# Sarepta Therapeutics, Inc. (SRPT) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Sarepta Therapeutics, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/873303/000095017023005062/srpt-20221231.htm
Accession: 0000950170-23-005062
Filing date: 2023-02-28
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SRPT/
All MD&A years: /company/SRPT/mda/
Previous year: /company/SRPT/mda/fy2021/ (FY 2021)
Next year: /company/SRPT/mda/fy2023/ (FY 2023)

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

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

This section discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 have been excluded from this Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Overview

We are a commercial-stage biopharmaceutical company focused on helping patients through the discovery and development of unique RNA-targeted therapeutics, gene therapy and other genetic therapeutic modalities for the treatment of rare diseases. Applying our proprietary, highly-differentiated and innovative technologies, and through collaborations with our strategic partners, we have developed multiple approved products for the treatment of Duchenne and are developing potential therapeutic candidates for a broad range of diseases and disorders, including Duchenne, LGMDs, and other CNS related disorders.

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

•
EXONDYS 51 (eteplirsen) Injection (“EXONDYS 51”) is indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin gene that is amenable to exon 51 skipping. EXONDYS 51 uses our PMO chemistry and exon-skipping technology to skip exon 51 of the dystrophin gene.

•
VYONDYS 53 (golodirsen) Injection (“VYONDYS 53”) is indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin gene that is amenable to exon 53 skipping. VYONDYS 53 uses our PMO chemistry and exon-skipping technology to skip exon 53 of the dystrophin gene.

•
AMONDYS 45 (casimersen) Injection (“AMONDYS 45”) is indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin gene that is amenable to exon 45 skipping. AMONDYS 45 uses our PMO chemistry and exon-skipping technology to skip exon 45 of the dystrophin gene.

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

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

•
SRP-5051 uses our next-generation chemistry platform, cell-penetrating peptide-conjugated PPMO, and our exon-skipping technology to skip exon 51 of the dystrophin gene. SRP-5051, a peptide conjugated PMO, is designed to bind to exon 51 of dystrophin pre-mRNA, resulting in exclusion of this exon during mRNA processing in patients with genetic mutations that are amenable to exon 51 skipping. Exon skipping is intended to promote the production of an internally truncated but functional dystrophin protein. In the fourth quarter of 2017, we commenced a first-in-human, single ascending dose, study for the treatment of Duchenne in patients who are amenable to exon 51 skipping. In 2019, we commenced Study 5051-201. In December 2020, we announced an interim analysis on clinical results from the 10 mg/kg and 20 mg/kg dose cohorts of Part A of Study 5051-201. In May 2021, we announced results from the 30 mg/kg cohort of Part A of Study 5051-201. We initiated Part B of Study 5051-201 in the fourth quarter of 2021. In July 2022, the FDA placed Study 5051-201 on clinical hold following a serious adverse event of hypomagnesemia. The clinical hold was lifted in August 2022. We are currently enrolling Part B of Study 5051-201.

•
SRP-9001 (Duchenne gene therapy program) aims to express a smaller but still functional version of dystrophin. A unique, engineered dystrophin is used because naturally-occurring dystrophin is too large to fit in an adeno-associated virus (“AAV”) vector. In the fourth quarter of 2017, an investigational new drug (“IND”) application for SRP-9001 was cleared by the FDA, and a Phase 1/2a clinical trial in individuals with Duchenne was initiated (Study 101). In October 2018, Nationwide Children’s Hospital (“Nationwide”) presented results from the Phase 1/2a clinical trial in

-71-

four individuals with Duchenne enrolled in the trial. In March 2019, we presented nine-month functional and creatine kinase (“CK”) data from baseline from these four individuals, and twelve-month CK data from baseline from one of these individuals. In June 2020, we announced that functional, safety and tolerability data at twelve-months from baseline from these four individuals had been published in JAMA Neurology. In September 2020, we presented functional, safety and tolerability data at 24 months from these four individuals. In the fourth quarter of 2018, we commenced a randomized, double-blind, placebo-controlled trial of SRP-9001 with the goal to establish the functional benefits of SRP-9001 protein expression (Study 102). In January 2021, we released top-line results for Part 1 of Study 102 (the 48-week assessment of 41 participants) and interim expression results from Part 2 of Study 102 (the crossover phase). We announced topline results for Part 2 of Study 102 in January 2022. We have completed dosing in the first cohort in Study 103, an open-label study evaluating the safety and expression of commercially representative material for SRP-9001. In May 2021, we announced 12-week expression and safety results from the first 11 participants enrolled in Study 103. In October 2021, we announced functional data from the first 11 patients and tolerability data for all 32 patients enrolled in Study 103. We also initiated our pivotal trial (Study 301) in October 2021 and expect a data read out in the fourth quarter of 2023. In July 2022, we announced additional data from our Studies 102 and 103. In September 2022, we announced that we submitted a biologics license application (“BLA”) seeking accelerated approval of SRP-9001 for the treatment of ambulant individuals with Duchenne. In November 2022, the FDA accepted for filing and granted priority review for the BLA for SRP-9001 with an anticipated regulatory action date of May 29, 2023.

•
SRP-9003 (LGMD, gene therapy program). We are developing gene therapy programs for various forms of LGMDs. The most advanced of our LGMD product candidates, SRP-9003, is designed to transfer a gene that codes for and restores beta-sarcoglycan protein with the goal of restoring the dystrophin associated protein complex. It utilizes the AAVrh.74 vector system, the same vector used in our SRP-9001 gene therapy program. A Phase 1/2a trial of SRP-9003 was commenced in the fourth quarter of 2018. In February 2019, we announced positive two-month biopsy data from the first three-patient low-dose cohort dosed in the SRP-9003 trial, and in October 2019, we announced positive nine-month functional data from these three patients. We have dosed one additional cohort of three patients at a higher dose per the study protocol. In June 2020, we announced safety and expression results from three clinical trial participants in the high-dose cohort measured at 60 days, and one-year functional data from three clinical trial participants in the low-dose cohort. In September 2020, we announced six-month functional data from three clinical trial participants in the high-dose cohort, and eighteen-month functional data from three clinical trial participants in the low-dose cohort. In March 2021, we announced 24-month functional and expression data from the three clinical trial participants in the low-dose cohort and twelve-month functional data from the three clinical trial participants in the high-dose cohort. In March 2022, we announced 36-month functional data from three clinical trial participants in the low-dose cohort and 24-month functional data from two clinical trial participants in the high-dose cohort. We expect to engage with the FDA to discuss our next steps for our potentially pivotal trial in 2023.

Our pipeline includes more than 40 programs in various stages of pre-clinical and clinical development, reflecting our multifaceted approach and expertise in precision genetic medicine to make a profound difference in the lives of patients suffering from rare diseases.

We have developed proprietary state-of-the-art CMC and manufacturing capabilities that allow synthesis and purification of our products and product candidates to support both clinical development as well as commercialization. Our current main focus in manufacturing is to sustain large-scale production of our PMO-based therapies and optimizing manufacturing for PPMO and gene therapy-based product candidates. We have entered into certain manufacturing and supply arrangements with third-party suppliers and will utilize these capabilities to support production of certain of our products and product candidates and their components. In 2017, we opened a facility in Andover, Massachusetts, which significantly enhanced our research and development manufacturing capabilities. However, we currently do not have internal large scale GMP manufacturing capabilities to produce our products and product candidates for commercial and/or clinical use.

The likelihood of our long-term success must be considered in light of the expenses, difficulties and delays frequently encountered in the development and commercialization of new pharmaceutical products, competitive factors in the marketplace and the complex regulatory environment in which we operate. We may never achieve significant revenue or profitable operations.

COVID-19 Pandemic

Despite careful tracking and planning, we are unable to accurately predict the extent of the impact of the COVID-19 pandemic on our business, results of operations and financial condition due to the uncertainty of future developments. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. For additional information on the various risks posed by the COVID-19 pandemic, refer to Part I, Item 1A. Risk Factors of this Annual Report on Form 10-K.

-72-

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities for the periods presented. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. We believe that the estimates and judgments upon which we rely are reasonable based upon historical experience and information available to us at the time that we make these estimates and judgments. To the extent there are material differences between these estimates and actual results, our consolidated financial statements will be affected. Although we believe that our judgments and estimates are appropriate, actual results may differ from these estimates. We believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements:

•
inventory;

•
income tax; and

•
stock-based compensation.

Inventory Valuation

Inventories are stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis. We capitalize inventory costs associated with products following regulatory approval when future commercialization is considered probable and the future economic benefit is expected to be realized. EXONDYS 51, VYONDYS 53 and AMONDYS 45 inventory that may be used in clinical development programs is charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes.

We periodically analyze our inventories for excess amounts or obsolescence and write down obsolete or otherwise unmarketable inventory to its estimated net realizable value based on assumptions about expected future demand and market conditions. Additionally, though our products are subject to strict quality control and monitoring, which we perform throughout the manufacturing processes, certain batches or units of product may not meet quality specifications. Expense incurred related to excess inventory, obsolete inventory, or inventories that do not meet our quality specifications are recorded as a component of cost of sales in the consolidated statements of operations.

Income Tax

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

Stock-Based Compensation for Awards with Market Conditions

We use the fair value method to determine stock-based compensation expense. The fair value for stock-based awards with market conditions is based on a lattice model with Monte Carlo simulations. The lattice model requires the use of subjective assumptions which include the award’s expected term and the price volatility of the underlying stock. The assumptions used in calculating the fair value of stock-based compensation expense for awards with market conditions represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, the use of different assumptions could result in materially different stock-based compensation expense.

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

-73-

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2022","","","2021","","","Change","","","Change"],["","","(in thousands, except per share amounts)","","","$","","","%"],["Revenues:"],["Products, net","","$","843,769","","","$","612,401","","","$","231,368","","","","38","%"],["Collaboration and other","","","89,244","","","","89,486","","","","(242",")","","","(\u2014",")%"],["Total revenues","","","933,013","","","","701,887","","","","231,126","","","","33","%"],["Cost and expenses:"],["Cost of sales (excluding amortization of in-licensed rights)","","","139,989","","","","97,049","","","","42,940","","","","44","%"],["Research and development","","","877,090","","","","771,182","","","","105,908","","","","14","%"],["Selling, general and administrative","","","451,421","","","","282,660","","","","168,761","","","","60","%"],["Settlement and license charges","","","\u2014","","","","10,000","","","","(10,000",")","","","(100",")%"],["Amortization of in-licensed rights","","","714","","","","706","","","","8","","","","1","%"],["Total cost and expenses","","","1,469,214","","","","1,161,597","","","","307,617","","","","26","%"],["Operating loss","","","(536,201",")","","","(459,710",")","","","(76,491",")","","","17","%"],["Other (loss) income, net:"],["Loss on debt extinguishment","","","(125,441",")","","","\u2014","","","","(125,441",")","","NM*"],["Gain on contingent consideration, net","","","6,700","","","","7,200","","","","(500",")","","","(7",")%"],["Gain from sale of Priority Review Voucher","","","\u2014","","","","102,000","","","","(102,000",")","","","(100",")%"],["Other expense, net","","","(35,021",")","","","(68,438",")","","","33,417","","","","(49",")%"],["Total other (loss) income, net","","","(153,762",")","","","40,762","","","","(194,524",")","","NM*"],["Loss before income tax expense (benefit)","","","(689,963",")","","","(418,948",")","","","(271,015",")","","","65","%"],["Income tax expense (benefit)","","","13,525","","","","(168",")","","","13,693","","","NM*"],["Net loss","","$","(703,488",")","","$","(418,780",")","","$","(284,708",")","","","68","%"],["Net loss per share \u2014 basic and diluted","","$","(8.03",")","","$","(5.15",")","","$","(2.88",")","","","56","%"]]
[[/GREPCENT_TABLE]]

* NM: not meaningful

Revenues

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2022","","","2021","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["EXONDYS 51","","$","511,749","","","$","454,361","","","$","57,388","","","","13","%"],["AMONDYS 45","","","214,582","","","","68,529","","","","146,053","","","","213","%"],["VYONDYS 53","","","117,438","","","","89,511","","","","27,927","","","","31","%"],["Products, net","","$","843,769","","","$","612,401","","","$","231,368","","","","38","%"]]
[[/GREPCENT_TABLE]]

Net product revenues for our products for 2022 increased by $231.4 million compared with 2021. The increase primarily reflects increasing demand for our products in the U.S. and a full period of AMONDYS 45 sales in 2022, given its commercial launch in February 2021.

-74-

Collaboration and other revenues primarily relate to our collaboration arrangement with Roche. For the years ended December 31, 2022 and December 31, 2021, we recognized $89.2 million and $89.5 million of collaboration and other revenues, respectively. For more information, please read Note 3, License and Collaboration Agreements.

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

Our cost of sales (excluding amortization of in-licensed rights) consists of royalty payments primarily to BioMarin and UWA and inventory costs that relate to sales of our products and the related overhead costs. Prior to receiving regulatory approval for EXONDYS 51, VYONDYS 53 and AMONDYS 45 by the FDA in September 2016, December 2019 and February 2021, respectively, we expensed such manufacturing and material costs as research and development expenses. For AMONDYS 45 sold in 2021, the majority of related manufacturing costs incurred had previously been expensed as research and development expenses, as such costs were incurred prior to the FDA approval of the product. For AMONDYS 45 sold in 2022 and EXONDYS 51 and VYONDYS 53 sold in 2021, only part of the related manufacturing costs incurred had previously been expensed as research and development expenses. If product related costs had not previously been expensed as research and development expenses prior to FDA approval, the incremental inventory costs related to our products sold in 2022 and 2021 would have been approximately $12.3 million and $22.0 million, respectively.

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2022","","","2021","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Inventory costs related to products sold","","$","95,765","","","$","56,720","","","$","39,045","","","","69","%"],["Royalty payments","","","44,224","","","","40,329","","","","3,895","","","","10","%"],["Total cost of sales","","$","139,989","","","$","97,049","","","$","42,940","","","","44","%"]]
[[/GREPCENT_TABLE]]

The cost of sales (excluding amortization of in-licensed rights) for 2022 increased $42.9 million, or 44%, compared with 2021. The change primarily reflects increasing demand for our products and an increase in write-offs of certain batches of our products not meeting our quality specifications for the year ended December 31, 2022, as compared to the same period of 2021.

Research and development expenses

Research and development expenses consist of costs associated with research activities as well as costs associated with our product development efforts, conducting pre-clinical trials, clinical trials and manufacturing activities. Direct research and development expenses associated with our programs include clinical trial site costs, clinical manufacturing costs, costs incurred for consultants, up-front fees and milestones paid to third parties in connection with technologies that have not reached technological feasibility and do not have an alternative future use, and other external services, such as data management and statistical analysis support, and materials and supplies used in support of clinical programs. Indirect costs of our clinical programs include salaries, stock-based compensation and allocation of our facility- and technology-related costs.

Research and development expenses represent a substantial percentage of our total operating expenses. We do not maintain or evaluate and, therefore, do not allocate internal research and development costs on a project-by-project basis. As a result, a significant portion of our research and development expenses are not tracked on a project-by-project basis, as the costs may benefit multiple projects.

-75-

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2022","","","2021","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["SRP-9001","","$","424,210","","","$","320,214","","","$","103,996","","","","32","%"],["Other gene therapies","","","81,783","","","","102,036","","","","(20,253",")","","","(20",")%"],["PPMO platform","","","50,026","","","","35,652","","","","14,374","","","","40","%"],["Eteplirsen (exon 51)","","","46,100","","","","36,464","","","","9,636","","","","26","%"],["Up-front, milestone, and other expenses","","","35,102","","","","40,267","","","","(5,165",")","","","(13",")%"],["Casimersen (exon 45)","","","31,850","","","","34,443","","","","(2,593",")","","","(8",")%"],["Golodirsen (exon 53)","","","14,707","","","","28,898","","","","(14,191",")","","","(49",")%"],["Collaboration cost-sharing","","","4,242","","","","12,425","","","","(8,183",")","","","(66",")%"],["Other projects","","","12,321","","","","17,302","","","","(4,981",")","","","(29",")%"],["Internal research and development expenses","","","294,021","","","","233,704","","","","60,317","","","","26","%"],["Roche collaboration reimbursement","","","(117,272",")","","","(90,223",")","","","(27,049",")","","","30","%"],["Total research and development expenses","","$","877,090","","","$","771,182","","","$","105,908","","","","14","%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2022","","","2021","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Manufacturing expenses","","$","445,758","","","$","384,700","","","$","61,058","","","","16","%"],["Compensation and other personnel expenses","","","148,385","","","","115,394","","","","32,991","","","","29","%"],["Clinical trial expenses","","","135,838","","","","104,732","","","","31,106","","","","30","%"],["Facility- and technology-related expenses","","","85,093","","","","70,597","","","","14,496","","","","21","%"],["Stock-based compensation","","","61,293","","","","50,526","","","","10,767","","","","21","%"],["Up-front, milestone, and other expenses","","","35,102","","","","40,267","","","","(5,165",")","","","(13",")%"],["Professional services","","","19,264","","","","13,900","","","","5,364","","","","39","%"],["Pre-clinical expenses","","","8,704","","","","21,410","","","","(12,706",")","","","(59",")%"],["Collaboration cost-sharing","","","4,242","","","","12,425","","","","(8,183",")","","","(66",")%"],["Research and other","","","50,683","","","","47,454","","","","3,229","","","","7","%"],["Roche collaboration reimbursement","","","(117,272",")","","","(90,223",")","","","(27,049",")","","","30","%"],["Total research and development expenses","","$","877,090","","","$","771,182","","","$","105,908","","","","14","%"]]
[[/GREPCENT_TABLE]]

Research and development expenses for 2022 increased by $105.9 million, or 14%, compared with 2021. The increase was primarily driven by the following:

•
$61.1 million increase in manufacturing expenses incurred related to the gene therapy manufacturing and supply agreement with Thermo, including charges of $54.0 million related to recognition of minimum purchase requirements, and a continuing ramp-up of SRP-9001 manufacturing;

•
$33.0 million increase in compensation and other personnel expenses primarily due to changes in headcount;

•
$31.1 million increase in clinical trial expenses primarily due to a continuing ramp-up of our SRP-9001 gene therapy programs including our EMBARK program;

•
$14.5 million increase in facility- and technology-related expenses primarily due to our continuing expansion efforts;

•
$10.8 million increase in stock-based compensation expense primarily due to changes in headcount and the value of stock awards;

•
$5.2 million decrease in up-front, milestone and other expenses, primarily due to a $28.7 million increase of an accrued sublicense fee to Nationwide and $11.6 million of expense incurred as a result of up-front and milestone payments related to certain research and license agreements during 2021. This was offset primarily by $26.1 million of up-front payments as a result of the execution of certain research and license agreements, $4.5 million of expense incurred as a result of milestone achievements in certain research and license agreements and $4.5 million of option and termination expenses during 2022;

-76-

•
$5.4 million increase in professional service expenses primarily due to an increase in reliance on third-party research and development contractors;

•
$12.7 million decrease in pre-clinical expenses primarily due to a decrease in toxicology study activity in our PPMO platforms;

•
$8.2 million decrease in collaboration cost-sharing expenses primarily due to the termination of the Lysogene S.A. license and collaboration agreement and timing of expense incurred related to Genethon's micro-dystrophin drug candidate;

•
$3.2 million increase in research and other expenses primarily driven by increases in lab-related expenses, partially offset by a decrease in sponsored research with academic institutions during 2022; and

•
$27.0 million increase in the offset to expense associated with a collaboration reimbursement from Roche primarily due to continuing development of our SRP-9001 gene therapy programs.

Selling, general and administrative expenses

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

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2022","","","2021","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Stock-based compensation","","$","171,725","","","$","63,417","","","$","108,308","","","","171","%"],["Compensation and other personnel expenses","","","122,127","","","","103,528","","","","18,599","","","","18","%"],["Professional services","","","97,330","","","","73,605","","","","23,725","","","","32","%"],["Facility- and technology-related expenses","","","33,156","","","","31,113","","","","2,043","","","","7","%"],["Other","","","27,618","","","","11,251","","","","16,367","","","","145","%"],["Roche collaboration reimbursement","","","(535",")","","","(254",")","","","(281",")","","","111","%"],["Total selling, general and administrative expenses","","$","451,421","","","$","282,660","","","$","168,761","","","","60","%"]]
[[/GREPCENT_TABLE]]

Selling, general and administrative expenses for 2022 increased by $168.8 million, or 60%, compared with 2021. This was primarily driven by the following:

•
$108.3 million increase in stock-based compensation expense primarily due to the Chief Executive Officer grant modification executed during 2022;

•
$18.6 million increase in compensation and other personnel expenses primarily due to changes in headcount;

•
$23.7 million increase in professional service expenses primarily due to an increase in reliance on third-party selling, general and administrative contractors;

•
$2.0 million increase in facility- and technology-related expenses primarily due to our continuing expansion efforts; and

•
$16.4 million increase in other expenses primarily related to charitable contributions made during 2022.

Settlement and license charges

In February 2021, we recognized a $10.0 million settlement charge related to contingent settlement payments to BioMarin as a result of the approval of AMONDYS 45 in the U.S. This was a result of a settlement and license agreement with BioMarin executed in July 2017. This amount, which was expensed to operations as incurred, is separately presented as settlement and license charges in the Company's consolidated statements of operations and comprehensive loss for the year ended December 31, 2021. There was no such expense recognized during the same period of 2022.

-77-

Amortization of in-licensed rights

Amortization of in-licensed rights relates to the agreements we entered into with BioMarin and UWA in July 2017 and April 2013, respectively. Each in-licensed right is being amortized on a straight-line basis over the remaining life of the patent from the first commercial sale of each product. For both the years ended December 31, 2022 and 2021, we recorded amortization of in-licensed rights of approximately $0.7 million.

Loss on debt extinguishment

On September 14, 2022, the Company entered into separate, privately negotiated transactions to repurchase a portion of the outstanding senior convertible notes due on November 15, 2024 (the “2024 Notes”) (see Note 13, Indebtedness). The holders exchanged $150.6 million in aggregate principal value of 2024 Notes held by them plus accrued interest of $0.8 million for an aggregate payment of $248.6 million. The Company accounted for the repurchase of the 2024 Notes as a debt extinguishment by recognizing the difference between the repurchase price of the debt and the net carrying amount of the extinguished debt as loss on debt extinguishment. The loss incurred on the extinguishment was $98.5 million.

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

Gain on contingent consideration, net

The gain on contingent consideration, net, relates to the fair value adjustment of the Company’s contingent consideration derivative liability related to regulatory-related contingent payments to Myonexus selling shareholders as well as to two academic institutions under separate license agreements that meet the definition of a derivative. For the years ended December 31, 2022 and 2021, we recognized net gains of $6.7 million and $7.2 million, respectively, to adjust the fair value of the contingent consideration liabilities. For further information on our contingent considerations, please read Note 5, Fair Value Measurements.

Gain from sale of Priority Review Voucher

In February 2021, we entered into an agreement to sell the PRV we received from the FDA in connection with the approval of AMONDYS 45 (the "AMONDYS 45 PRV"). Following the termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in April 2021, we completed our sale of the AMONDYS 45 PRV and received proceeds of $102.0 million, with no commission costs, which was recorded as a gain from sale of the PRV as it did not have a carrying value at the time of the sale.

Other expense, net

Other expense, net primarily consists of interest expense on our debt facilities, interest income on our cash, cash equivalents and investments, amortization of investment premium or accretion of investment discount, and unrealized gain or loss from our investment in our strategic investments. Interest expense includes interest accrued on our convertible notes and term loan. Our cash equivalents and investments consist of money market funds, corporate bonds, commercial paper, government and government agency debt securities and certificates of deposit.

Other expense, net for 2022 decreased by approximately $33.4 million compared with 2021. The decreases are primarily due to a $16.1 million increase in interest income and $11.1 million increase in accretion of investment discount due to the investment mix of our investment portfolio, as well as a $10.3 million reduction of interest expense incurred as a result of the repayment of our December 2019 Term Loan, partially offset by an increase of $4.9 million in losses on disposal of assets.

Income tax expense (benefit)

Income tax expense for 2022 was approximately $13.5 million and income tax benefit for 2021 was $0.2 million. Income tax expense (benefit) for all periods presented relates to state and foreign income taxes.

Liquidity and Capital Resources

On September 16, 2022, we issued $1,150.0 million aggregate principal amount of convertible senior notes due on September 15, 2027 (the “2027 Notes”). The 2027 Notes are senior unsecured obligations of the Company and bear interest at a rate of 1.25% per annum, payable semi-annually in cash on each March 15 and September 15, commencing on March 15, 2023. The net proceeds were $1,126.7 million after deducting the discounts and offering expenses of $23.3 million. The debt discount is amortized under the effective interest method and recorded as interest expense over the life of the 2027 Notes.

-78-

We used the net proceeds from the 2027 Notes offering as follows:

•
approximately $585.5 million to repay borrowings, to pay accrued and unpaid interest and prepayment fees, and terminate the December 2019 Term Loan;

•
approximately $248.6 million to repurchase a portion of the 2024 Notes, inclusive of any applicable premium and accrued interest; and

•
approximately $127.3 million to pay the cost of new capped call transactions related to the 2027 Notes.

We intend to use the remaining net proceeds to fund general corporate purposes.

Refer to Note 13, Indebtedness and Note 19, Leases for additional discussion of our outstanding indebtedness and material changes to our leasing obligations, respectively.

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2022","","","2021","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Financial assets:"],["Cash and cash equivalents","","$","966,777","","","$","2,115,869","","","$","(1,149,092",")","","","(54",")%"],["Short-term investments","","","1,022,597","","","","\u2014","","","","1,022,597","","","NM*"],["Restricted cash and investments","","","19,024","","","","9,904","","","","9,120","","","","92","%"],["Total cash, cash equivalents and investments","","$","2,008,398","","","$","2,125,773","","","$","(117,375",")","","","(6",")%"],["Borrowings:"],["Convertible debt","","$","1,544,292","","","$","563,673","","","$","980,619","","","","174","%"],["Term loan","","","\u2014","","","","533,203","","","","(533,203",")","","","(100",")%"],["Total borrowings","","$","1,544,292","","","$","1,096,876","","","$","447,416","","","","41","%"],["Working capital"],["Current assets","","$","2,557,861","","","$","2,604,099","","","$","(46,238",")","","","(2",")%"],["Current liabilities","","","619,604","","","","452,733","","","","166,871","","","","37","%"],["Total working capital","","$","1,938,257","","","$","2,151,366","","","$","(213,109",")","","","(10",")%"]]
[[/GREPCENT_TABLE]]

* NM: not meaningful

For the year ended December 31, 2022, our principal sources of liquidity were primarily derived from sales of our products, net proceeds from our 2027 Notes offering, and our collaboration arrangement with Roche. For the year ended December 31, 2021, our principal sources of liquidity were primarily derived from sales of our products, our collaboration arrangement with Roche, net proceeds from sale of the AMONDYS 45 PRV and net proceeds from our common stock offering in October 2021. Our principal uses of cash are research and development expenses, selling, general and administrative expenses, investments, capital expenditures, business development transactions, repayment of our term loan and a portion of our convertible debt and other working capital requirements. The changes in our working capital primarily reflect use of cash in operating activities. While our contractual obligations, commitments and debt service requirements over the next several years are significant, we intend to continue to fund our short-term financing needs and working capital requirements from cash flows of operating activities as well as cash on hand, and such sources are anticipated to be adequate to fund working capital requirements for at least twelve months from the date these consolidated financial statements were issued.

Beyond 2023, our cash requirements will depend extensively on our ability to advance our research, development and commercialization of programs. We expect to seek additional financings primarily from, but not limited to, the sale and issuance of equity and debt securities, the licensing or sale of our technologies, additional government contracts and/or funded research and development agreements. Our future expenditures and long-term capital requirements may be substantial and will depend on many factors, including but not limited to the following:

•
our ability to continue to generate revenues from sales of EXONDYS 51, VYONDYS 53, AMONDYS 45 and potential future products;

•
the timing and costs associated with our expansion efforts;

•
the timing and costs of building out our manufacturing capabilities;

-79-

•
the timing of advanced payments related to our future inventory commitments and manufacturing obligations;

•
the timing and costs associated with our existing lease obligations and new obligations expected to be entered into during the following year;

•
the timing and costs associated with our clinical trials and pre-clinical trials;

•
the attainment of milestones and our obligations to make milestone payments to Myonexus's selling shareholders, BioMarin, Nationwide, UWA and other institutions;

•
obligations to holders of our convertible notes; and

•
the costs of filing, prosecuting, defending and enforcing patent claims and our other intellectual property rights.

We cannot provide assurances that financing will be available when and as needed or that, if available, the financings will be on favorable or acceptable terms. If we are unable to obtain additional financing when and if we require, this would have a material adverse effect on our business and results of operations. To the extent we issue additional equity securities, our existing stockholders could experience substantial dilution.

We have entered into long-term contractual arrangements from time to time for our facilities, the provision of goods and services, and issuance of debt securities, among others. As of December 31, 2022, total obligations under debt, lease, and manufacturing arrangements were $1,653.8 million, $62.9 million, and $1,385.8 million, respectively, with $20.6 million, $14.6 million and $649.6 million due in less than one year, and approximately $1,633.2 million, $48.3 million and $736.1 million due in greater than one year. Interest payments are included within the future debt obligations stated in the previous sentence. Lease obligations only include real estate leases that had commenced prior to December 31, 2022. The leases embedded in certain supply agreements are included in manufacturing obligations. Additional information regarding our obligations under debt, lease, and manufacturing arrangements is provided in Note 13, Indebtedness, Note 19, Leases and Note 21, Commitments and Contingencies, respectively, to the consolidated financial statements.

For products and product candidates that are currently in various research and development stages, we may be obligated to make up to $3.2 billion of future development, regulatory, up-front royalty and sales milestone payments associated with our collaboration and license agreements. Payments under these agreements generally become due and payable upon achievement of certain development, regulatory or commercial milestones. Because the achievement of these milestones is not probable and payment is not required as of December 31, 2022, such contingencies have not been recorded in our consolidated financial statements. Amounts related to contingent milestone payments are not yet considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval and commercial milestones.

Cash Flows

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2022","","","2021","","","Change","","","Change"],["","","(in thousands)","","","$","","","%"],["Cash (used in) provided by"],["Operating activities","","$","(325,346",")","","$","(443,172",")","","$","117,826","","","","(27",")%"],["Investing activities","","","(1,046,883",")","","","495,413","","","","(1,542,296",")","","NM*"],["Financing activities","","","232,507","","","","561,569","","","","(329,062",")","","","(59",")%"],["(Decrease) increase in cash and cash equivalents","","$","(1,139,722",")","","$","613,810","","","$","(1,753,532",")","","NM*"]]
[[/GREPCENT_TABLE]]

* NM: not meaningful

Operating Activities

Cash used in operating activities, which consists of our net loss adjusted for non-cash items and changes in net operating assets and liabilities, totaled $325.3 million in 2022. Operating activities used $443.2 million of cash in 2021. Cash used in operating activities in 2022 was primarily driven by the net loss of $703.5 million, adjusted for following:

•
$233.0 million in stock-based compensation expense;

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

•
$41.9 million in depreciation and amortization expense; and

•
$33.6 million in other non-cash items.

-80-

These amounts were partially offset by the gain on contingent consideration of $6.7 million and $9.6 million in other non-cash items.

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

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

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

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

These amounts were partially offset by the following:

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

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

Cash used in operating activities in 2021 was primarily driven by the net loss of $418.8 million, adjusted for:

•
$113.9 million in stock-based compensation expense;

•
$38.0 million in depreciation and amortization expense; and

•
$31.0 million in other non-cash items.

These amounts were partially offset by the gain of $102.0 million recorded from the sale of the AMONDYS 45 PRV and the gain on contingent consideration of $7.2 million.

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

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

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

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

These amounts were partially offset by the following:

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

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

Investing Activities

Cash used in investing activities was $1,046.9 million in 2022 compared to $495.4 million of cash provided by investing activities in 2021. Cash used in investing activities in 2022 primarily consisted of the following:

•
$1,936.9 million of purchases of available-for-sale securities; and

•
$30.8 million of purchases of property and equipment due to the continued build-out of our facilities.

These amounts were partially offset by $923.2 million of maturity and sales of available-for-sale securities.

Cash provided by investing activities in 2021 primarily consisted of the following:

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

•
$102.0 million of net proceeds related to the sale of the AMONDYS 45 PRV.

These amounts were partially offset by the following:

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

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

Financing Activities

-81-

Cash provided by financing activities was $232.5 million in 2022 compared to $561.6 million in 2021. Cash provided by financing activities in 2022 consisted primarily of the following:

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

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

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

These amounts were partially offset by the following items:

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

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

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

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

Cash provided by financing activities in 2021 primarily consisted of the following:

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

•
$20.8 million in proceeds from exercise of options and purchase of stock under our Employee Stock Purchase Program.

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

Other Funding Commitments

We have several on-going clinical trials in various stages. Our most significant clinical trial expenditures are to CROs. The CRO contracts are generally cancellable at our option. As of December 31, 2022, we had approximately $480.8 million in cancellable future commitments based on existing CRO contracts.

Recent Accounting Pronouncements

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