 3,630 | |
Sale and redemption of ClearPoint Equity Investments | | | 2,594 | | | — | |
Acquisition of product rights and licenses | | | (46,436) | | | (81,426) | |
Net cash (used in) provided by investing activities | | $ | (52,723) | | $ | 121,297 | |
Cash flows from financing activities | |
|
| |
| | |
Proceeds from exercise of options | | $ | 20,325 | | $ | 3,198 | |
Proceeds from employee stock purchase plan | |
| 3,805 | | | 3,107 | |
Debt issuance costs related to senior secured term loan | | | (197) | | | — | |
Payment of finance lease principal | | | (1,379) | | | (1,276) | |
Net cash provided by financing activities | | $ | 22,554 | | $ | 5,029 | |
Effect of exchange rate changes on cash | |
| 2,351 | | | 3,347 | |
Net decrease in cash and cash equivalents | |
| (71,429) | |
| (22,973) | |
Cash and cash equivalents, and restricted cash beginning of period | |
| 295,925 | | | 197,218 | |
Cash and cash equivalents, and restricted cash end of period | | $ | 224,496 | | $ | 174,245 | |
Supplemental disclosure of cash information | |
|
| |
| | |
Cash paid for interest | | $ | 22,310 | | $ | 8,273 | |
Cash paid for income taxes | | | 9,196 | | | 2,949 | |
Supplemental disclosure of non-cash investing and financing activity | |
| | |
|
| |
Unrealized gain (loss) on marketable securities, net of tax | | $ | 451 | | $ | (3,069) | |
Right-of-use assets obtained in exchange for operating lease obligations | | | — | | | 68,642 | |
Acquisition of product rights and licenses | | | 36,879 | | | 26,687 | |
Debt issuance costs related to senior secured term loan | | | 38 | | | — | |
Capital expenditures unpaid at the end of period | | | 36 | | | — | |
Milestone payable | | | 2,500 | | | 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 little to 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 disordersdiseases relating to neurology, metabolism and oncology.
The Company has two products, Translarna
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,(“EMA”) of the benefit-risk balance of the authorization, which the Company refers to as the annual EMA reassessment. ThisIn June 2022, the European Commission renewed the Company’s 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. The Company refers to the trial and open-label extension together as Study 041.
Translarna is an investigational new drug in the United States. DuringFollowing the first quarterCompany’s announcement of 2017,top-line results from the placebo-controlled trial of Study 041 in June 2022, the Company filedsubmitted a meeting request to the U.S. Food and Drug Administration (“FDA”) to gain clarity on the regulatory pathway for a potential re-submission of a New Drug Application or NDA, over protest with the United States Food and Drug Administration, (the "FDA"(“NDA”), 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 is 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, which, as per FDA draft guidelines, would typically involve a time-frame of one-to-two months to receive a response from the FDA. The FDA's complete response letter also mentioned other nonclinical and CMC matters that the Company is in the process of addressing. The NDA, which seeks approval of Translarna for the treatment of nmDMD in the United States, was initially submitted by the Company in December 2015. In February 2016, following the submission, the Company received a Refuse to File letter from the FDA regarding the NDA.Translarna. The FDA stated in the Refuse to File letterprovided initial written feedback that the NDA was not sufficiently complete to permit a substantive review. Specifically, the Company was notified in the letter that, in the view of the FDA, both the Phase 2b and Phase 3 ACT DMD trials were negative and doStudy 041 does not provide substantial evidence of effectiveness to support an NDA re-submission. The Company then had an informal meeting with the FDA, during which the Company discussed the potential path to an NDA re-submission for Translarna. Based on the meeting discussion, the Company is preparing to request an additional Type C meeting with the FDA to review the totality of data collected to date, including dystrophin and other mechanistic data as well as additional analyses that could support the NDA did not contain adequate informationbenefit of Translarna.
The Company has developed Upstaza (eladocagene exuparvovec), a gene therapy used for the treatment of Aromatic L-Amino Acid Decarboxylase (“AADC”) deficiency (“AADC deficiency”), a rare central nervous system (“CNS”) disorder
9
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. In November 2022, the Medicines and Healthcare Products Regulatory Agency approved Upstaza for the treatment of AADC deficiency for patients 18 months and older within the United Kingdom. The Company is also preparing and anticipates submitting a biologics license application (“BLA”) to the FDA for Upstaza for the treatment of AADC deficiency in the United States in the third quarter of 2023.
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. In December 2022, ANVISA approved Waylivra for the treatment of familial partial lipodystrophy (“FPL”). Waylivra has also received marketing authorization in the EU for the treatment of FCS.
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 July 2023, the CHMP adopted a positive opinion for the extension of the Evrysdi marketing authorization to include infants under two months old in the EU and the Company expects a final decision regarding the abuse potentialapproval from the European Commission later in 2023. In addition to the Company’s SMA program, the Company’s splicing platform also includes PTC518, which is being developed for the treatment of Translarna. Additionally,Huntington’s disease (“HD”). 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. In June 2023, the Company announced interim data from the 12-week placebo-controlled phase. Enrollment in the Phase 2 study remains active and ongoing outside of the United States. Enrollment within the United States is paused as the FDA stated thathas requested additional data to allow the Company had proposedPhase 2 study to proceed; discussions are ongoing with the FDA to allow the resumption of U.S. enrollment.
The most advanced molecule in the Company’s metabolic platform is sepiapterin, a post-hoc adjustmentprecursor to intracellular tetrahydrobiopterin, which is a critical enzymatic cofactor involved in metabolism and synthesis 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 Centernumerous metabolic products, for Drug Evaluation and Research; however, this appeal was denied by the FDA’s Office of Drug Evaluation I in October 2016.
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 utreloxastat. The Company announced topline results from a registration-directed Phase 3 trial of vatiquinone in children and young adults with Friedreich ataxia in May 2023. While the study did not meet its primary endpoint of statistically significant change, the Company has withdrawn its type II variation submissionbeen granted a Type C meeting with the EMA, which sought approval of TranslarnaFDA to discuss the potential for an NDA submission for vatiquinone for the treatment of nmCFFriedreich
10
ataxia based on signals of clinical benefit seen in the EEA.
Unesbulin is the Company’s most advanced oncology agent. The Company completed its acquisition of all rights to EMFLAZA, or the Transaction. EMFLAZA is approvedPhase 1 trials evaluating unesbulin in leiomyosarcoma (“LMS”) and diffuse intrinsic pontine glioma (“DIPG”) in the United Statesfourth quarter of 2021. The Company initiated a registration-directed Phase 2/3 trial of unesbulin for the treatment of DMDLMS in patients five yearsthe first quarter of 2022 and older.enrollment is ongoing. The Transaction was completed pursuant to an asset purchase agreement, dated March 15, 2017, as amended on April 20, 2017, (the "Asset Purchase Agreement"), by and betweenCompany is evaluating its plans for a potential initiation of a registration-directed Phase 2/3 trial of unesbulin for the treatment of DIPG.
In addition, the Company has a pipeline of product candidates and Marathon Pharmaceuticals, LLC (now known as Complete Pharma Holdings, LLC), or Marathon. The transaction was accounted for as an asset acquisition. The assets acquired by the Companydiscovery programs that are in the Transaction include intellectual property rights related to EMFLAZA, inventories of EMFLAZA,early clinical, pre-clinical and certain contractual rights related to EMFLAZA. The Company assumed certain liabilitiesresearch and obligations in the Transaction arising out of, or relating to, the assets acquired in the Transaction.
As of SeptemberJune 30, 2017,2023, the Company had an accumulated deficit of approximately $815.4$2,994.8 million. The Company has financed its operations to date primarily through the private offeringofferings in August 2015September 2019 of 3.00%1.50% convertible senior notes due 20222026 (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), net proceeds from the Company’s’ borrowings under its credit agreement with Blackstone (see Note 9), private placements of its convertible preferred stock and common stock, collaborations, bank and institutional lender debt, andother 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, theThe 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 in May 2017, the Company began to recognize revenue generated from net sales of EMFLAZAsince 2014, Emflaza for the treatment of DMD in the United States.
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, 20162022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 16, 2017February 21, 2023 (the "2016"2022 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, 20172023 and for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 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, 20162022 and notes thereto included in the 20162022 Form 10-K.
In the opinion of management, the unaudited financial information as of SeptemberJune 30, 20172023 and for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 reflects all adjustments, which are normal recurring adjustments, necessary to present a fair
11
statement of financial position, results of operations, stockholders’ (deficit) equity, and cash flows. The results of operations for the three and nine month periodssix months ended SeptemberJune 30, 20172023 are not necessarily indicative of the results to be expected for the year ended December 31, 20172023 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 respective letters of credit. Restricted cash also includes a bank guarantee of $0.5 million denominated in a foreign currency.
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, | ||
|
| 2023 | | 2022 | ||
Cash and cash equivalents | | $ | 208,393 | | $ | 279,834 |
Restricted cash included in deposits and other assets | |
| 16,103 | |
| 16,091 |
Total Cash, cash equivalents and restricted cash per statement of cash flows | | $ | 224,496 | | $ | 295,925 |
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
12
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, 2023 and 2022, no 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:
September 30, 2017 | December 31, 2016 | |||||||
Raw materials | $ | 182 | $ | — | ||||
Work in progress | 2,715 | — | ||||||
Finished goods | 4,895 | — | ||||||
Total inventory | $ | 7,792 | $ | — |
| | | | | | |
|
| June 30, 2023 |
| December 31, 2022 | ||
Raw materials | | $ | 1,107 | | $ | 1,078 |
Work in progress | |
| 20,873 | |
| 14,074 |
Finished goods | |
| 10,038 | |
| 6,656 |
Total inventory | | $ | 32,018 | | $ | 21,808 |
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, 2023 the Company has not recorded any inventory write downs aswrite-downs of $0.3 million and $0.4 million, respectively, primarily related to product approaching expiration. For the current period.three and six months ended June 30, 2022, the Company recorded inventory write-downs of $0.3 million and $0.9 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
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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.
For the three months ended June 30, 2023 and 2022, net product sales outside of the United States were $108.9 million and $86.9 million, respectively, consisting of sales of Translarna, Tegsedi, Waylivra, and Upstaza. Translarna net revenues made up $96.5 million and $77.0 million of the net product sales outside of the United States for the three months ended June 30, 2023 and 2022, respectively. For the three months ended June 30, 2023 and 2022, net product sales in the United States were $65.7 million and $56.8 million, respectively, consisting solely of sales of Emflaza. During the three months ended June 30, 2023, three countries, the United States, Russia, and Brazil, accounted for at least 10% of the Company’s net product sales, representing $65.7 million, $19.1 million, and $23.1 million of net product sales, respectively. During the three months ended June 30, 2022, two countries, the United States and Russia, accounted for at least 10% of the Company’s net product sales, representing $56.8 million and $23.6 million of net product sales, respectively.
For the six months ended June 30, 2023 and 2022, net product sales outside of the United States were $241.8 million and $168.1 million, respectively, consisting of Translarna, Tegsedi, Waylivra, and Upstaza. Translarna net revenues made up $211.6 million and $156.2 million of the net product sales outside of the United States for the six months ended June 30, 2023 and 2022, respectively. For the six months ended June 30, 2023 and 2022, net product sales in the United States were $120.3 million and $105.4 million, respectively, consisting solely of Emflaza. During the six months ended June 30, 2023, three countries, the United States, Russia, and Brazil, accounted for at least 10% of the Company’s net product sales, representing $120.3 million, $63.7 million, and $48.9 million of net product sales, respectively. During the six months ended June 30, 2022, three countries, the United States, Russia, and Brazil, accounted for at least 10% of the Company’s net product sales, representing $105.4 million, $28.9 million, and $32.5 million of net product sales, respectively.
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
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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, 2023 and 2022, the Company did not recognize collaboration revenue related to the SMA License Agreement with Roche. For the six months ended June 30, 2023 and 2022, the amounts recognized for the collaboration revenue related to the SMA License Agreement with Roche were immaterial.
For the three and six months ended June 30, 2023, the Company has recognized $36.9 million and $67.7 million of royalty revenue, respectively, related to Evrysdi. 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.
Manufacturing Revenue
The Company has manufacturing services related to the production of plasmid deoxyribonucleic acid (“DNA”) and adeno-associated virus (“AAV”) vectors for gene therapy applications for external customers. Performance obligations vary but may include manufacturing plasmid DNA and/or AAV vectors, material testing, stability studies, and other services related to material development. The transaction prices for these arrangements are fixed and include amounts stated in the contracts for each promised service. Typically, the performance obligations within a manufacturing contract are highly interdependent, in which case, the Company will combine them into a single performance obligation. The Company has determined that the assets created have no alternative use to the Company, and the Company has an enforceable right to payment for the performance completed to date, therefore revenue related to these services are recognized over time and is measured using an output method based on performance of manufacturing milestones completed to date.
Manufacturing service contracts may also include performance obligations related to project management services or obtaining materials from third parties. The Company has determined that these are separate performance obligations for which revenue is recognized at the point in time the services are performed. For performance obligations related to obtaining third party materials, the Company has determined that it is the principal as the Company has control of the materials and has discretion in setting the price. Therefore, the Company recognizes revenue on a gross basis related to obtaining third party materials.
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Certain arrangements require a portion of the contract consideration to be received in advance at the commencement of the contract, and such advance payment is initially recorded as a contract liability. A contract asset may be recognized in the event the Company’s satisfaction of performance obligations outpaces customer billings.
For the three and six months ended June 30, 2023, the Company recognized $2.4 million and $4.4 million of manufacturing revenue, respectively, related to plasmid DNA and AAV vector production for external customers. No manufacturing revenue was recognized for the three and six months ended June 30, 2022. As of June 30, 2023, the Company has contract assets of $0.4 million and no remaining performance obligations related to the production of plasmid DNA and AAV vectors for gene therapy applications for external customers. For the period ended December 31, 2022, the Company had remaining performance obligations of $1.4 million and no contracts assets related to plasmid DNA and AAV production for external customers.
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, 2023 and 2022, no allowance was recorded for credit losses. The allowance for doubtful accounts was $0.8$0.6 million as of SeptemberJune 30, 20172023 and $0.7$0.3 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 remaining milestone payments equal $250.0 million in the aggregate as of assetsJune 30, 2023. 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
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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 screencarrying amount of an intangible asset exceeds its fair value, an impairment loss is met,recognized in an amount equal to that excess. The Company considers many factors in evaluating whether the transaction is accounted forvalue of its intangible assets with indefinite lives may not be recoverable, including, but not limited to, expected growth rates, the cost of equity and debt capital, general economic conditions, the Company’s outlook and market performance of the Company’s industry and recent and forecasted financial performance.
In May 2023, as an asset acquisition. Ifpart of the screen is not met, further determination is required as to whether or notCompany’s strategic portfolio prioritization, the Company has acquired inputsdecided to discontinue its preclinical and processes that have the ability to create outputs,early research programs in its gene therapy platform, which would meet the requirements ofincluded Friedreich ataxia and Angelman syndrome. As a business. If determined to be a business combination,result, the Company accounts fordetermined that the transaction underFriedreich ataxia and Angelman syndrome indefinite lived intangible assets were fully impaired and recorded impairment expense of $217.8 million during the acquisition method of accountingthree and six month periods ended June 30, 2023, which is recorded as indicated in ASC Topic 805, “Business Combinations”, which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interestintangible asset impairment in the acquiree and establishesstatement of operations. Refer to Note 12 for further information regarding the acquisition date asCompany’s intangible assets.
Goodwill
Goodwill represents the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumedamount of consideration paid in business combinations, including contingent assets and liabilities, and non-controlling interest in the acquiree based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, the Company recognizes and measures goodwill as of the acquisition date, as the 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 reassesses 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 identified net assets acquired.
Income Taxes
The considerationOrganization for Economic Co-operation and Development (“OECD”), the Company’s business acquisitions includes future payments that are contingent upon European Community (“the occurrence of a particular event or events. The obligations for such contingent consideration payments are recorded at fair value on the acquisition date. The contingent consideration obligations are then evaluated each reporting period. Changes in 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 in 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.
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Starting in 2022, TCJA amendments to IRC Section 174 no longer permits an immediate deduction for research and accompanying notes. The Company’s implementation approach includes performingdevelopment (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 detailed review of key contracts representativefive- or 15-year period, depending on the location of the product being sold and services provided and assessing the conformance of historical accounting policies and practicesactivities performed. The new amortization period begins with the standard. Themidpoint 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 expectsrecorded a federal and state tax provision for the adoptionsix months ended June 30, 2023, in the amount of the new revenue standard to have an impact on its financial reporting disclosures$1.5 million and internal controls over financial reporting. The Company has established a comprehensive change management project plan to guide the implementation.
Deferred tax assets and liabilities are recognized for the rights and obligations created by those leases on their balance sheets. The ASU will also require new qualitative and quantitative disclosuresfuture tax consequences attributable to help investors and otherdifferences between the financial statement users better understand the amount, timing,carrying amounts of existing assets and uncertainty of cash flows arising from leases. The standard is effective for public companies for fiscal years,liabilities and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company expects to adopt this guidance when effectivetheir respective tax bases and is currently assessing what effect the adoption of ASU No. 2016-2 will have on its consolidated financial statementsnet operating loss and accompanying notes.
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 policy is to record a deferred 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 is successfully launched or the write-off of the asset if it is abandoned or unsuccessful. In July 2022, the Company received EMEA approval for a portion of the IPR&D assets, and thus, began the amortization of the intangible.
In May 2023, the Company announced the discontinuation of its preclinical and early research programs in gene therapy as part of a strategic portfolio prioritization. In conjunction with the announcement, the Company recorded an impairment to its indefinite-lived intangible for IP research and development relating to the Friedreich ataxia and Angelman syndrome gene therapy assets. As a result of the impairment, the Company recorded a deferred tax benefit of $50.9 million.
Leases
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement 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 economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company accounts for as a single lease component for all leases. Operating and finance leases are classified as non-current. This standard is effectiveright 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 yield straight-line expense over the term of the lease. Lease payments included in the measurement of the lease liability are comprised of fixed payments.
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 public companiesoperating leases.
Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and the Company recognizes lease expense for annual periods beginning after December 15, 2016.these leases on a straight-line basis over the lease term. The Company adoptedapplies this policy to all underlying asset categories.
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A lessee is required to discount its unpaid lease payments using the guidance on January 1, 2017 on a prospective basis.interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As most of the Company’s deferred tax assets are provided with full valuation allowance as of September 30, 2017, adoption of this standard didleases do not have a significant impactprovide an implicit rate, the Company uses its incremental borrowing rate based on the Company's financial statements.
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 elect whetherextend (or not to accountterminate) 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 forfeitures of share-based payments by recognizing forfeitures of awards as they occur or estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. This standard is effective for public companies for fiscal years beginning after December 15, 2016 and interim periods within those years. additional information.
3. Leases
The Company adoptedleases office space in South Plainfield, New Jersey for its principal office under two noncancelable operating leases through August 2024, in addition to office and laboratory space in Bridgewater, New Jersey and other locations throughout the guidanceUnited States and office space in various countries for international employees primarily through workspace providers.
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 JanuaryJuly 1, 20172020 and has an initial term of fifteen years (the “Hopewell Initial Term”), with two 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 also responsible for maintaining certain insurance and the payment of proportional 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 two 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 a prospective basis,June 1, 2022, with an initial term of seventeen years (the “Warren Initial Term”), followed by three consecutive five-year renewal periods at the Company’s option. The aggregate base rent for the Warren Initial Term will be 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 recordbe 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 excess tax benefitstaxes and deficienciesoperating expenses for the Warren Premises. As a result, the Company recorded an operating lease ROU asset of $28.9 million and an operating lease ROU liability of $28.9 million as income tax expense or benefit. Dueof the commencement date.
The Company is developing the Warren Premises into office and laboratory space. The Company is entitled to an allowance of approximately $36.2 million to be provided by the Company's historyWarren Landlord to be used towards such improvements. The Landlord is providing the allowance to cover those assets that are real property improvements, such as structural components, roofs, flooring, etc., whose useful lives are typically longer in nature. The Company evaluated the leasehold improvements under ASC 842 and determined that the Company will be the owner of operating losses, the adoption did not resultimprovements, and therefore the $36.2 million allowance and $5.0 million due from the Landlord were treated as lease incentives at the commencement of the lease and included in changes to the Company's Net loss or Retained earnings.calculation of the lease ROU asset and lease ROU liability, effectively reducing both at Commencement Date. In connection with the adoptionexecution of ASU 2016-9,the Warren Lease, the Company madealso committed to fund a policy electionconstruction account with $3.6 million to continue its methodologygo towards the Company’s improvements of the Warren Premises. Subject to the terms of the Warren Lease, the Company has a right of first offer to purchase the Warren Premises if the Warren Landlord receives a bona fide third party offer to purchase the Warren Premises or the Warren Landlord decides to sell the Warren Premises
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On June 19, 2020, the Company entered into a commercial manufacturing service agreement for estimating its forfeiture rate.
The Company also leases certain vehicles, lab equipment, and office equipment under operating leases. The Company’s leases have remaining operating lease terms ranging from 0.7 years to 15.9 years and certain of the leases include renewal options to extend the lease for up to 20 years. Rent expense was $7.2 million and $5.9 million for the three months ended June 30, 2023 and 2022, respectively, and $14.3 million and $11.2 million for the six months ended June 30, 2023 and 2022, respectively.
The components of operating lease expense were as follows:
| | | | | | | | | | | | | |
|
| Three Months Ended |
| Three Months Ended |
| Six Months Ended |
| Six Months Ended | | ||||
| | | June 30, 2023 | | | June 30, 2022 | | | June 30, 2023 | | | June 30, 2022 | |
Operating Lease Cost |
| |
| | |
| | |
| | |
| |
Fixed lease cost | | $ | 5,500 | | $ | 4,764 | | $ | 10,973 | | $ | 8,890 | |
Variable lease cost | |
| 1,411 | |
| 923 | |
| 2,764 | |
| 2,001 | |
Short-term lease cost | |
| 292 | |
| 257 | |
| 595 | |
| 338 | |
Total operating lease cost | | $ | 7,203 | | $ | 5,944 | | $ | 14,332 | | $ | 11,229 | |
Total operating lease cost is a business. This standard is effective for public companies for fiscal years beginning aftercomponent of operating expenses on the consolidated statements of operations.
Supplemental lease term and discount rate information related to leases was as follows as June 30, 2023 and December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company has elected to early adopt ASU No. 2017-01 and apply the guidance to the Transaction, which is being accounted for as an asset acquisition under the revised guidance.31, 2022:
| | | | | |
|
| June 30, 2023 |
| December 31, 2022 |
|
Weighted-average remaining lease terms - operating leases (years) |
| 11.59 | | 11.61 | |
Weighted-average discount rate - operating leases | | 8.65 | % | 8.61 | % |
Weighted-average remaining lease terms - finance lease (years) |
| 9.51 | | 10.01 | |
Weighted-average discount rate - finance lease |
| 7.80 | % | 7.80 | % |
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Supplemental cash flow information related to leases was as follows as of June 30, 2023 and 2022:
| | | | | | |
|
| Six Months Ended June 30, | ||||
|
| 2023 |
| 2022 | ||
Cash paid for amounts included in the measurement of lease liabilities: |
| |
| | |
|
Operating cash flows from operating leases | | $ | 7,624 | | $ | 7,089 |
Financing cash flows from finance lease | | | 1,379 | | | 1,276 |
Operating cash flows from finance leases | | | 1,621 | | | 1,724 |
| | | | | | |
Right-of-use assets obtained in exchange for lease obligations: | |
| | |
|
|
Operating leases | | $ | — | | $ | 68,642 |
Future minimum lease payments under non-cancelable leases as of June 30, 2023 were as follows:
| | | | | | | |
|
| Operating Leases |
| Finance Lease | | ||
2023 (excludes the six months ended June 30, 2023) | | $ | 8,924 | | $ | — | |
2024 | |
| 18,388 | |
| 3,000 | |
2025 | |
| 20,440 | |
| 3,000 | |
2026 | |
| 19,989 | |
| 3,000 | |
2027 and thereafter | |
| 193,792 | |
| 18,000 | |
Total lease payments | |
| 261,533 | |
| 27,000 | |
Less: Imputed Interest expense | |
| 150,910 | |
| 7,586 | |
Total | | $ | 110,623 | | $ | 19,414 | |
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.
The Company owns common stock in ClearPoint Neuro, Inc. (“ClearPoint”) (formerly MRI Interventions, Inc.), a publicly traded medical device company. The 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 prepaids and other current assets on the consolidated balance sheet as of June 30,
21
2023, and deposits and other assets as of December 31, 2022. During three and six months ended June 30, 2023, the Company recorded unrealized losses of $1.1 million and $1.1 million, respectively. During the three and six months ended June 30, 2022, the Company recorded unrealized gains of $3.4 million and $2.4 million, respectively. During the three and six months ended June 30, 2023, the Company recorded a realized loss of $0.8 million for the sale of Clearpoint equity investments. During the three and six months ended June 30, 2022, the Company did not record any realized gains or losses for the sale of Clearpoint equity investments. These unrealized and realized gains and losses are components of other income (expense), net within the consolidated statement of operations. The fair value of the ClearPoint Equity Investments was $6.5 million and $11.0 million as of June 30, 2023 and December 31, 2022, 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.
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, 2023, the Company recorded unrealized losses of $1.6 million and $1.5 million, respectively. During the three and six months ended June 30, 2022, the Company recorded unrealized gains of $3.5 million and $2.0 million, respectively. These unrealized gains and losses are components of other income (expense), net within the consolidated statement of operations. The fair value of the convertible debt security was $13.7 million and $15.2 million as of June 30, 2023 and December 31, 2022, 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 ClearPoint convertible debt security, no other items included in deposits and other assets and prepaids and other current assets on the consolidated balance sheets are fair valued.
The Company has investments in mutual funds, including one 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 they are 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 income (expense), net within the consolidated statement of operations. For the three and six months ended June 30, 2023, the Company had unrealized gains of $2.3 million and of $4.4 million, respectively, relating to the equity investments still held at the reporting date. For the three and six months ended June 30, 2022, the Company had unrealized losses of $4.9 million and $11.4 million relating to the equity investments still held at the reporting date, respectively. For three and six months ended June 30, 2023, the Company had redemptions of $2.2 million and $4.2 million, respectively. For the three and six months ended June 30, 2022, the Company had redemptions of $1.2 million and $3.6 million, respectively. For three and six months ended June 30, 2023, the Company had foreign currency unrealized gains of $1.2 million and $1.4 million, respectively, relating to these equity investments. 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.
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, 20172023 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, 2023 | ||||||||||
|
| | |
| 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 | | $ | 1,605 | | $ | — | | $ | 1,605 | | $ | — |
Marketable securities - equity investments | | $ | 127,945 | | $ | 127,945 | | $ | — | | $ | — |
ClearPoint Equity Investments | | $ | 6,477 | | $ | 6,477 | | $ | — | | $ | — |
ClearPoint convertible debt security | | $ | 13,693 | | $ | — | | $ | 13,693 | | $ | — |
Contingent consideration payable- development and regulatory milestones | | $ | 26,400 | | $ | — | | $ | — | | $ | 26,400 |
Contingent consideration payable- net sales milestones and royalties | | $ | 11,100 | | $ | — | | $ | — | | $ | 11,100 |
| | | | | | | | | | | | |
| | December 31, 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 | | $ | 22,610 | | $ | — | | $ | 22,610 | | $ | — |
Marketable securities - equity investments | | $ | 108,261 | | $ | 108,261 | | $ | — | | $ | — |
ClearPoint Equity Investments | | $ | 10,965 | | $ | 10,965 | | $ | — | | $ | — |
ClearPoint convertible debt security | | $ | 15,231 | | $ | — | | $ | 15,231 | | $ | — |
Contingent consideration payable- development and regulatory milestones | | $ | 82,500 | | $ | — | | $ | — | | $ | 82,500 |
Contingent consideration payable- net sales milestones and royalties | | $ | 81,500 | | $ | — | | $ | — | | $ | 81,500 |
No 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, 20172023 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, 20172023 and December 31, 2016:
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 |
| | | | | | | | | | | | |
| | June 30, 2023 | ||||||||||
|
| Amortized |
| Gross Unrealized | | | | |||||
|
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
Corporate debt securities | | $ | 1,648 | | $ | — | | $ | (43) | | $ | 1,605 |
Total | | $ | 1,648 | | $ | — | | $ | (43) | | $ | 1,605 |
| | | | | | | | | | | | |
| | December 31, 2022 | ||||||||||
|
| Amortized |
| Gross Unrealized | | | | |||||
|
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
Commercial paper | | $ | 12,419 | | $ | 5 | | $ | — | | $ | 12,424 |
Corporate debt securities | |
| 10,685 | | | — | | | (499) | | | 10,186 |
Total | | $ | 23,104 | | $ | 5 | | $ | (499) | | $ | 22,610 |
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, 2023, no write downs occurred. The Company does not intend to sell the investments until and it is not more likely than not that the Company will be required to sell the investments before
23
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, 2023, no 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, 2017,2023, the Company had $0.03$0.3 million inand $0.3 million realized gains resulting from the sale of
The unrealized losses and fair values of available for sale debt securities on the balance sheetthat have been in an unrealized loss position for a period of less than and greater than or equal to 12 months as of June 30, 2023 are as follows:
| | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | ||||||||||||||||
|
| 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 | | $ | — | | | — | | | (43) | | | 1,605 | | | (43) | | $ | 1,605 |
Total | | $ | — | | $ | — | | $ | (43) | | $ | 1,605 | | $ | (43) | | $ | 1,605 |
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 or equal to 12 months as of December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | |
| | December 31, 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 | | $ | — | | | — | | | (499) | | | 10,186 | | | (499) | | $ | 10,186 |
Total | | $ | — | | $ | — | | $ | (499) | | $ | 10,186 | | $ | (499) | | $ | 10,186 |
Available for sale debt securities at SeptemberJune 30, 20172023 and December 31, 20162022 mature as follows:
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 |
| | | | | | |
| | June 30, 2023 | ||||
|
| Less Than |
| More Than | ||
|
| 12 Months |
| 12 Months | ||
Corporate debt securities | | $ | 1,605 | | $ | — |
Total | | $ | 1,605 | | $ | — |
| | | | | | |
| | December 31, 2022 | ||||
|
| Less Than |
| More Than | ||
|
| 12 Months |
| 12 Months | ||
Commercial paper | | $ | 12,424 | | $ | — |
Corporate debt securities | |
| — | |
| 10,186 |
Total | | $ | 12,424 | | $ | 10,186 |
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.
24
Convertible senior notes
In September 2019, the Company issued $287.5 million of 1.50% convertible senior notes due September 15, 2026 (the “2026 Convertible Notes,”). The fair value of the 2026 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 2026 Convertible Notes observed in market trading which are Level 2 inputs. The estimated fair value of the 2026 Convertible Notes at June 30, 2023 and December 31, 2022 was $296.5 million and $281.7 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 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.
In May 2023, as part of the Company’s strategic portfolio prioritization, the Company decided to discontinue its preclinical and early research programs in its gene therapy platform, which included Friedreich ataxia and Angelman syndrome. As a result, the Company fully impaired the Friedreich ataxia and Angelman syndrome intangible assets and determined that the fair value for all of the contingent consideration payable related to Friedreich ataxia and Angelman syndrome was $0. The change in fair value for the contingent consideration payable related to Friedreich ataxia and Angelman syndrome for the three month period withended June 30, 2023 was $129.8 million and is included in the change in fair value recorded as compensation expense on the Company’s consolidated statements of operations until the SARS vest. The fair value of the SARs liabilitycontingent consideration in the statement of operations. The remaining contingent consideration as of June 30, 2023 is determined at each reporting period by utilizing$37.5 million, which is solely related to the Black-Scholes option pricing model.
As of June 30, 2023, the weighted average discount rate for the Upstaza development and regulatory milestones was 6.1% and the weighted average probability of success was 90%. As of June 30, 2023, the weighted average discount rate for the Upstaza net sales milestones was 12.0% and the weighted average probability of success for the net sales milestones was 93%.
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, 2017:2023 and June 30, 2022:
| | | | | | |
| | Level 3 liabilities | ||||
| | Contingent consideration payable- | | Contingent consideration payable- | ||
| | development and regulatory | | net sales milestones and royalties | ||
|
| milestones |
| | ||
Beginning balance as of December 31, 2022 | | $ | 82,500 | | $ | 81,500 |
Additions | |
| — | |
| — |
Change in fair value | |
| (56,100) | |
| (70,400) |
Payments | | | — | | | — |
Ending balance as of June 30, 2023 | | $ | 26,400 | | $ | 11,100 |
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, 2021 | | $ | 139,300 | | $ | 100,600 |
Additions | |
| — | |
| — |
Change in fair value | |
| (10,600) | |
| (16,300) |
Reclass to accounts payable and accrued expenses | | | (50,000) | | | — |
Payments | | | — | | | — |
Ending balance as of June 30, 2022 | | $ | 78,700 | | $ | 84,300 |
The following significant unobservable inputs were used in the valuation of the warrant liability iscontingent consideration payable for the periods ended June 30, 2023 and December 31, 2022:
| | | | | | | | |
| | June 30, 2023 | ||||||
| Fair Value | Valuation Technique | Unobservable Input | Range | ||||
Contingent consideration payable- | | $26,400 | Probability-adjusted discounted cash flow | Potential development and regulatory milestones | | $0 - $31 million | ||
Contingent considerable payable- net sales | | $11,100 | Option-pricing model with Monte Carlo simulation | Potential net sales milestones | | $0 - $50 million |
| | | | | | | | |
| | December 31, 2022 | ||||||
| Fair Value | Valuation Technique | Unobservable Input | Range | ||||
Contingent consideration payable- | | $82,500 | Probability-adjusted discounted cash flow | Potential development and regulatory milestones | | $0 - $331 million | ||
Contingent considerable payable- net sales | | $81,500 | 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 determined.
26
5. Accounts payable and losses on marketable securities.
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, 20172023 and December 31, 20162022 consist of the following:
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 |
| | | | | | | |
| | June 30, | | December 31, | | ||
|
| 2023 |
| 2022 | | ||
Employee compensation, benefits, and related accruals | | $ | 48,707 | | $ | 62,669 | |
Income tax payable | | | 11,149 | | | 4,712 | |
Consulting and contracted research | |
| 28,522 | |
| 38,882 | |
Professional fees | |
| 3,750 | |
| 3,093 | |
Sales allowance | |
| 71,979 | |
| 63,787 | |
Sales rebates | |
| 108,376 | |
| 67,355 | |
Royalties | | | 51,720 | | | 40,546 | |
Accounts payable | |
| 25,741 | |
| 27,268 | |
Other | |
| 8,618 | |
| 12,054 | |
Total | | $ | 358,562 | | $ | 320,366 | |
During the three and six month periods ended June 30, 2023, the Company incurred $8.0 million of restructuring costs from a reduction in workforce in connection with the Company’s strategic pipeline prioritization and discontinuation of its preclinical and early research programs in its gene therapy platform. The costs are included in research and development and selling, general, and administrative expenses on the Company’s consolidated statement of operations. As of June 30, 2023, the remaining $6.0 million of accrued restructuring costs are included above within employee compensation, benefits, and related accruals.
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. No shares were sold during the three and six months ended June 30, 2023 and 2022. 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, 20172023.
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, | | | ||||||||
|
| 2023 |
| 2022 |
| | 2023 |
| 2022 |
| | ||||
Numerator | | | | | | | | | | | | | | | |
Net loss | | $ | (198,883) |
| $ | (152,087) |
| | $ | (337,842) |
| $ | (278,813) |
| |
Denominator | | | | | | | | | | | | | | | |
Denominator for basic and diluted net loss per share | |
| 74,730,433 |
|
| 71,372,940 |
| |
| 74,232,624 |
|
| 71,294,458 |
| |
Net loss per share: | | | | | | | | | | | | | | | |
Basic and diluted | | $ | (2.66) | * | $ | (2.13) | * | | $ | (4.55) | * | $ | (3.91) | * | |
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, 20172023 and 2016,2022, the Company experienced a net loss and therefore did not report any dilutive share impact.
27
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 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, 2023, awards for 6,557,397 shares of common stock are available for issuance under the Amended 2013 LTIP.
There are no 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, initially, 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 isto 1,300,000 shares. In December 2022, the sumCompany’s Board of (1) 122,296Directors approved an additional 1,700,000 shares of common stock that may be issued under the 2020 Inducement Stock Incentive Plan. As of June 30, 2023, awards for 1,658,300 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,incentive stock options, may not exceed ten years). Options typically vest over a four-year period.
Inducement stock option awards for 823,506 shares of common stock are available for issuance.
From January 1, 20172023 through SeptemberJune 30, 2017,2023, the Company issued a total of 1,809,873992,674 stock options to various employees. Of those, 541,550120,080 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 component2020 Inducement Stock Incentive Plan.
28
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, 2022 |
| 11,502,417 | | $ | 43.33 |
|
|
| | |
|
Granted |
| 992,674 | | $ | 41.39 |
|
|
| | |
|
Exercised |
| (692,612) | | $ | 29.37 |
|
|
| | |
|
Forfeited/Cancelled |
| (127,988) | | $ | 49.84 |
|
|
| | |
|
Outstanding at June 30, 2023 |
| 11,674,491 | | $ | 43.92 |
| 6.27 | years | | $ | 44,184 |
Vested or Expected to vest at June 30, 2023 |
| 3,112,415 | | $ | 47.05 |
| 8.34 | years | | $ | 3,578 |
Exercisable at June 30, 2023 |
| 8,259,224 | | $ | 42.71 |
| 5.40 | years | | $ | 40,195 |
The fair value of grants made in the ninesix months ended SeptemberJune 30, 20172023 was contemporaneously estimated on the date of grant using the following assumptions:
| | | |
| Six months ended | ||
| June 30, | 2023 | |
Risk-free interest rate | 3.54% - 3.88% | ||
Expected volatility | 53% - 54% | ||
Expected term | 5.5 years |
The Company assumed no expected dividends for all grants. The weighted average grant date fair value of options granted during the nine-month periodsix months ended SeptemberJune 30, 20172023 was $8.30$21.89 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, 2022 | | 2,516,336 | | $ | 45.67 |
Granted |
| 1,943,288 | | | 40.00 |
Vested |
| (751,448) | | | 46.46 |
Forfeited |
| (91,237) | | | 42.49 |
Unvested at June 30, 2023 |
| 3,616,939 | | $ | 42.54 |
Employee Stock Purchase Plan
—In June 2016, the Company established an Employee Stock Purchase Plan29
a committee appointed by the Board. TheCompany’s Board of Directors. In June 2021, the Plan was amended to increase the total number of shares available for purchase under the Plan isfrom one million shares to two million shares of the Company’s common stock. Employees may participate over a six-monthsix month period through payroll withholdings and may purchase, at the end of the six-monthsix month period, the Company’s common stock at a purchase price of at least 85% of the closing price of a share of the Company’s common stock on the first business day of the offering period or the closing price of a share of the Company’s common stock on the last business day of the offering period, whichever is lower. No participant will be granted a right to purchase the Company’s common stock under the Plan if such participant would own more than 5% of the total combined voting power of the Company or any subsidiary of the Company after such purchase. For the period ending Septemberthree and six months ended June 30, 2017,2023, the Company issued 191,787 shares of common stock and recorded $0.6 million and $1.3 million, respectively, in compensation expense related to the ESPP.
The 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, | | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | | ||||
Research and development | | $ | 15,529 | | $ | 13,798 | | $ | 30,842 | | $ | 26,832 | |
Selling, general and administrative | |
| 13,842 | |
| 13,932 | |
| 27,344 | |
| 27,487 | |
Total | | $ | 29,371 | | $ | 27,730 | | $ | 58,186 | | $ | 54,319 | |
As of SeptemberJune 30, 2017,2023, there was approximately $45.6$212.7 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 andCompany’s equity awards made pursuant to the NASDAQ inducement grant exception for new hires.award plans. This cost is expected to be recognized as share-based compensation expense over the weighted average remaining service period of approximately 2.052.3 years.
9. Debt
Liability for sale of future royalties
In July 2020, the Company entered into the Royalty Purchase Agreement. As RPI’s interest is explicitly limited, the $650.0 million cash consideration was 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 was based on the Company’s estimates of future royalties expected to be paid 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 ASC 470 and ASC 835. The initial annual effective interest rate was determined to be 11.0%. The Company utilizes the prospective method to account for subsequent changes in the estimated future payments to be made to RPI and updates the effective interest rate on a quarterly basis. Issuance costs related to the transaction were determined to be immaterial.
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 six months ended June 30, 2023:
| | | | |
|
| Six Months Ended June 30, | | |
Liability for sale of future royalties- (current and noncurrent) | | 2023 | | |
Beginning balance as of December 31, 2022 | | $ | 757,886 | |
Less: Non-cash royalty revenue payable to RPI | | | (29,059) | |
Plus: Non-cash interest expense recognized | | | 37,753 | |
Ending balance | | $ | 766,580 | |
Effective interest rate as of June 30, 2023 | |
| 9.7 | % |
Non-cash interest expense is recorded in the statement of operations within “Interest expense, net”.
30
Senior Secured Term Loan
On October 27, 2022 (the “Closing Date”), the Company entered into a credit and security agreement (the "Credit Facility"“Blackstone Credit Agreement”) for fundings of up to $950.0 million consisting of a committed loan facility of $450.0 million and further contemplating the potential for up to $500.0 million of additional financing, to the extent that the Company requests such additional financing and subject to the Lenders’ agreement to provide such additional financing and to mutual agreement on terms, among the Company, certain subsidiaries of the Company (together with MidCap Financialthe Company, the “Loan Parties”) and funds and other affiliated entities advised or managed by Blackstone Life Sciences and Blackstone Credit (collectively, “Blackstone”, and such lenders, together with their permitted assignees, the “Lenders” and each a “Lender”) and Wilmington Trust, a Delaware statutory trust (“MidCap”),National Association, as the administrative agent and MidCap and certain other financial institutions as lenders thereunder (the “Credit Agreement”) thatfor the Lenders.
The Blackstone Credit Agreement provides for a senior secured term loan facility funded on the Closing Date in the aggregate principal amount of $60.0$300.0 million (the “Initial Loans”) and a committed delayed draw term loan facility of up to $150.0 million (the “Delayed Draw Loans” and, together with the Initial Loans, the “Loans”) to be funded at the Company’s request within 18 months of the Closing Date subject to specified conditions. In addition, the Blackstone Credit Agreement contemplates the potential for further financings by Blackstone, by providing for incremental discretionary uncommitted further financings of up to $500.0 million. The Company capitalized approximately $11.6 million of debt issuance costs which $40.0 million was drawn byare presented on the Company on May 5, 2017. The remaining $20.0 million underbalance sheet as a direct deduction from the debt liability and are being amortized over the term of the senior secured term loan facility will become available tousing the Company upon its demonstration (on or prior to December 31, 2018) of net product revenue equaling or exceeding $120.0 million foreffective interest rate method.
The Loans mature on the trailing 12 month period. The Company capitalized approximately $0.4 million of debt issuance costs, which were netted againstdate that is seven years from the carrying value of the Credit Facility and will be amortized over the term of the Credit Facility.
All obligations under the Blackstone Credit Agreement are secured, subject to certain exceptions and specified inclusions, by security interests in certain assets of the Loan Parties, including (1) intellectual property and other assets related to Translarna, Emflaza, Upstaza, sepiapterin and, until certain release conditions are met, vatiquinone, in each case, together with any other forms, formulations, or methods of delivery of any such products, and regardless of trade or brand name, (2) future acquired intellectual property (but not internally developed intellectual property unrelated to other intellectual property collateral) and other related assets, and (3) the equity interests held by the Loan Parties in certain of their subsidiaries. The Blackstone Credit Agreement contains certain negative covenants with which the Company must remain in compliance. The Blackstone Credit Agreement also requires that the Company maintains consolidated liquidity of at least $100.0 million as of the last day of each fiscal quarter, which shall be increased to $200.0 million upon the Company consummating acquisitions meeting certain consolidated thresholds described therein. In addition, the Company will be required under conditions specified in the Blackstone Credit Agreement to make monthly interest paymentsfund a reserve account up to certain amounts specified therein, including $50.0 million that the Company funded into the reserve account during the quarter ended March 31, 2023 and monthly principal payments.was released back to the Company during the quarter ended June 30, 2023. The principal paymentsfunds in the reserve account are available to be made based on straight-line amortizationprepay the Loans at any time at the Company’s option, and are, if funded, subject to release upon certain further conditions. Upon any such release, such funds are freely available for use by the Company subject to the generally applicable terms and conditions of the principal overBlackstone Credit Agreement. The Blackstone Credit Agreement contains certain customary representations and warranties, affirmative covenants and provisions relating to events of default.
The Blackstone Credit Agreement consists of the twenty-four month period. The maturity datefollowing:
| | | | | | |
| | June 30, 2023 | | December 31, 2022 | ||
Principal | | $ | 300,000 | | $ | 300,000 |
Less: Debt issuance costs | |
| (10,979) | |
| (11,322) |
Net carrying amount | | $ | 289,021 | | $ | 288,678 |
As of June 30, 2023, the remaining contractual life of the Blackstone Credit Agreement is May 1, 2021, unless terminated earlier.approximately 6.3 years.
31
The following table sets forth total interest expense recognized related to the Blackstone Credit Facility is subject to certain financial covenants. As of September 30, 2017, the Company was in compliance with all required covenants.
| | | | | | |
| Three Months Ended | | Six Months Ended | | ||
| June 30, | | June 30, | | ||
| 2023 | | 2023 | | ||
Contractual interest expense | $ | 9,354 | | $ | 18,532 | |
Amortization of debt issuance costs |
| 272 | |
| 423 | |
Total | $ | 9,626 | | $ | 18,955 | |
Effective interest rate | | 13.4 | % | | 13.4 | % |
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; |
● | 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 conversion rate may be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.
32
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. No 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.
The Company accounts for the Convertible Notes as a liability and equity component where the carrying value of the liability component will be valued based on a similar instrument. In accounting for the issuance of the Convertible Notes, the Company separated the 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 does 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 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, is amortized to interest expense over the seven-year term of the Convertible Notes. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The equity component recorded at issuance related to the Convertible Notes is $57.5 million and was recorded in additional paid-in capital.
| | | | | | | |
|
| | | | | | |
| | June 30, 2023 | | December 31, 2022 | | ||
Principal | | $ | 287,500 | | $ | 287,500 | |
Less: Debt issuance costs | |
| (3,878) | |
| (4,456) | |
Net carrying amount | | $ | 283,622 | | $ | 283,044 | |
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, 2017,2023, the remaining contractual life of the 2026 Convertible Notes is approximately 4.93.2 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, | | ||||||||
| | 2023 | | 2022 |
| 2023 | | 2022 | | ||||
Contractual interest expense | | $ | 1,066 | | $ | 1,066 | | $ | 2,135 | | $ | 2,135 | |
Amortization of debt issuance costs | |
| 290 | | | 284 | | | 578 | | | 567 | |
Total | | $ | 1,356 | | $ | 1,350 | | $ | 2,713 | | $ | 2,702 | |
Effective interest rate | |
| 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.
33
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 | % |
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”). On August 15, 2022, the Company repaid the outstanding principal amount and accrued interest, totaling $152.3 million, of the 2022 Convertible Notes that was due upon maturity in accordance with the terms of the notes.
The following table sets forth total interest expense recognized related to the 2022 Convertible Notes:
| | | | | | | | | | | | | | |
| | | | | | |
| | | | | |
| |
| | Three Months Ended June 30, |
| Six Months Ended June 30, |
| | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| | ||||
Contractual interest expense | | $ | — | | $ | 1,131 | | $ | — | | $ | 2,241 | | |
Amortization of debt issuance costs | |
| — | |
| 186 | |
| — | |
| 368 | | |
Total | | $ | — | | $ | 1,317 | | $ | — | | $ | 2,609 | | |
Effective interest rate | |
| — | % |
| 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 cellCompany’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. During the year ended December 31, 2022, the Company incurred $2.5 million of development milestones in connection with the enrollment of patients in the registration-directed Phase 2/3 trial of unesbulin for the treatment of LMS, which is recorded in accounts payable and accrued expenses on the balance sheet and will be payable upon the earlier to occur of the first dose administered to the last patient enrolled in the study or the termination of dosing of all patients in the study. Additional milestone payments of up to an aggregate of $22.4$14.5 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 unlessSince inception, the SMA Foundation has earned $35.2 million, $24.5 million which was paid and until annual sales$10.7 million which was accrued as of a collaboration product exceed a designated threshold.June 30, 2023. 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.
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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 the Rights Exchange Agreement, 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 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.
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 paid the former equityholders of Agilis $50.0 million in accordance with the terms of the Agilis Merger Agreement in the year ended December 31, 2022. In May 2023, as part of the Company’s strategic portfolio prioritization, the Company decided to discontinue its preclinical and early research programs in its gene therapy platform, which included Friedreich ataxia and Angelman syndrome. As a result, the Company does not expect the milestones related to Friedreich ataxia and Angelman syndrome to be achieved. In addition, the Company does not expect to pay the 2% to 6% royalties on annual net sales related to Friedreich ataxia and Angelman syndrome. As of June 30, 2023, the remaining potential development and regulatory milestones the Company expects to achieve is $31.1 million, and the remaining potential sales milestones the Company expects to achieve is $50.0 million, both of which relate solely to Upstaza.
On October 25, 2019, the Company completed the acquisition of substantially all of the assets of BioElectron Technology Corporation (“BioElectron”), a Delaware corporation, including certain compounds that the Company has begun to develop as part of its Bio-e platform, pursuant to an asset purchase agreement by and between the Company and BioElectron, dated October 1, 2019 (the “BioElectron Asset Purchase Agreement”). BioElectron was a private company with a pipeline focused on inflammatory and central nervous system (CNS) disorders. The lead program, vatiquinone, is in late stage development for CNS disorders with substantial unmet need and significant commercial opportunity that are complementary to PTC’s existing pipeline.
Subject to the terms and conditions of the BioElectron Asset Purchase 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 Purchase Agreement, BioElectron may also become entitled to receive contingent payments based on a percentage of net sales of certain products.
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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., the Company’s 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 sepiapterin’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 sepiapterin, (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 sepiapterin, on a country-by-country basis, which contingent payment shall equal to a mid-double digit percentage of any such sublicense fees.
In February 2023, the Company completed enrollment of its Phase 3 placebo-controlled clinical trial for sepiapterin for PKU. In connection with this event and pursuant to the Censa Merger Agreement, the Company paid a $30.0 million development milestone to the former Censa securityholders during the three months ended June 30, 2023. The Company elected to pay this milestone in the form of shares of its common stock, less certain cash payments in accordance with the Censa Merger Agreement. Pursuant to such election, the Company issued 657,462 shares of its common stock and paid $0.4 million to the former Censa securityholders.
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. Akcea is 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 net product net sales,revenue, 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 denies any allegationsviews its operations and manages its business in one operating segment.
During the three months ended June 30, 2023 and 2022, net product sales outside of wrongdoingthe United States were $108.9 million and intends$86.9 million, respectively, consisting of sales of Translarna, Tegsedi, Waylivra, and Upstaza. Translarna net revenues made up $96.5 million and $77.0 million of the net product sales outside of the United States for the three months ended June 30, 2023 and 2022, respectively. During the three months ended June 30, 2023, and 2022, net product sales in the United States were $65.7 million and $56.8 million, respectively, consisting solely of sales of Emflaza. During the three months ended June 30, 2023, three countries, the United States, Russia, and Brazil, accounted for at least 10% of the Company’s net product sales, representing $65.7 million, $19.1 million, and $23.1 million of the net product sales, respectively. During the three months ended June 30, 2022, two countries, the United States and Russia, accounted for at least 10% of the Company’s net product sales, representing $56.8 million and $23.6 million of the net product sales, respectively. For the three months ended June 30, 2023 and 2022, the Company had a total of two and two distributors, respectively, that each accounted for over 10% of the Company’s net product sales.
During the six months ended June 30, 2023 and 2022, net product sales outside of the United States were $241.8 million and $168.1 million, respectively, consisting of Translarna, Tegsedi, Waylivra, and Upstaza. Translarna net revenues made up $211.6 million and $156.2 million of the net product sales outside of the United States for the six months ended June
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30, 2023 and 2022, respectively. For the six months ended June 30, 2023 and 2022, net product sales in the United States were $120.3 million and $105.4 million, respectively, consisting solely of Emflaza. During the six months ended June 30, 2023, three countries, the United States, Russia, and Brazil, accounted for at least 10% of the Company’s net product sales, representing $120.3 million, $63.7 million, and $48.9 million of net product sales, respectively. During the six months ended June 30, 2022, three countries, the United States, Russia, and Brazil, accounted for at least 10% of the Company’s net product sales, representing $105.4 million, $28.9 million, and $32.5 million of net product sales, respectively. For the six months ended June 30, 2023 and 2022, the Company had a total of two and two distributors, respectively, that each accounted for over 10% of the Company's net product sales.
As of June 30, 2023 and December 31, 2022, the Company does not have a contract liabilities balance related to vigorously defend against these lawsuits. The Company is unable, however,net product sales, and has not made significant changes to predict the outcome of these matters at this time. Moreover, any conclusion of this matterjudgments made in a manner adverse toapplying ASC Topic 606.
Collaboration and Royalty revenue
In November 2011, the Company and forthe 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 eligible to receive 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 it incurs substantial costs or damages not coveredwas approved in August 2020 by the Company's directors’FDA for the treatment of SMA in adults and officers’ liability insurance wouldchildren two months and older. As of June 30, 2023, the Company does not have any remaining research and development event milestones that can be received. The remaining potential sales milestones that can be received is $250.0 million.
For the three months ended June 30, 2023 and 2022, the Company did not recognize collaboration revenue related to the SMA License Agreement with Roche. For the six months ended June 30, 2023 and 2022, the amounts recognized for the collaboration revenue related to the SMA License Agreement with Roche were immaterial.
In addition to research and development and sales milestones, the Company is eligible to receive up to double-digit royalties on worldwide annual net sales of a commercial product under the SMA License Agreement. For the three and six months ended June 30, 2023, the Company has recognized $36.9 million and $67.7 million of royalty revenue related to Evrysdi, respectively. 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.
Manufacturing Revenue
For the three and six months ended June 30, 2023, the Company recognized $2.4 million and $4.4 million of manufacturing revenue, respectively, related to the production of plasmid DNA and AAV vectors for gene therapy applications for external customers. No manufacturing revenue was recognized in the three and six months ended June 30, 2022. 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, 2023 and 2022.
The Company does not have a material adverse effect on its financial condition and business. In addition,contract liabilities balance for the litigation could adversely impactperiod ended June 30, 2023. As of June 30, 2023, the Company's reputation and divert management’s attention and resources from other priorities, including the executionCompany has contract assets of business plans and strategies that are important$0.4 million related to the Company's ability to grow its business, anyproduction of plasmid DNA and AAV vectors for gene therapy applications for external customers, which could have a material adverse effectis recorded within prepaid expenses and other current assets on the Company's business.
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Remaining performance obligations
As of June 30, 2023, the Company has contract assets of $0.4 million and no remaining performance obligations related to the production of plasmid DNA and AAV vectors for gene therapy applications for external customers. For the period ended December 31, 2022, the Company had remaining performance obligations of $1.4 million and no contracts assets related to plasmid DNA and AAV production for external customers.
12. Intangible assets and goodwill
Definite-lived intangibles
Definite-lived intangible assets consisted of the following at June 30, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | |
| | | Ending Balance at | | | | | | Reclass from | | | | | | Foreign | | | Ending Balance at |
Definite-lived | | | December 31, | | | | | | Indefinite Lived to | | | | | | currency | | | June 30, |
intangibles assets, gross |
| | 2022 |
| | Additions |
| | Definite Lived |
| | Impairment |
| | translation |
| | 2023 |
Emflaza | | $ | 420,253 | | $ | 46,538 | | $ | — | | $ | — | | $ | — | | $ | 466,791 |
Waylivra | | | 9,316 | | | — | | | — | | | — | | | 252 | | | 9,568 |
Tegsedi | | | 7,109 | | | 3,488 | | | — | | | — | | | 210 | | | 10,807 |
Upstaza | | | 89,550 | | | — | | | — | | | — | | | — | | | 89,550 |
Total definite-lived intangibles, gross | | $ | 526,228 | | $ | 50,026 | | $ | — | | $ | — | | $ | 462 | | $ | 576,716 |
| | | | | | | | | | | | |
| | | Ending Balance at | | | | | | Foreign | | | Ending Balance at |
Definite-lived | | | December 31, | | | | | | currency | | | June 30, |
intangibles assets, accumulated amortization |
| | 2022 |
| | Amortization |
| | translation |
| | 2023 |
Emflaza | | $ | (266,023) | | $ | (81,908) | | $ | — | | $ | (347,931) |
Waylivra | | | (2,751) | | | (524) | | | (81) | | | (3,356) |
Tegsedi | | | (1,709) | | | (649) | | | (57) | | | (2,415) |
Upstaza | | | (3,420) | | | (3,731) | | | — | | | (7,151) |
Total definite-lived intangibles, accumulated amortization | | $ | (273,903) | | $ | (86,812) | | $ | (138) | | $ | (360,853) |
| | | | | | | | | | | | |
Total definite-lived intangibles, net | | | | | | | | | | | $ | 215,863 |
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 opportunitycost basis for the Emflaza rights intangible asset. For the six months ended June 30, 2023, total milestone payments of $46.5 million were recorded. These payments are being amortized over the remaining useful life of the Emflaza rights asset on a straight line basis. As of June 30, 2023, a milestone payable to Marathon of $35.3 million was recorded on the consolidated balance sheet within accounts payable and accrued expenses.
Akcea is also entitled to receive a single $50.0 million sales-based milestone.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 paymentrecords royalty 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 statements2023 and is recorded in the three months ended September 30, 2017.
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respectively, related to the Emflaza rights, Upstaza, Waylivra, and Tegsedi intangible assets. The estimated future amortization of the EMFLAZAEmflaza rights, Upstaza, 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, 2023 | |
2023 | | $ | 94,806 |
2024 | |
| 39,003 |
2025 | |
| 9,966 |
2026 | |
| 9,966 |
2027 and thereafter | |
| 62,122 |
Total | | $ | 215,863 |
The weighted average remaining amortization period of the definite-lived intangibles as of June 30, 2023 is 5.0 years.
Indefinite-lived intangibles
Indefinite-lived intangible assets consisted of the following at June 30, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | |
| | | Ending Balance at | | | | | | Reclass from | | | | | | Foreign | | | Ending Balance at |
Indefinite-lived | | | December 31, | | | | | | Indefinite Lived to | | | | | | currency | | | June 30, |
intangibles assets |
| | 2022 |
| | Additions |
| | Definite Lived |
| | Impairment |
| | translation |
| | 2023 |
Upstaza | | $ | 235,766 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 235,766 |
PTC-FA | | | 112,500 | | | — | | | — | | | (112,500) | | | — | | | — |
PTC-AS | | | 105,300 | | | — | | | — | | | (105,300) | | | — | | | — |
Total indefinite-lived intangibles | | $ | 453,566 | | $ | — | | $ | — | | $ | (217,800) | | $ | — | | $ | 235,766 |
| | | | | | | | | | | | | | | | | | |
Total intangible assets, net | | | | | | | | | | | | | | | | | $ | 451,629 |
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 PTC-FA, 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 PTC-AS for 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. As of December 31, 2022, the value allocated to the indefinite lived intangible assets was $453.6 million.
In May 2023, as part of the Company’s strategic portfolio prioritization, the Company decided to discontinue its preclinical and early research programs in its gene therapy platform, which included PTC-FA and PTC-AS. As a result, the Company determined that the PTC-FA and PTC-AS indefinite-lived intangible assets were fully impaired and recorded impairment expense of $217.8 million during the three monthsand six month periods ended December 31, 2017.June 30, 2023, which is recorded as intangible asset impairment in the statement of operations. As of June 30, 2023, the remaining indefinite lived intangible asset balance is $235.8 million, consisting solely of Upstaza, which the Company plans to continue to develop and commercialize.
Goodwill
As a result of the Agilis Merger on August 23, 2018, the Company recorded $82.3 million of goodwill. As of June 30, 2023, there have been no changes to the balance of goodwill since the date of the Agilis Merger. Accordingly, the goodwill balance as of June 30, 2023 is $82.3 million.
13. Subsequent events
The Company has evaluated subsequent events and transactions through the filing date. There were no material events that impacted the consolidated financial statements or disclosures.
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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, 20162022 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2017.February 21, 2023, as amended, or our 2022 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 2022 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 little to 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 includingfor rare disordersdiseases relating to neurology, metabolism and oncology.
Corporate Updates
Global Commercial Footprint
Global DMD Franchise
We have two products, Translarna™ (ataluren) and Emflaza® (deflazacort), for the quarter ended September 30, 2017, we recognized $32.0 milliontreatment 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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opinion from the Committee for Medicinal Products for Human Use, or CHMP, regarding our Type II variation submission and the annual renewal in the third quarter of 2023. The conditional marketing authorization is further subject to a specific obligation or other requirement placed uponto conduct and submit the marketing authorization, including Study 041. Study 041 is a three-year clinical trial to confirm the efficacy and safetyresults of Translarna in the approved patient population. The trial is comprised of two stages: an 18-month, randomized, double-blind, placebo controlled clinicalplacebo-controlled trial, followed by an 18-month open labelopen-label extension, period. We expectwhich we refer to submittogether as Study 041. In June 2022, we announced top-line results from the resultsplacebo-controlled trial of Study 041041. Within the placebo-controlled trial, Translarna showed a statistically significant treatment benefit across the entire intent to the EMAtreat population as assessed by the end of6-minute walk test, assessing ambulation and endurance, and in lower-limb muscle function as assessed by the third quarter of 2021. We expect that as part ofNorth Star Ambulatory Assessment, a functional scale designed for boys affected by DMD. Additionally, Translarna showed a statistically significant treatment benefit across the annual EMA assessment,intent to treat population within 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, both in countries in the EEA and other territories. Our ability to negotiate, secure and maintain reimbursement for product under commercial and EAP programs 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 developed Upstaza, a gene therapy used for the treatment of Aromatic L-Amino Decarboxylase, or AADC, deficiency, a rare central nervous system, or 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. In November 2022, the Medicines and Healthcare Products Regulatory Agency approved Upstaza for the treatment of AADC deficiency for patients 18 months and older within the United Kingdom. We are also preparing a biologics license application, or BLA, for Upstaza for the treatment
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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.
Evrysdi® (risdiplam)
We also have encountered difficulties identifying qualified patients for this study, and we determined it was best to move our resources to other areas.
Diversified Development Pipeline
Splicing Platform
In addition to our SMA program, our splicing platform also includes PTC518, which is being developed for the treatment of Huntington’s disease, or HD. We announced the results from our Phase 1 study of PTC518 in pediatrichealthy volunteers in September 2021 demonstrating dose-dependent lowering of huntingtin messenger ribonucleic acid and adult typeprotein levels, that PTC518 efficiently crosses blood brain barrier at significant levels and that PTC518 was well tolerated. We 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 typepharmacodynamic effects followed by a nine-month placebo-controlled phase focused on PTC518 biomarker effect. In June 2023, we announced interim data from the 12-week placebo-controlled phase. The study demonstrated dose-dependent lowering of Huntingtin, or HTT, protein levels in peripheral blood cells, reaching an approximate mean 30% reduction in mutant HTT levels at the 10mg dose level. In addition, PTC518 exposure in the cerebrospinal fluid was consistent with or higher than plasma unbound drug levels. Furthermore, PTC518 was well tolerated with no treatment-related serious adverse events. Enrollment in the Phase 2 study remains active and ongoing outside of the United States. Enrollment within the United States is paused as the FDA has requested additional data to allow the Phase 2 study to proceed; discussions are ongoing with the FDA to allow the resumption of U.S. enrollment.
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Metabolic Platform
The most advanced molecule in our metabolic platform is sepiapterin, a precursor to intracellular tetrahydrobiopterin, which is a critical enzymatic cofactor involved in metabolism and synthesis of numerous metabolic products, for orphan diseases. In May 2023, we announced that the primary endpoint was achieved in our registration-directed Phase 3 SMAtrial for sepiapterin for phenylketonuria, or PKU. The primary endpoint of the study was the achievement of statistically-significant reduction in blood Phe level. The primary analysis population included those patients initiatedwho have a greater than 30% reduction in blood Phe levels during the Part 1 run-in phase of the trial. Sepiapterin demonstrated Phe level reduction of approximately 63% in the overall primary analysis population and Phe level reduction of approximately 69% in the subset for classical PKU patients. Additionally, sepiapterin was well tolerated with no serious adverse events. Following the placebo-controlled study, patients were eligible to enroll in a long-term open-label study, which is still ongoing and will evaluate long-term safety, durability and Phe tolerance. We expect to submit an NDA to the FDA for sepiapterin for the treatment of PKU in the fourth quarter of 2016, followed by2023 pending FDA feedback from our scheduled pre-NDA meeting.
Bio-e Platform
Our Bio-e platform consists of small molecule compounds that target oxidoreductase enzymes that regulate oxidative stress and inflammatory pathways central to the initiationpathology of Firefisha number of CNS diseases. The two most advanced molecules in our Bio-e platform are vatiquinone and utreloxastat. We announced topline results from a registration-directed Phase 3 trial of vatiquinone in children and young adults with Friedreich ataxia in May 2023. While the study did not meet its primary endpoint of statistically significant change in modified Friedreich Ataxia Rating Scale, or mFARS, score at 72 weeks in the primary analysis population, vatiquinone treatment did demonstrate significant benefit on key disease subscales and secondary endpoints. In addition, in the population of subjects that completed the study protocol, significance was reached in the mFARS endpoint and several secondary endpoints. Furthermore, vatiquinone was well tolerated. We have been granted a Type C meeting with the FDA to discuss the potential for an NDA submission for vatiquinone for the treatment of Friedreich ataxia. In June 2023, we announced that our registration-directed Phase 2/3 placebo-controlled trial of vatiquinone in children with mitochondrial disease associated seizures did not achieve its primary endpoint of reduction in observable motor seizures. We have decided to deprioritize our program for vatiquinone in children with mitochondrial disease associated seizures given the results of the Phase 2/3 study. In the third quarter of 2021, we completed a Phase 1 trial in healthy volunteers to evaluate the safety and pharmacology of utreloxastat. Utreloxastat was found to be well-tolerated with no reported serious adverse events while demonstrating predictable pharmacology. We initiated a Phase 2 trial of utreloxastat for amyotrophic lateral sclerosis in the first quarter of 2022 and enrollment is ongoing.
Oncology Platform
Unesbulin is our most advanced oncology agent. We completed our Phase 1 trials evaluating unesbulin in leiomyosarcoma, or LMS, and diffuse intrinsic pontine glioma, or DIPG, in the fourth quarter of 2016,2021. We initiated a two-part 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 pharmacokinetic open-labeldiscovery programs that are in early clinical, studypre-clinical and research and development stages focused on the development of new treatments for multiple therapeutic areas, including rare diseases and oncology.
In May 2023, we announced a strategic pipeline prioritization following a review of our preclinical development programs. Based on this review, we decided to discontinue our preclinical and early research programs in advanced cancer patientsour gene therapy platform, including the programs targeting Friedreich ataxia and Angelman syndrome. In connection with solid tumors initiatedthis strategic prioritization, in April 2015 and completedMay 2023, we committed to a reduction in workforce of approximately 8%, which will primarily affect employees in the first quarterUnited States. We plan to complete the reduction in workforce by August 31, 2023.
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COVID 19 Impact
The global pandemic caused by a strain of novel coronavirus, COVID-19, has impacted the timing of certain of our product candidateclinical trials and regulatory submissions as well as other aspects of our business operations. 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 have previously, and may once again, 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 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 cancer stem cell program. PTC596 was generally well tolerated as a monotherapy, producing systemic concentrationsfinancial markets and economies, which could result in patients similar to or exceeding those associated with preclinical activity. Though a protocol-defined maximum tolerated dose was not reached, the dose of 10 mg/kg was deemed intolerable due to pill burdenadverse effects on our business and certain excipients that may have contributed to Grade 2 nausea, vomiting, and diarrheaoperations.” in two of three patients. Data from this study and continued clinical development of PTC596, including reformulation efforts, are expected during 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%the 1.50% convertible senior notes due August 15, 2022,2026, or the 2026 Convertible Notes, offering, 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 the Royalty Purchase Agreement (as defined below), net proceeds from our borrowings under the Blackstone Credit Agreement (as defined below), private placements of our convertible preferred stock and common stock, collaborations, bank and institutional lender debt, andother convertible debt, financings and grantsgrant funding and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed by our product candidates. Since 2014, weWe have also relied on revenue 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 EMFLAZAsince 2014, Emflaza for the treatment of DMD in the United States.States since 2017 and Upstaza for the treatment of AADC deficiency in the EEA since 2022. We have also relied on revenue associated with milestone and royalty payments from Roche pursuant to the SMA License Agreement, under our SMA program.
In October 2022, we entered into a credit agreement, or the Blackstone Credit Agreement, for fundings of up to $950.0 million consisting of a committed loan facility consisting of a senior secured term loan facility funded on October 27, 2022, or the Closing Date, in the aggregate principal amount of $300.0 million, and a delayed draw term loan facility of up to $150.0 million to be funded at our request within 18 months of the Closing Date subject to specified conditions, and further contemplating the potential for up to $500.0 million of additional financing, to the extent that we request such additional financing and subject to the Lenders’ (as defined below) agreement to provide such additional financing and to mutual agreement on terms among us and certain of our subsidiaries, or, collectively with us, the Loan Parties, and funds and other affiliated entities advised or managed by Blackstone Life Sciences and Blackstone Credit, or collectively, Blackstone, and such lenders, together with their permitted assignees, the Lenders, and Wilmington Trust, National Association, as the administrative agent for the Lenders.
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.
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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 the Securities Act of 1933, as amended, or the Securities Act. During the three and six months ended June 30, 2023, 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, 2023.
As of SeptemberJune 30, 2017,2023, we had an accumulated deficit of $815.4$2,994.8 million. We had a net loss of $80.3$337.8 million and $115.3$278.8 million for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, 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.
In February 2023, we completed enrollment of our Phase 3 placebo-controlled clinical trial for sepiapterin for PKU. In connection with this event and pursuant to the Agreement and Plan of Merger, dated as of May 5, 2020, or the Censa Merger Agreement, by and among us, Hydro Merger Sub, Inc., our outstanding Convertible Notes,wholly owned, indirect subsidiary, Censa and, solely in its capacity as the representative, agent and attorney-in-fact of the securityholders of Censa, Shareholder Representative Services LLC, we paid a $30.0 million development milestone to the former Censa securityholders. We elected to pay this milestone in the form of shares of our common stock, less certain cash interest payments are payable onin accordance with the Censa Merger Agreement. Pursuant to such election, we issued 657,462 shares of our common stock and paid $0.4 million to former Censa securityholders. We expect to pay the former equityholders of Agilis $20.0 million in regulatory milestone payments upon the acceptance for filing by the FDA of a semi-annual basisBLA for Upstaza for the treatment of AADC deficiency. We expect to submit a BLA for Upstaza to the FDA in arrears, which willthe third quarter of 2023. We also expect to make an additional payment to the former Censa securityholders of $25.0 million in cash upon the potential achievement in 2023 of a development and regulatory milestone relating to sepiapterin.
We also have certain significant contractual obligations and commercial commitments that require total funding of $4.5 million annually. Additionally,and we have disclosed these items under the termsheading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Funding Obligations” in our Credit Agreement cash interest payments2022 Annual Report. There were no material changes to these obligations and commitments during the period ended June 30, 2023. Furthermore, since we are payable monthly in arrears. Furthermore, as a result of our initial 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, “
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raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or our commercialization efforts.
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, 2023 and 2022, net product sales outside of the acquisitionUnited States were $108.9 million and $86.9 million, respectively consisting of all rightssales of Translarna, Tegsedi, Waylivra and Upstaza. Translarna net revenues made up $96.5 million and $77.0 million of the net product sales outside of the United States for the three months ended June 30, 2023 and 2022, respectively. For the three months ended June 30, 2023 and 2022, net product sales in the United States were $65.7 million and $56.8 million, respectively, consisting solely of sales of Emflaza. During the three months ended June 30, 2023, three countries, the United States, Russia, and Brazil, accounted for at least 10% of our net product sales, representing $65.7 million, $19.1 million, and $23.1 million of the net product sales, respectively. During the three months ended June 30, 2022, two countries, the United States and Russia, accounted for at least 10% of our net product sales, representing $56.8 million and $23.6 million of net product sales, respectively. For the three months ended June 30, 2023 and 2022, we had a total of two and two distributors, respectively, that each accounted for over 10% of our net product sales.
During the six months ended June 30, 2023 and 2022, net product sales outside of the United States were $241.8 million and $168.1 million, respectively consisting of sales of Translarna, Tegsedi, Waylivra and Upstaza. Translarna net revenues made up $211.6 million and $156.2 million of the net product sales outside of the United States for the six months ended June 30, 2023 and 2022, respectively. For the six months ended June 30, 2023 and 2022, net product sales in the United States were $120.3 million and $105.4 million, respectively, consisting solely of sales of Emflaza. During the six months ended June 30, 2023, three countries, the United States, Russia, and Brazil, accounted for at least 10% of our net product sales, representing $120.3 million, $63.7 million, and $48.9 million of net product sales, respectively. During the six months ended June 30, 2022, three countries, the United States, Russia, and Brazil, accounted for at least 10% of our net product sales, representing $105.4 million, $28.9 million, and $32.5 million of net product sales, respectively. For the six months ended June 30, 2023 and 2022, we had a total of two and two distributors, respectively, that each accounted for over 10% of our net product sales.
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”.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.
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Roche and the SMA Foundation Collaboration.In November 2011, we entered into a license and collaboration agreement, or licensing agreement, with Roche and the SMA FoundationLicense Agreement pursuant to which we are collaborating with Roche and the SMA Foundation to further develop and commercialize compounds identified under our spinal muscular atrophySMA program with the SMA Foundation. The research component of this agreement terminated effective December 31, 2014. The licensing agreement included a $30 million upfront payment made in 2011 which was recognized on a deferred basis over the research term, and the potential forWe are eligible to receive additional payments from Roche if specified events are achieved with respect to each licensed product, including up to $460$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. As of June 30, 2023, we had recognized a total of $210.0 million in milestone payments and $240.6 million royalties on net sales.
For the three months ended June 30, 2023 and 2022, we did not recognize collaboration revenue related to the SMA License Agreement with Roche. For the six months ended June 30, 2023 and 2022, the amounts recognized for the collaboration revenue related to the SMA License Agreement with Roche were immaterial. There were no milestones triggered from Roche in the three and six months ended June 30, 2023 and 2022.
For the three and six months ended June 30, 2023, we recognized $36.9 million and $67.7 million of royalty revenue related to Evrysdi, respectively. 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.
In July 2020, we entered into a Royalty Purchase Agreement with RPI 2019 Intermediate Finance Trust, or RPI, and, for the limited purposes set forth in the agreement, Royalty Pharma PLC, or the Royalty Purchase Agreement. Pursuant to the Royalty Purchase Agreement, we sold to RPI 42.933%, or the Assigned Royalty Payment, of our right 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 triggeredpayments under the SMA License 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 date on which RPI has received $1.3 billion in respect of the Assigned Royalty Payment.
Manufacturing Revenue. We have manufacturing services related to the production of plasmid deoxyribonucleic acid, or DNA, and adeno-associated virus, or AAV, vectors for gene therapy applications for external customers. Performance obligations vary but may include manufacturing plasmid DNA and/or AAV vectors, material testing, stability studies, and other services related to material development. The transaction prices for these arrangements are fixed and include amounts stated in the contracts for each promised service. Typically, the performance obligations within a $10.0 million paymentmanufacturing contract are highly interdependent, in which case, we will combine them into a single performance obligation. We have determined that the assets created have no alternative use to us, and we have an enforceable right to payment for the performance completed to date, therefore revenue related to these services are recognized over time and is measured using an output method based on performance of manufacturing milestones completed to date.
Manufacturing service contracts may also include performance obligations related to project management services or obtaining materials from Roche,third parties. We have determined that these are separate performance obligations for which revenue is recognized at the point in time the obligation is performed. For performance obligations related to obtaining third party materials, we have determined that we are the principal as we have control of the materials and have discretion in setting the price. Therefore, we recognize revenue on a gross basis related to obtaining third party materials.
Certain arrangements require a portion of the contract consideration to be received in advance at the commencement of the contract, and such advance payment is initially recorded as collaborationa contract liability. A contract asset may be recognized in the event our satisfaction of performance obligations outpaces customer billings.
For the three and six months ended June 30, 2023, we recognized $2.4 million and $4.4 million of manufacturing revenue, respectively, related to plasmid DNA and AAV vector production for external customers. No manufacturing revenue was recognized for the yearthree and six months ended June 30, 2022. As of June 30, 2023, we had contract assets of $0.4 million and no remaining performance obligations related to the production of plasmid DNA and AAV vectors for gene therapy
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applications for external customers. For the period ended December 31, 2013.
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:
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, metabolic, Bio-e and oncology programs 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 providetable provides research and development expense for our most advanced principal product development programs, for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016.2022.
| | | | | | | |
| | | | | | | |
| | Three Months Ended June 30, | | ||||
|
| 2023 |
| 2022 | | ||
| | (in thousands) | | ||||
Global DMD Franchise | | $ | 22,759 | | $ | 17,111 | |
Metabolic | |
| 29,991 | |
| 15,184 | |
Gene Therapy | |
| 31,677 | |
| 49,556 | |
Bio-e | | | 23,801 | | | 12,880 | |
Oncology | |
| 14,618 | |
| 8,979 | |
Splicing | |
| 29,462 | | | 18,355 | |
Emvododstat for COVID-19 | | | — | | | 7,459 | |
Discovery | |
| 33,566 | |
| 27,739 | |
Total research and development | | $ | 185,874 | | $ | 157,263 | |
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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 |
| | | | | | |
| | Six Months Ended June 30, | ||||
|
| 2023 |
| 2022 | ||
| | (in thousands) | ||||
Global DMD Franchise | | $ | 41,165 | | $ | 34,692 |
Metabolic | |
| 88,672 | |
| 30,974 |
Gene Therapy | |
| 77,204 | |
| 91,547 |
Bio-e | |
| 36,695 | |
| 27,612 |
Oncology | |
| 21,688 | |
| 15,199 |
Splicing | |
| 47,436 | |
| 33,076 |
Emvododstat for COVID-19 | | | 891 | | | 9,831 |
Discovery | |
| 67,247 | |
| 54,410 |
Total research and development | | $ | 380,998 | | $ | 297,341 |
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 |
● | ||
clinical trial results; |
● | ||
the terms and timing of regulatory approvals; and |
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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.
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Interest (expense) income,expense, net
Interest (expense) income,expense, net consists of interest expense from the liability for the sale of future royalties related to the Royalty Purchase Agreement, the 2026 Convertible Notes outstanding, the $150.0 million aggregate principal amount of 3.00% convertible senior notes due 2022 outstanding, the Blackstone Credit Agreement, offset by interest income earned on investments 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 | $ | — |
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, 20172023 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, 20172023 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) |
| 2023 |
| 2022 |
| 2023 vs. 2022 | |||
Net product revenue | | $ | 174,592 | | $ | 143,701 | | $ | 30,891 |
Royalty revenue | | | 36,853 | | | 21,825 | | | 15,028 |
Manufacturing revenue | | | 2,363 | | | — | | | 2,363 |
Cost of product sales, excluding amortization of acquired intangible asset | |
| 12,731 | |
| 9,639 | | | 3,092 |
Amortization of acquired intangible asset | |
| 47,397 | |
| 26,294 | | | 21,103 |
Research and development expense | |
| 185,874 | |
| 157,263 | | | 28,611 |
Selling, general and administrative expense | |
| 88,449 | |
| 79,892 | | | 8,557 |
Change in the fair value of contingent consideration | |
| (128,900) | |
| (15,200) | | | (113,700) |
Intangible asset impairment | | | 217,800 | | | — | | | 217,800 |
Interest expense, net | |
| (29,415) | |
| (21,976) | | | (7,439) |
Other income (expense), net | |
| 1,479 | |
| (34,357) | | | 35,836 |
Income tax benefit (expense) | | | 38,596 | | | (3,392) | | | 41,988 |
Net product revenues.
Net product revenues wereRoyalty revenue. Royalty revenue was $36.9 million for the three months ended June 30, 2023, an increase of $15.0 million, or 69%, from $21.8 million for the three months ended June 30, 2022. The increase in royalty revenue was due to
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higher Evrysdi sales in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. In accordance with the SMA License Agreement, we are primarilyentitled to royalties on worldwide annual net sales of the product.
Manufacturing revenue. Manufacturing revenues were $2.4 million for the three months ended June 30, 2023 an increase of $2.4 million, or 100%, 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 ofResearch and development expense.
Research and development expense wasSelling, general and administrative expense.
Selling, general and administrative expense wasChange in the fair value of contingent consideration. The change in the fair value of contingent consideration was a gain of $128.9 million for the three months ended June 30, 2023, an increase of $113.7 million, or over 100%, from a gain of $15.2 million for the three months ended June 30, 2022. The change is primarily fromrelated to our strategic portfolio prioritization and decision to discontinue our preclinical and early research programs in our gene therapy platform, which included Friedreich ataxia and Angelman syndrome, which was announced in May 2023. As a result, we fully impaired the expansionFriedreich ataxia and Angelman syndrome intangible assets and determined that the fair value for all of the U.S. commercial sales teamcontingent consideration payable related to Friedreich ataxia and Angelman syndrome was $0. As a result, we recorded a fair value change of $129.8 million for the contingent consideration related to Friedreich ataxia and Angelman syndrome.
Intangible asset impairment. Intangible asset impairment was $217.8 million for the three months ended June 30, 2023, an increase of $217.8 million, or 100%, from intangible asset impairment of $0.0 million for the three months ended June 30, 2022. The change is due to our strategic portfolio prioritization and decision to discontinue our preclinical and early research programs in supportour gene therapy platform, which included Friedreich ataxia and Angelman syndrome, which was announced in May 2023. As a result, we fully impaired the Friedreich ataxia and Angelman syndrome intangible assets and recorded impairment expense of $217.8 million during the domestic product launchthree months ended June 30, 2023.
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Interest expense, net.
Interest expense, net was $29.4 million for the three months ended June 30, 2023, an increase of $7.4 million, or 34%, from $22.0 million for the three months ended June 30, 2022. The increase 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 and the Blackstone Credit Agreement.Other income (expense), net. Other income, net was $1.5 million for the three months ended June 30, 2023, a change of $35.8 million, or over 100%, from other expense, net of $34.4 million for the three months ended June 30, 2022. Other income, net for the three months ended June 30, 2023 was primarily related to realized and unrealized foreign exchange gains, net, of $2.9 million, and unrealized gains of $2.3 million on marketable securities – equity investments, offset by unrealized and realized losses, net, on our equity investments in ClearPoint Neuro, Inc. of $1.9 million and unrealized losses on our convertible debt security in ClearPoint Neuro, Inc. $1.6 million. Other expense, net for the three months ended June 30, 2022, was primarily related to an unrealized foreign exchange loss from the remeasurement of our intercompany loan, offset by unrealized gains on our equity investments and convertible debt security in ClearPoint Neuro, Inc. of $3.4 million and $3.5 million, respectively.
Income tax benefit (expense). Income tax benefit was $38.6 million for the three months ended June 30, 2023, a change of $42.0 million, or over 100%, compared to income tax expense of $3.4 million for the three months ended SeptemberJune 30, 2017, an increase of $1.3 million, or 60%, from $2.1 million for2022. The change in income tax benefit (expense) is attributable to the three months ended September 30, 2016. The increase in interest expense was primarily due to current year interest expense recorded from the Convertible Notesdeduction provided by IRC Section 250 and the Credit Agreementreversal of the deferred tax liability recognized in addition to lower interestconjunction with the discontinuation of the gene therapy programs. We also incur income from investments.
Six months ended SeptemberJune 30, 2017 differed from the amounts computed by applying the U.S. federal income tax rate of 34%2023 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, 20172023 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) |
| 2023 |
| 2022 |
| 2023 vs. 2022 | |||
Net product revenue | | $ | 362,149 | | $ | 273,534 | | $ | 88,615 |
Collaboration revenue | |
| 6 | |
| 7 | | | (1) |
Royalty revenue | | | 67,684 | | | 40,721 | | | 26,963 |
Manufacturing revenue | | | 4,351 | | | — | | | 4,351 |
Cost of product sales, excluding amortization of acquired intangible assets | |
| 26,875 | |
| 19,774 | | | 7,101 |
Amortization of acquired intangible assets | |
| 86,812 | |
| 49,767 | | | 37,045 |
Research and development expense | |
| 380,998 | |
| 297,341 | | | 83,657 |
Selling, general and administrative expense | |
| 175,363 | |
| 153,162 | | | 22,201 |
Change in the fair value of contingent consideration | |
| (126,500) | |
| (26,900) | | | (99,600) |
Intangible asset impairment | | | 217,800 | | | — | | | 217,800 |
Interest expense, net | |
| (56,745) | |
| (45,490) | | | (11,255) |
Other income (expense), net | |
| 11,434 | |
| (46,214) | | | 57,648 |
Income tax benefit (expense) | | | 34,627 | | | (8,227) | | | 42,854 |
Net product revenues.
Net product revenues were52
Collaboration revenues. Collaboration revenues was $6.0 thousand for the six months ended June 30, 2023, a decrease of $0.9 million,$1.0 thousand, or 79%14%, from $1.2$7.0 thousand for the six months ended June 30, 2022. No milestones were triggered in the six months ended June 30, 2023. The activity for collaboration revenue was immaterial for the six months ended June 30, 2023, and 2022.
Royalty revenue. Royalty revenue was $67.7 million for the ninesix months ended SeptemberJune 30, 2016. These2023, an increase of $27.0 million, or 66%, from $40.7 million for the six months ended June 30, 2022. The increase in royalty revenue was due to higher Evrysdi sales in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. In accordance with the SMA License Agreement, we are entitled to royalties on worldwide annual net sales of the product.
Manufacturing revenue. Manufacturing revenues are primarilywere $4.4 million for the six months ended June 30, 2023, an increase of $4.4 million, or 100%, 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
Research and development expense.
Research and development expense wasSelling, general and administrative expense.
Selling, general and administrative expense wasChange in the fair value of contingent consideration. The change in the fair value of contingent consideration was a gain of $126.5 million for the six months ended June 30, 2023, a change of $99.6 million, or over 100%, from a gain of $26.9 million for the six months ended June 30, 2022. The change is primarily fromrelated to our strategic portfolio prioritization and decision to discontinue our preclinical and early research programs in our gene therapy platform, which included Friedreich ataxia and Angelman syndrome, which was announced in May 2023. As a result, we fully impaired the expansionFriedreich ataxia and Angelman syndrome intangible assets and determined that the fair value for all of the U.S. commercial sales teamcontingent consideration payable related to Friedreich ataxia and Angelman syndrome was $0. As a result, we recorded a fair value change of $129.8 million for the contingent consideration related to Friedreich ataxia and Angelman syndrome.
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Intangible asset impairment. Intangible asset impairment was $217.8 million for the six months ended June 30, 2023, an increase of $217.8 million, or 100%, from intangible asset impairment of $0.0 million for the six months ended June 30, 2022. The change is due to our strategic portfolio prioritization and decision to discontinue our preclinical and early research programs in supportour gene therapy platform, which included Friedreich ataxia and Angelman syndrome, which was announced in May 2023. As a result, we fully impaired the Friedreich ataxia and Angelman syndrome intangible assets and recorded impairment expense of $217.8 million during the domestic product launch of EMFLAZA.
Interest expense, net.
Interest expense, net wasOther income from investments.
Income tax expense.
Liquidity 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.
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 2019, we entered into the CreditSales Agreement, with MidCap Financial,pursuant to which, provides for a senior secured term loan facilitywe may offer and sell shares of $60our common stock, having an aggregate offering price of up to $125.0 million of which $40 million was drawnfrom time to time through the Sales Agents by us on May 5, 2017. The remaining $20 millionany method that is deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the senior secured term loan facility would become available to us upon our demonstration (prior to December 31, 2018)Securities Act. See
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“Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Corporate Updates—Funding” for the trailing 12 month period. The maturity date of the Credit Agreement is May 1, 2021, unless terminated earlier. The facility is structured to require only monthly interest payments for the initial two years with principal amortization beginning in years three and four. The facility bears interest at a rate per annum equal to LIBOR (with a LIBOR floor rate of 1.00%) plus 6.15%, as well as additional upfront and administrative fees and expenses.
In August 2015,September 2019, we closed a private offering of $150$287.5 million in aggregate principal amount of 3.00%1.50% convertible senior notes due 20222026 including the full exercise by the initial purchasers of an option to purchase an additional $25$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 FebruaryMarch 15 and AugustSeptember 15 of each year, beginning on FebruaryMarch 15, 2016.2020. The 2026 Convertible Notes are senior unsecured obligations of ours and will mature on AugustSeptember 15, 2022,2026, unless earlier converted, redeemedrepurchased or repurchased in accordance with their terms prior to such date.converted. We received net proceeds from the offering of approximately $145.4$279.3 million after deducting the initial purchasers’ discounts and commissions and the estimated 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.
In October 2022, we entered into the Blackstone Credit Agreement for fundings of up to $950.0 million consisting of a committed loan facility of $450.0 million and further contemplating the potential for up to $500.0 million of additional financing, to the extent that we request such additional financing and subject to the Lenders’ agreement to provide such additional financing and to mutual agreement on terms.
The Blackstone Credit Agreement provides for a senior secured term loan facility funded on the Closing Date in the aggregate principal amount of $300.0 million and a committed delayed draw term loan facility of up to $150.0 million to be funded at our request within 18 months of the Closing Date subject to specified conditions. In addition, the Blackstone Credit Agreement contemplates the potential for further financings by Blackstone, by providing for incremental discretionary uncommitted further financings of up to $500.0 million.
The Loans mature on the date that is seven years from the Closing Date. Borrowings under the Blackstone Credit Agreement bear interest at a variable rate equal to, at our option, either an adjusted Term SOFR rate plus seven and a quarter percent (7.25%) or the Base Rate plus six and a quarter percent (6.25%), subject to a floor of one percent (1%) and two percent (2%) with respect to Term SOFR rate and Base Rate (each as defined in the Blackstone Credit Agreement), respectively. Payment of the Loans are subject to certain premiums specified in the Blackstone Credit Agreement, in each case, from the date the applicable Loan is funded.
All obligations under the Blackstone Credit Agreement are secured, subject to certain exceptions and specified inclusions, by security interests in certain assets of the Loan Parties, including (1) intellectual property and other assets related to Translarna, Emflaza, Upstaza, sepiapterin and, until certain release conditions are met, vatiquinone, in each case, together with any other forms, formulations, or methods of delivery of any such products, and regardless of trade or brand name, (2) future acquired intellectual property (but not internally developed intellectual property unrelated to other intellectual property collateral) and other related assets, and (3) the equity interests held by the Loan Parties in certain of their subsidiaries. The Blackstone Credit Agreement contains certain negative covenants with which we must remain in compliance. The Blackstone Credit Agreement also requires that we maintain consolidated liquidity of at least $100.0 million as of the last day of each fiscal quarter, which shall be increased to $200.0 million upon our consummating acquisitions meeting certain consolidated thresholds described therein. In addition, we will be required under conditions specified in the Blackstone Credit Agreement to fund a reserve account up to certain amounts specified therein, including $50.0 million that we funded into the reserve account during the quarter ended March 31, 2023 and was released back to us during the quarter ended June 30, 2023. The funds in the reserve account are available to prepay the Loans at any time at our option, and are, if funded, subject to release upon certain further conditions. Upon any such release, such funds are freely available for our use subject to the generally applicable terms and conditions of the Blackstone Credit Agreement. The Blackstone Credit Agreement contains certain customary representations and warranties, affirmative covenants and provisions relating to events of default.
Cash flows
As of SeptemberJune 30, 2017,2023, we had cash, cash equivalents and marketable securities of $169.3$337.9 million.
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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) |
| 2023 |
| 2022 | |
Cash (used in) provided by: |
|
|
|
| |
Operating activities | | (43,611) | | (152,646) | |
Investing activities | | (52,723) | | 121,297 | |
Financing activities | | 22,554 | | 5,029 | |
Net cash used in operating activities was $31.4$43.6 million for the ninesix months ended SeptemberJune 30, 20172023 and $90.2$152.6 million for the ninesix months ended SeptemberJune 30, 2016.2022. The net cash used in operating activities primarily relates to supporting clinical development and commercial activities.
Net cash used in investing activities partially offset by increased cash receipts resulting from higherwas $52.7 million for the six months ended June 30, 2023 and net product revenues.
Net cash provided by financing activities was $42.4$22.6 million for the ninesix months ended SeptemberJune 30, 20172023 and $0.9$5.0 million for the ninesix months ended SeptemberJune 30, 2016.2022. Cash provided by financing activities infor the current period issix months ended June 30, 2023 and 2022 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 that we assumed through our acquisitions and collaborations; |
● | execute our commercialization strategy for our products, including initial commercialization launches of our products, label extensions or entering new markets; |
● | 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; |
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● | are required to take other steps, in addition to Study 041, to maintain our current marketing authorization in the EEA, Brazil and Russia for Translarna for the treatment of nmDMD or to obtain further marketing authorizations for Translarna for the treatment of nmDMD or other indications; |
● | initiate or continue the research and development of our splicing, metabolic, Bio-e and oncology programs as well as studies in our products for maintaining authorizations, including Study 041, label extensions and additional indications; |
● | continue to utilize the Hopewell Facility to manufacture program materials for third parties; |
● | 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 |
● | 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 our offering of the 2026 Convertible Notes, public offerings and private placements of common stock, our “at the market offering” of our common stock, proceeds from the Royalty Purchase Agreement, net proceeds from our term loan facility with MidCap Financial Trust, our offering ofborrowings under the Convertible Notes, public offerings of common stock,Blackstone Credit 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; |
● | our ability to obtain marketing authorization for Upstaza for the treatment of AADC deficiency in the United States; |
● | our ability to obtain marketing authorization for sepiapterin for the treatment of PKU in the United States; |
● | 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 increase in expenses resulting from the COVID-19 pandemic or other potential widespread outbreaks of contagious disease; |
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● | 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, metabolic, Bio-e and oncology programs 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, metabolic, Bio-e and oncology programs and Translarna and Upstaza in other territories; |
● | our ability to satisfy our obligations under the Blackstone Credit Agreement; |
● | our ability to satisfy our obligations under the indentures governing the 2026 Convertible Notes; |
● | the timing and scope of growth in our employee base; |
● | the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our other product candidates, including those in our splicing, metabolic, Bio-e 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; |
● | our ability to continue to utilize the Hopewell Facility to manufacture program materials for third parties; |
● | 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 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,Borrowings under the termsBlackstone Credit Agreement bear interest at a variable rate equal to, at our option, either an adjusted Term SOFR rate plus seven and a quarter percent (7.25%) or the Base Rate plus six and a quarter percent (6.25%), subject to a floor of one percent (1%) and two percent (2%) with respect to Term SOFR rate and Base Rate (each as defined in the Blackstone Credit Agreement), respectively.
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In February 2023, we completed enrollment of our CreditPhase 3 placebo-controlled clinical trial for sepiapterin for PKU. In connection with this event and pursuant to the Censa Merger Agreement, cash interest payments are payable monthlywe paid a $30.0 million development milestone to the former Censa securityholders. We elected to pay this milestone in arrears. Furthermore, as a resultthe form of shares of our initialcommon stock, less certain cash payments in accordance with the Censa Merger Agreement. Pursuant to such election, we issued 657,462 shares of our common stock and paid $0.4 million to the former Censa securityholders. We expect to pay the former equityholders of Agilis $20.0 million in regulatory milestone payments upon the acceptance for filing by the FDA of a BLA for Upstaza for the treatment of AADC deficiency. We expect to submit a BLA for Upstaza to the FDA in the third quarter of 2023. We also expect to make an additional payment to the former Censa securityholders of $25.0 million in cash upon the potential achievement in 2023 of a development and regulatory milestone relating to sepiapterin.
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 Obligations” in our 2022 Annual Report. There were no material changes to these obligations and commitments during the period ended June 30, 2023. 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.
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, 2017,2023, 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 2022 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, 2017.2023. 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
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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, 2017,2023, 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, 20172023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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, 2022, 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.
Item 5. Other Information.
Director and Officer Trading Arrangements
A portion of the forward-looking statements that are qualified by these risk factors. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected.
Transactions in the future of which we were previously unaware. These undisclosed liabilities could have an adverse effect on our business, financial conditionCompany securities by directors and results of operations.
The following table describes, for the treatment of other indications;
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or written plan intended to demonstratesatisfy the safetyaffirmative defense conditions of Rule 10b5-1(c), or a “Rule 10b5-1 trading arrangement”, or (2) a “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K):
Name | Action Taken | Type of Trading | Nature of Trading | Duration of Trading | Aggregate Number |
Matthew Klein (Chief Executive Officer) | Termination (April 14, 2023) | Rule 10b5-1 trading arrangement | Sale | (1) | (1) |
Matthew Klein | Adoption | Rule 10b5-1 trading arrangement for sell-to-cover transactions for RSUs granted on April 18, 2023 | Sale | Until final settlement of RSUs on or around April 18, 2027 | Indeterminable (2) |
Emily Hill | Adoption | Rule 10b5-1 trading arrangement | Sale | Until May 10, 2024, or such earlier date upon which all transactions are completed. | Up to 162,986 shares |
(1) This trading plan related to 65,000 shares of Company common stock and efficacyhad a scheduled expiration date of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failureFebruary 15, 2024.
(2) The number of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing authorization of their products.
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| | |
Exhibit Number | Description of Exhibit | |
| | |
10.1*† | | |
10.2+ | | |
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 | ||
31.2* | ||
32.1* | ||
32.2* | ||
101.INS* | Inline XBRL Instance | |
101.SCH* | Inline XBRL Taxonomy Extension Schema | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase | |
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.
+ | Management contract, compensatory plan or arrangement. |
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/ | |
| | Pierre Gravier | |
| | Chief Financial Officer | |
| | (Principal Financial |
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