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 endedDecember 31, 2021 included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission onFebruary 22, 2022 , or our 2021 Annual Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth in Part II, Item 1A. (Risk Factors) of this Quarterly Report on Form 10-Q and Part I, Item 1A. (Risk Factors) of our 2021 Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.
Our Company
We are a science-driven global biopharmaceutical company focused on the discovery, development and commercialization of clinically differentiated medicines that provide benefits to patients with rare disorders. Our ability to innovate to identify new therapies and to globally commercialize products is the foundation that drives investment in a robust and diversified pipeline of transformative medicines. Our mission is to provide access to best-in-class treatments for patients who have few or no treatment options. Our strategy is to leverage our strong scientific and clinical expertise and global commercial infrastructure to bring therapies to patients. We believe that this allows us to maximize value for all of our stakeholders.
We have a portfolio pipeline that includes several commercial products and product candidates in various stages of development, including clinical, pre-clinical and research and discovery stages, focused on the development of new treatments for multiple therapeutic areas for rare diseases.
Corporate Updates
COVID-19 Impact
The global pandemic caused by a strain of novel coronavirus, COVID-19, has impacted and is continuing to impact the timing of certain of our clinical trials and regulatory submissions as well as other aspects of our business operations. In addition to our previous disclosures regarding the impact of the COVID-19 pandemic, such as those set forth in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , the following expectations have been revised as a result of the impact or expected impact of the COVID-19 pandemic:
We have experienced additional delays in enrolling patients for our
registration-directed Phase 2/3 placebo-controlled trial of vatiquinone in
children with mitochondrial disease associated seizures as some patients have
? been unable or hesitant to travel to clinical sites due to the COVID-19
pandemic. We have also experienced delays in opening certain clinical trial
sites. We now anticipate results from this trial to be available in the first
quarter of 2023.
As of the date of this Report on Form 10-Q, except as otherwise previously
disclosed with respect to Translarna product revenue in
generate revenue has not been significantly affected by the COVID-19 pandemic.
However, due to travel restrictions, social distancing and the continued global
? uncertainty resulting from the COVID-19 pandemic, we may have difficulty
identifying and accessing new patients, supporting existing patients and
meeting with regulatory authorities or other governmental entities, which may
negatively affect our future revenue. We continue to support our existing
patient base and remotely connect with them, as necessary. We have not encountered any material issues in supplying those patients. 40 Table of Contents
As previously disclosed, in response to the global uncertainty caused by the
? COVID-19 pandemic, we are continuing to prioritize our expenses where we deem
appropriate and strategically positioning our capital allocation.
The COVID-19 pandemic and responsive measures thereto may result in further negative impacts, including additional delays in our clinical and regulatory activities and further fluctuations in our revenue. We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business and it has the potential to materially adversely affect our business, financial condition, results of operations, and prospects. For additional information, see "Item 1A. Risk Factors - We face risks related to health epidemics and other widespread outbreaks of contagious disease, which are, and may continue to, delay our ability to complete our ongoing clinical trials and initiate future clinical trials, disrupt regulatory activities and have other adverse effects on our business and operations, including the novel coronavirus (COVID-19) pandemic, which has disrupted, and may continue to disrupt, our operations and may significantly impact our operating results. In addition, the COVID-19 pandemic has caused substantial disruption in the financial markets and economies, which could result in adverse effects on our business and operations." in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
UpstazaTM (eladocagene exuparvovec) Approved in European Economic Area
In
Global Commercial Footprint
Global DMD Franchise
We have two products, Translarna™ (ataluren) and Emflaza® (deflazacort), for the treatment of Duchenne muscular dystrophy, or DMD, a rare, life threatening disorder. Translarna has marketing authorization in the EEA for the treatment of nonsense mutation Duchenne muscular dystrophy, or nmDMD, in ambulatory patients aged two years and older and inRussia for the treatment of nmDMD in patients aged two years and older. InJuly 2020 , theEuropean Commission approved the removal of the statement "efficacy has not been demonstrated in non-ambulatory patients" from the indication statement for Translarna. Translarna also has marketing authorization inBrazil for the treatment of nmDMD in ambulatory patients two years and older and for continued treatment of patients that become non-ambulatory. During the quarter endedJune 30, 2022 , we recognized$77.0 million in net sales from Translarna. We hold worldwide commercialization rights to Translarna for all indications in all territories. Emflaza is approved inthe United States for the treatment of DMD in patients two years and older. During the quarter endedJune 30, 2022 , we recognized$56.8 million in net sales from Emflaza. Our marketing authorization for Translarna in the EEA is subject to annual review and renewal by theEuropean Commission following reassessment by theEuropean Medicines Agency , or EMA, of the benefit-risk balance of the authorization, which we refer to as the annual EMA reassessment. InJune 2022 , theEuropean Commission renewed our marketing authorization, making it effective, unless extended, throughAugust 5, 2023 . This marketing authorization is further subject to a specific obligation to conduct and submit the results of an 18-month, placebo-controlled trial, followed by an 18-month open-label extension, which we refer to together as Study 041. InJune 2022 , we announced top-line results from the placebo-controlled trial of Study 041. Within the placebo-controlled trial, Translarna showed a statistically significant treatment benefit across the entire intent to treat population as assessed by the 6-minute walk test, assessing ambulation and endurance, and in lower-limb muscle function as assessed by the North Star Ambulatory Assessment, a functional scale designed for boys affected by DMD. Additionally, Translarna showed a statistically significant treatment benefit across the intent to treat population within the 10-meter run/walk and 4-stair stair climb, each assessing ambulation and burst activity, while also showing a positive trend in the 4-stair stair descend although not statistically significant. Within the primary analysis group, Translarna demonstrated a positive trend across all endpoints, however, statistical significance was not achieved. Translarna was also well tolerated. We expect to submit a report on the placebo-controlled 41
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trial and the open-label extension data that has been collected to date to the EMA by the end of the third quarter of 2022, as required.
Each country, including each member state of the EEA, has its own pricing and reimbursement 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 EEA 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 significant portion of, our ability to generate revenue from sales of Translarna in the EEA and other territories. Translarna is an investigational new drug inthe United States . During the first quarter of 2017, we filed a New Drug Application, or NDA, for Translarna for the treatment of nmDMD over protest with theUnited States Food and Drug Administration , or FDA. InOctober 2017 , theOffice of Drug Evaluation I of the FDA issued a Complete Response Letter for the NDA, stating that it was unable to approve the application in its current form. In response, we filed a formal dispute resolution request with theOffice of New Drugs of the FDA . InFebruary 2018 , theOffice of New Drugs of the FDA denied our appeal of the Complete Response Letter. In its response, theOffice of New Drugs recommended a possible path forward for the ataluren NDA submission based on the accelerated approval pathway. This would involve a re-submission of an NDA containing the current data on effectiveness of ataluren with new data to be generated on dystrophin production in nmDMD patients' muscles. We followed theFDA's recommendation and collected, using newer technologies via procedures and methods that we designed, such dystrophin data in a new study, Study 045, and announced the results of Study 045 inFebruary 2021 . Study 045 did not meet its pre-specified primary endpoint. InJune 2022 , we announced top-line results from the placebo-controlled trial of Study 041. We are preparing to have discussion with the FDA regarding a potential a resubmission of the Translarna NDA.
UpstazaTM (eladocagene exuparvovec)
We have a pipeline of gene therapy product candidates for rare monogenic diseases that affect the CNS, including Upstaza for the treatment of AADC deficiency. InJuly 2022 , theEuropean Commission approved Upstaza for the treatment of AADC deficiency for patients 18 months and older within the EEA. We are also preparing a biologics license application, or BLA, for Upstaza for the treatment of AADC deficiency inthe United States . In response to discussions with the FDA, we intend to provide additional information concerning the use of the commercial cannula for Upstaza in young patients. We expect to submit a BLA to the FDA in the fourth quarter of 2022.
Tegsedi® (inotersen) and Waylivra™ (volanesorsen)
We hold the rights for the commercialization of Tegsedi and Waylivra for the treatment of rare diseases in countries inLatin America and theCaribbean pursuant to a Collaboration and License Agreement, or the Tegsedi-Waylivra Agreement, datedAugust 1, 2018 , by and between us andAkcea Therapeutics, Inc. , or Akcea, a subsidiary of Ionis Pharmaceuticals, Inc. Tegsedi has received marketing authorization inthe United States ,European Union , or EU, andBrazil for the treatment of stage 1 or stage 2 polyneuropathy in adult patients with hereditary transthyretin amyloidosis, or hATTR amyloidosis. We began to make commercial sales of Tegsedi for the treatment of hATTR amyloidosis inBrazil in the second quarter of 2022 and we continue to make Tegsedi available in certain other countries withinLatin America and theCaribbean through EAP Programs. InAugust 2021 , ANVISA, the Brazilian health regulatory authority, approved Waylivra as the first treatment for familial chylomicronemia syndrome, orFCS , inBrazil and we began to make commercial sales of Waylivra inBrazil in the third quarter of 2022 while continuing to make Waylivra available in certain other countries withinLatin America and theCaribbean through EAP programs. Waylivra has also received marketing authorization in the EU for the treatment ofFCS . Additionally, we submitted an application to ANVISA inDecember 2021 for the approval 42 Table of Contents
of Waylivra for the treatment of familial partial lipodystrophy, or FPL, and we expect a regulatory decision on approval in the second half of 2022.
Evrysdi® (risdiplam)
We also have an SMA collaboration with Roche and theSMA Foundation . The SMA program has one approved product, Evrysdi, which was approved by the FDA inAugust 2020 for the treatment of SMA in adults and children two months and older and by theEuropean Commission inMarch 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 inBrazil inOctober 2020 andJapan inJune 2021 . InMay 2022 , the FDA approved a label expansion for Evrysdi to include infants under two months old with SMA.
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 healthy volunteers inSeptember 2021 demonstrating dose-dependent lowering of huntingtin messenger ribonucleic acid and protein 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 pharmacodynamic effects followed by a nine-month placebo-controlled phase focused on PTC518 biomarker effect. We expect data from the initial 12-week phase of the Phase 2 study by the end of 2022.
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 pathology of a number of CNS diseases. The two most advanced molecules in our Bio-e platform are vatiquinone and PTC857. We initiated a registration-directed Phase 2/3 placebo-controlled trial of vatiquinone in children with mitochondrial disease associated seizures in the third quarter of 2020. We have experienced additional delays in enrolling this trial due to the COVID-19 pandemic and anticipate results from this trial to be available in the first quarter of 2023. We also initiated a registration-directed Phase 3 trial of vatiquinone in children and young adults with Friedreich ataxia in the fourth quarter of 2020 and anticipate results from this trial to be available in the second quarter of 2023. In the third quarter of 2021, we completed a Phase 1 trial in healthy volunteers to evaluate the safety and pharmacology of PTC857. PTC857 was found to be well-tolerated with no reported serious adverse events while demonstrating predictable pharmacology. We initiated a Phase 2 trial of PTC857 for amyotrophic lateral sclerosis in the first quarter of 2022.
Metabolic Platform
The most advanced molecule in our metabolic platform is PTC923, an oral formulation of synthetic sepiapterin, a precursor to intracellular tetrahydrobiopterin, which is a critical enzymatic cofactor involved in metabolism and synthesis of numerous metabolic products, for orphan diseases. We initiated a registration-directed Phase 3 trial for PTC923 for phenylketonuria, or PKU, in the third quarter of 2021 and expect results from this trial to
be available by the end of 2022. Oncology Platform We also have two oncology agents that are in clinical development, unesbulin and emvododstat. We completed our Phase 1 trials evaluating unesbulin in leiomyosarcoma, or LMS, and diffuse intrinsic pontine glioma, or DIPG, in the fourth quarter of 2021. We initiated a registration-directed Phase 2/3 trial of unesbulin for the treatment of LMS in the first quarter of 2022 and we expect to initiate a registration-directed Phase 2 trial of unesbulin for the treatment of DIPG in the third quarter of 2022. We completed our Phase 1 trial evaluating emvododstat in acute myelogenous leukemia, or AML, in the fourth quarter of 2021. We expect to provide further updates regarding our emvododstat program at a later date. 43 Table of Contents Emvododstat for COVID-19 InJune 2020 , we initiated a Phase 2/3 clinical trial evaluating the efficacy and safety of emvododstat in patients hospitalized with COVID-19. InFebruary 2021 , we announced the completion of the first stage of the Phase 2/3 trial. Given the changing nature of the COVID-19 pandemic to the outpatient treatment setting, we concluded enrollment in the Phase 2/3 trial early to review the data collected to date and make a decision on next steps. Based upon our initial analyses of all randomized subjects, there was a trend towards emvododstat benefit across several disease relevant endpoints including reduced hospitalizations and time to reduction of fever. Additionally, within the cohort of patients enrolled within five days of infection, emvododstat demonstrated a benefit with respect to time to respiratory improvement, duration of hospitalization, dyspnea resolution and cough relief. We plan to complete the remaining data analyses and will then formulate a strategy for next steps.
Multi-Platform Discovery
In addition, we have a pipeline of product candidates and discovery programs that are in early clinical, pre-clinical and research and development stages focused on the development of new treatments for multiple therapeutic areas, including rare diseases and oncology.
Funding
The success of our products and any other product candidates we may develop, depends largely on obtaining and maintaining reimbursement from governments and third-party insurers. Our revenues are primarily generated from sales of Translarna for the treatment of nmDMD in countries where we were able to obtain acceptable commercial pricing and reimbursement terms and in select countries where we are permitted to distribute Translarna under our EAP Programs and from sales of Emflaza for the treatment of DMD inthe United States . We have also recognized revenue associated with milestone and royalty payments from Roche pursuant to the SMA License Agreement under our SMA program. To date, we have financed our operations primarily through our offering of 3.00% convertible senior notes dueAugust 15, 2022 , or the 2022 Convertible Notes, our offering of 1.50% convertible senior notes dueSeptember 15, 2026 , or the 2026 Convertible Notes, and, together with the 2022 Convertible Notes, the Convertible Notes, our public offerings of common stock inFebruary 2014 , inOctober 2014 , inApril 2018 , inJanuary 2019 , and inSeptember 2019 , the common stock issued in our "at the marketing offering", our initial public offering of common stock inJune 2013 , proceeds from a Royalty Purchase Agreement dated as ofJuly 17, 2020 , by and among us, RPI 2019Intermediate Finance Trust , or RPI, and, solely for the limited purposes set forth therein, Royalty Pharma PLC, or the Royalty Purchase Agreement, private placements of our preferred stock, collaborations, bank and institutional lender debt and convertible debt financings, and grants and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed by our product candidates. Since 2014, we have also relied on revenue generated from net sales of Translarna for the treatment of nmDMD in territories outside ofthe United States , and sinceMay 2017 , we have generated revenue from net sales of Emflaza for the treatment of DMD inthe United States . We have also relied on revenue associated with milestone and royalty payments from Roche pursuant to the SMA License Agreement. The 2022 Convertible Notes consist of$150.0 million in aggregate principal amount of 3.00% convertible senior notes due 2022. The 2022 Convertible Notes bear cash interest payable onFebruary 15 andAugust 15 of each year, beginning onFebruary 15, 2016 . The 2022 Convertible Notes are senior unsecured obligations of ours and will mature onAugust 15, 2022 , unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. As ofFebruary 15, 2022 , until the close of business on the business day immediately preceding the maturity date, holders may convert their 2022 Convertible Notes at any time. Upon conversion, we will pay and deliver a combination of cash and shares of our common stock. We received net proceeds from the offering of approximately$145.4 million , after deducting the initial purchasers' discounts and commissions and the offering expenses payable by us. InAugust 2019 , we entered into an At the Market Offering Sales Agreement, or the Sales Agreement, withCantor Fitzgerald andRBC 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 44
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the Securities Act of 1933, as amended, or the Securities Act. During the three and six months endedJune 30, 2022 , we did not issue or sell any shares of common stock pursuant to the Sales Agreement. The remaining shares of our common stock available to be issued and sold, under the Sales Agreement, have an aggregate offering price of up to$93.0 million as ofJune 30, 2022 . The 2026 Convertible Notes consist of$287.5 million aggregate principal amount of 1.50% convertible senior notes due 2026. The 2026 Convertible Notes bear cash interest at a rate of 1.50% per year, payable semi-annually onMarch 15 andSeptember 15 of each year, beginning onMarch 15, 2020 . The 2026 Convertible Notes will mature onSeptember 15, 2026 , unless earlier repurchased or converted. We received net proceeds of$279.3 million after deducting the initial purchasers' discounts and commissions and the offering expenses payable by us.
As of
We anticipate that our expenses will continue to increase in connection with our commercialization efforts inthe 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 ongoing research and development expenses for our products and product candidates, including our splicing, gene therapy, Bio-e, metabolic and oncology programs, our studies of emvododstat for COVID-19 as well as studies in our products for maintaining authorizations, including Study 041, label extensions and additional indications. In addition, we may incur substantial costs in connection with our efforts to advance our regulatory submissions. We continue to seek marketing authorization for Translarna for the treatment of nmDMD in territories that we do not currently have marketing authorization in and we may also seek marketing authorization for Translarna for other indications. We are preparing a BLA for Upstaza for the treatment of AADC deficiency inthe United States and we anticipate submitting a BLA to the FDA in the fourth quarter of 2022. We filed for marketing authorization for Waylivra with ANVISA for the treatment of FPL and we expect a regulatory decision on approval from ANVISA in the second half of 2022. These efforts may significantly impact the timing and extent of our commercialization expenses. We may seek to expand and diversify our product pipeline through opportunistically in-licensing or acquiring the rights to products, product candidates or technologies and we may incur expenses, including with respect to transaction costs, subsequent development costs or any upfront, milestone or other payments or other financial obligations associated with any such transaction, which would increase our future capital requirements. With respect to our outstanding 2022 Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears, which require total funding of$4.5 million annually. The 2022 Convertible Notes will mature onAugust 15, 2022 and we will be required to pay any outstanding principal amount of the 2022 Convertible Notes at that time, unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. As ofFebruary 15, 2022 , until the close of business on the business day immediately preceding the maturity date, holders may convert their 2022 Convertible Notes at any time. Upon conversion, we will pay and deliver a combination of cash and shares of our common stock. With respect to our outstanding 2026 Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears, which will require total funding of$4.3 million annually. We are obligated to pay the former equityholders ofAgilis $50.0 million as a result of theEuropean Commission's marketing approval of Upstaza for the treatment of AADC deficiency inJuly 2022 and we expect to pay such former equityholders an additional$20.0 million upon the acceptance for filing by the FDA of a BLA for Upstaza for the treatment of AADC deficiency, which we expect to occur in the fourth quarter of 2022. We also expect to pay the former securityholders ofCensa Pharmaceuticals, Inc. , or Censa, a$30.0 million development milestone for the completion of enrollment of a Phase 3 clinical trial for PTC923 for PKU in 2022. If achieved, we have the option to pay such milestone payment in cash or shares of our common stock. We also have certain significant contractual obligations and commercial commitments that require funding and we have disclosed these items under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Funding requirements" in our 2021 Annual Report on Form 10-K. In addition to those obligations previously 45
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disclosed, we entered into a Lease Agreement, or the Warren Lease, onMay 24, 2022 withWarren CC Acquisitions, LLC , relating to the lease of two entire buildings comprised of approximately 360,000 square feet of shell condition, modifiable space, or the Premises, at a facility located inWarren, New Jersey . The rental term of the Warren Lease commenced onJune 1, 2022 , with an initial term of seventeen years, or the Initial Term, followed by three consecutive five-year renewal periods at our option. The aggregate base rent for the Initial Term will be approximately$163.0 million ; provided, however, that if we are not subject to an Event of Default (as defined in the Warren Lease), we will be entitled to a base rent abatement over the first three years of the Initial Term of approximately$18.6 million , reducing our total base rent obligation to$144.4 million . The rental rate for the renewal periods will be at the Fair Market Rental Value (as defined in the Warren Lease) and determined at the time of the exercise of the renewal. Beginning in the second lease year, we are also responsible for the payment of all taxes and operating expenses for the Premises. There were no other material changes to the contractual obligations and commercial commitments set forth in our 2021 Annual Report on Form 10-K during the period endedJune 30, 2022 . Furthermore, since we are a public company, we have incurred and expect to continue to incur additional costs associated with operating as such including significant legal, accounting, investor relations and other expenses. We have never been profitable and we will need to generate significant revenues to achieve and sustain profitability, and we may never do so. Accordingly, we may need to obtain substantial additional funding in connection with our continuing operations. Adequate additional financing may not be available to us on acceptable terms, or at all. If we are unable to 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.
Financial operations overview
Revenues
Net product revenues. To date, our net product revenues have consisted primarily of sales of Translarna for the treatment of nmDMD in territories outside ofthe United States and sales of Emflaza for the treatment of DMD inthe United 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 products 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 endedJune 30, 2022 and 2021, net product sales outside ofthe United States were$86.9 million and$54.0 million , respectively consisting of Translarna, Tegsedi, Waylivra, and Upstaza. Upstaza sales commenced during the three months period endedJune 30, 2022 . Translarna net revenues made up$77.0 million and$52.6 million of the net product sales outside ofthe United States for the three months endedJune 30, 2022 and 2021, respectively. For the three months endedJune 30, 2022 and 2021, net product sales inthe United States were$56.8 million and$49.1 million , respectively, consisting solely of Emflaza. For the six months endedJune 30, 2022 and 2021, net product sales outside ofthe United States were$168.1 million and$101.7 million , respectively, consisting of Translarna, Tegsedi, Waylivra, and Upstaza. Upstaza sales commenced during the six months period endedJune 30, 2022 . Translarna net revenues made up$156.2 million and$99.1 million of the net product sales outside ofthe United States for 46
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the six months endedJune 30, 2022 and 2021, respectively. For the six months endedJune 30, 2022 and 2021, net product sales inthe United States were$105.4 million and$92.7 million , respectively, consisting solely of Emflaza. In relation to customer 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 capitalization and are expensed as incurred. We consider 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. Roche and the SMA Foundation Collaboration. InNovember 2011 , we entered into the SMA License Agreement pursuant to which we are collaborating with Roche and theSMA Foundation to further develop and commercialize compounds identified under our SMA program with theSMA Foundation . The research component of this agreement terminated effectiveDecember 31, 2014 . We are 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. As ofJune 30, 2022 , we had recognized a total of$160.0 million in milestone payments and$100.1 million royalties on net sales pursuant to the SMA License Agreement. As ofJune 30, 2022 , there are no remaining research and development event milestones that we can receive. The remaining potential sales milestones as ofJune 30, 2022 are$300.0 million upon achievement of certain sales events. For the three months endedJune 30, 2022 and 2021, we did not recognize collaboration revenue related to the SMA License Agreement with Roche. For the six months endedJune 30, 2022 and 2021, we recognized$0.0 million and$20.0 million of collaboration revenue related to the SMA License Agreement with Roche, respectively. The first commercial sale of Evrysdi in the EU was made inMarch 2021 . This event triggered a$20.0 million milestone payment to us from Roche for the six months endedJune 30, 2021 .
For the three months ended
For the six months ended
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 payments 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.
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:
?external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites, third-party manufacturing organizations and consultants;
?employee-related expenses, which include salaries and benefits, including share-based compensation, for the personnel involved in our drug discovery and development activities; and
?facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, IT, human resources and other support functions, depreciation of leasehold improvements and equipment, and laboratory and other supplies. 47
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We use our employee and infrastructure resources across multiple research projects, including our drug development programs. We track expenses related to our clinical programs and certain preclinical programs on a per project basis.
We expect our research and development expenses to fluctuate in connection with our ongoing activities, particularly in connection with Study 041 and other studies for Translarna for the treatment of nmDMD, our activities under our splicing, gene therapy, Bio-e, metabolic and oncology programs and our studies of emvododstat for COVID-19 and performance of our post-marketing requirements imposed by regulatory agencies with respect to our products. The timing and amount of these expenses will depend upon the outcome of our ongoing clinical trials and the costs associated with our planned clinical trials. The timing and amount of these expenses will also depend on the costs associated with potential future clinical trials of our products or product candidates and the related expansion of our research and development organization, regulatory requirements, advancement of our preclinical programs, and product and product candidate manufacturing costs.
The following tables provide research and development expense for our most
advanced principal product development programs, for the three and six months
ended
Three Months Ended June 30, 2022 2021 (in thousands) Global DMD Franchise$ 17,111 $ 17,887 Metabolic 15,184 10,476 Gene Therapy 49,556 35,619 Bio-e 12,880 14,863 Oncology 8,979 3,625 Splicing 18,355 12,008 Emvododstat for COVID-19 7,459 9,273 Discovery 27,739 21,731
Total research and development
Six Months Ended June 30, 2022 2021 (in thousands) Global DMD Franchise$ 34,692 $ 36,258 Metabolic 30,974 23,665 Gene Therapy 91,547 76,585 Bio-e 27,612 30,198 Oncology 15,199 7,453 Splicing 33,076 24,115 Emvododstat for COVID-19 9,831 21,489 Discovery 54,410 40,232
Total research and development
The successful development of our products and 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 us; 48 Table of Contents ? clinical trial results;
? the terms and timing of regulatory approvals; and
? the expense of filing, prosecuting, defending and enforcing patent claims and
other intellectual property rights.
A change in the outcome of any of these variables with respect to the development of our products or product candidates could mean a significant change in the costs and timing associated with the development of that product or product candidate. For example, if the EMA or FDA or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of any of our products or product candidates 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. In addition, the uncertainty with respect to the duration, nature and extent of negative impacts of the COVID-19 pandemic and responsive measures relating thereto on our ability to successfully enroll our current and future clinical trials, has caused us to experience delays, and may cause us to experience further delays, in our clinical trials and regulatory submissions.
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 continued efforts to commercialize our products, including increased payroll, expanded infrastructure, commercial operations, increased consulting, legal, accounting and investor relations expenses.
Interest expense, net
Interest expense, net consists of interest expense from the liability for the sale of future royalties related to the Royalty Purchase Agreement, and from the Convertible Notes outstanding.
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 inthe 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 six months ended
49 Table of Contents Results of operations
Three months ended
The following table summarizes revenues and selected expense and other income
data for the three months ended
Three Months Ended June 30, Change (in thousands) 2022 2021 2022 vs. 2021 Net product revenue$ 143,701 $ 103,113 $ 40,588 Royalty revenue 21,825 13,563 8,262 Cost of product sales, excluding amortization of acquired intangible asset 9,639 7,358 2,281 Amortization of acquired intangible asset 26,294 12,751 13,543 Research and development expense 157,263 125,482 31,781 Selling, general and administrative expense 79,892 68,878 11,014 Change in the fair value of deferred and contingent consideration (15,200) 700 (15,900) Interest expense, net (21,976) (22,559) 583 Other (expense) income, net (34,357) 3,170 (37,527) Income tax expense (3,392) (488) (2,904) Net product revenues. Net product revenues were$143.7 million for the three months endedJune 30, 2022 , an increase of$40.6 million , or 39%, from$103.1 million for the three months endedJune 30, 2021 . The increase in net product revenue was primarily due to an increase in net product sales of Translarna and Emflaza. Translarna net product revenues were$77.0 million for the three months endedJune 30, 2022 , an increase of$24.4 million , or 46%, compared to$52.6 million for the three months endedJune 30, 2021 . These results reflect an increase in net product sales in existing markets as well as continued geographic expansion. Emflaza net product revenues were$56.8 million for the three months endedJune 30, 2022 , an increase of$7.7 million , or 16%, compared to$49.1 million for the three months endedJune 30, 2021 . These results reflect continued addition of new patients, broader access, continued high compliance, and appropriate weight-based dosing. Royalty revenue. Royalty revenue was$21.8 million for the three months endedJune 30, 2022 , an increase of$8.3 million , or 61%, from$13.6 million for the three months endedJune 30, 2021 . The increase in royalty revenue was due to higher Evrysdi sales in the three months endedJune 30, 2022 as compared to the three months endedJune 30, 2021 . In accordance with the SMA License Agreement, we are entitled to royalties on worldwide annual net sales of the product. Cost of product sales, excluding amortization of acquired intangible asset. Cost of product sales, excluding amortization of acquired intangible asset, were$9.6 million for the three months endedJune 30, 2022 , an increase of$2.3 million , or 31%, from$7.4 million for the three months endedJune 30, 2021 . Cost of product sales consist primarily of royalty payments associated with Emflaza and Translarna net product sales, excluding contingent payments toMarathon Pharmaceuticals, LLC (now known as CompletePharma Holdings, LLC ), or Marathon, costs associated with Emflaza and Translarna product sold during the period, and royalty expense related to royalty revenues and collaboration milestone revenues. The increase in cost of product sales, excluding amortization of acquired intangible asset, is primarily due to the increase in net product revenue and royalty revenue. Amortization of acquired intangible asset. Amortization of our intangible assets was$26.3 million for the three months endedJune 30, 2022 , an increase of$13.5 million , or over 100%, from$12.8 million for the three months endedJune 30, 2021 . These amounts are related to the acquisition of all rights to Emflaza acquired inMay 2017 , Marathon contingent payments, and our Waylivra and Tegsedi intangible assets. The increase is primarily related to additional Marathon contingent payments. The amount allocated to the Emflaza intangible asset is amortized on a straight-line basis over its estimated useful life of approximately seven years from the date of the completion of the acquisition of all rights to Emflaza, the period of estimated future cash flows. The Marathon contingent payments, including a$50.0 million contingent payment made inMarch 2022 , are amortized prospectively as incurred, straight-line, over the remaining useful 50 Table of Contents life of the Emflaza intangible asset. The Waylivra and Tegsedi assets are amortized on a straight-line basis over their estimated useful life of approximately ten years, respectively. Additionally, inAugust 2021 , we made a$4.0 million milestone payment to Akcea upon regulatory approval of Waylivra from ANVISA. In accordance with the guidance for an asset acquisition, we recorded the milestone payment when it became payable to Akcea, and it increased the cost basis for the Waylivra intangible asset. This payment is being amortized to cost of product sales over the expected remaining useful life of the Waylivra asset on a straight line basis. Research and development expense. Research and development expense was$157.3 million for the three months endedJune 30, 2022 , an increase of$31.8 million , or 25%, from$125.5 million for the three months endedJune 30, 2021 . The increase in research and development expenses is primarily related to increased investment in research programs and advancement of the clinical pipeline. Selling, general and administrative expense. Selling, general and administrative expense was$79.9 million for the three months endedJune 30, 2022 , an increase of$11.0 million , or 16%, from$68.9 million for the three months endedJune 30, 2021 . The increase reflects our continued investment to support our commercial activities including our expanding commercial portfolio. Change in the fair value of deferred and contingent consideration. The change in the fair value of deferred and contingent consideration was a gain of$15.2 million for the three months endedJune 30, 2022 , a change of$15.9 million , or over 100%, from a loss of$0.7 million for the three months endedJune 30, 2021 . The change is related to the fair valuation of the potential future consideration to be paid to former equityholders ofAgilis as a result of our merger withAgilis which closed inAugust 2018 . Changes in the fair value were due to the re-calculation of discounted cash flows for the passage of time and changes to certain other estimated assumptions. Interest expense, net. Interest expense, net was$22.0 million for the three months endedJune 30, 2022 , a decrease of$0.6 million , or 3%, from$22.6 million for the three months endedJune 30, 2021 . The decrease in interest expense, net was primarily due to interest expense recorded from the liability for the sale of future royalties related to the Royalty Purchase Agreement. Other (expense) income, net. Other expense, net was$34.4 million for the three months endedJune 30, 2022 , a change of$37.5 million , or over 100%, from other income, net of$3.2 million for the three months endedJune 30, 2021 . The change in other (expense) income, net resulted primarily from 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 expense. Income tax expense was$3.4 million for the three months endedJune 30, 2022 , an increase of$2.9 million , or over 100%, compared to income tax expense of$0.5 million for the three months endedJune 30, 2021 . The increase in income tax expense is primarily attributable to the capitalization and amortization of Section 174 expenditures which took effect in 2022 pursuant to TCJA amendments to IRC Section 174. We incur income tax expense in various foreign jurisdictions, and our foreign tax liabilities are largely dependent upon the distribution of pre-tax earnings among these different jurisdictions. 51 Table of Contents
Six months ended
The following table summarizes revenues and selected expense and other income
data for the six months ended
Six Months Ended June 30, Change (in thousands) 2022 2021 2022 vs. 2021 Net product revenue$ 273,534 $ 194,393 $ 79,141 Collaboration revenue 7 20,007 (20,000) Royalty revenue 40,721 20,220 20,501
Cost of product sales, excluding amortization of acquired intangible assets 19,774 16,462 3,312 Amortization of acquired intangible assets 49,767 24,028 25,739 Research and development expense 297,341 259,995 37,346 Selling, general and administrative expense 153,162 129,973 23,189 Change in the fair value of deferred and contingent consideration
(26,900) 800 (27,700) Interest expense, net (45,490) (41,718) (3,772) Other expense, net (46,214) (7,716) (38,498) Income tax expense (8,227) (940) (7,287)
Net product revenues. Net product revenues were$273.5 million for the six months endedJune 30, 2022 , an increase of$79.1 million , or 41%, from$194.4 million for the six months endedJune 30, 2021 . The increase in net product revenue was primarily due to an increase in net product sales of Translarna and Emflaza. Translarna net product revenues were$156.2 million for the six months endedJune 30, 2022 , an increase of$57.1 million , or 58%, compared to$99.1 million for the six months endedJune 30, 2021 . These results reflect an increase in net product sales in existing markets as well as continued geographic expansion. Emflaza net product revenues were$105.4 million for the six months endedJune 30, 2022 , an increase of$12.7 million , or 14%, compared to$92.7 million for the six months endedJune 30, 2021 . These results reflect continued addition of new patients, broader access, continued high compliance, and appropriate weight-based dosing. Collaboration revenues. Collaboration revenues was$0.0 million for the six months endedJune 30, 2022 , a decrease of$20.0 million , or 100%, from$20.0 million for the six months endedJune 30, 2021 . The decrease is due to a$20.0 million milestone that was triggered from Roche in the six months endedJune 30, 2021 relating to the first commercial sale of Evrysdi in the EU, which was made inMarch 2021 . No milestones were triggered in the six months endedJune 30, 2022 . Royalty revenue. Royalty revenue was$40.7 million for the six months endedJune 30, 2022 , an increase of$20.5 million , or over 100%, from$20.2 million for the six months endedJune 30, 2021 . The increase in royalty revenue was due to higher Evrysdi sales in the six months endedJune 30, 2022 as compared to the six months endedJune 30, 2021 . In accordance with the SMA License Agreement, we are entitled to royalties on worldwide annual net sales of the product. Cost of product sales, excluding amortization of acquired intangible asset. Cost of product sales, excluding amortization of acquired intangible asset, were$19.8 million for the six months endedJune 30, 2022 , an increase of$3.3 million , or 20%, from$16.5 million for the six months endedJune 30, 2021 . Cost of product sales consist primarily of royalty payments associated with Emflaza and Translarna net product sales, excluding contingent payments to Marathon, costs associated with Emflaza and Translarna product sold during the period, and royalty expense related to royalty revenues and collaboration milestone revenues. The increase in cost of product sales, excluding amortization of acquired intangible asset, is primarily due to the increase in net product revenue, royalty revenue, and collaboration milestone revenue. Amortization of acquired intangible asset. Amortization of our intangible assets was$49.8 million for the six months endedJune 30, 2022 , an increase of$25.7 million , or over 100%, from$24.0 million for the six months endedJune 30, 2021 . These amounts are related to the acquisition of all rights to Emflaza acquired inMay 2017 , Marathon contingent payments, and our Waylivra and Tegsedi intangible assets. The increase is primarily related to additional Marathon contingent payments. The amount allocated to the Emflaza intangible asset is amortized on a straight-line basis 52
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over its estimated useful life of approximately seven years from the date of the completion of the acquisition of all rights to Emflaza, the period of estimated future cash flows. The Marathon contingent payments, including a$50.0 million contingent milestone payment made in the six months endedJune 30, 2022 , are amortized prospectively as incurred, straight-line, over the remaining useful life of the Emflaza intangible asset. The Waylivra and Tegsedi assets are amortized on a straight-line basis over their estimated useful life of approximately ten years, respectively. Research and development expense. Research and development expense was$297.3 million for the six months endedJune 30, 2022 , an increase of$37.3 million , or 14%, from$260.0 million for the six months endedJune 30, 2021 . The increase in research and development expenses is primarily related to increased investment in research programs and advancement of the clinical pipeline. Selling, general and administrative expense. Selling, general and administrative expense was$153.2 million for the six months endedJune 30, 2022 , an increase of$23.2 million , or 18%, from$130.0 million for the six months endedJune 30, 2021 . The increase reflects our continued investment to support our commercial activities including our expanding commercial portfolio Change in the fair value of deferred and contingent consideration. The change in the fair value of deferred and contingent consideration was a gain of$26.9 million for the six months endedJune 30, 2022 , a change of$27.7 million , or over 100%, from a loss of$0.8 million for the six months endedJune 30, 2021 . The change is related to the fair valuation of the potential future consideration to be paid to former equityholders ofAgilis as a result of our merger withAgilis which closed inAugust 2018 . Changes in the fair value were due to the re-calculation of discounted cash flows for the passage of time and changes to certain other estimated assumptions.
Interest expense, net. Interest expense, net was
Other expense, net. Other expense, net was
Income tax expense. Income tax expense was$8.2 million for the six months endedJune 30, 2022 , an increase of$7.3 million , or over 100%, compared to income tax expense of$0.9 million for the six months endedJune 30, 2021 . We incurred income tax expense in various foreign jurisdictions, and our foreign tax liabilities are largely dependent upon the distribution of pre-tax earnings among these different jurisdictions.
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 our products while also devoting a substantial portion of our efforts on research and development related to our products, product candidates and other programs. To date, our product revenue has been primarily attributable to sales of Translarna for the treatment of nmDMD in territories outside ofthe United States and from Emflaza for the treatment of DMD inthe United States . Our ongoing ability to generate revenue from sales of Translarna for the treatment of nmDMD is dependent upon our ability to maintain our marketing authorizations inBrazil ,Russia and in the EEA and secure market access through commercial programs following the conclusion of pricing and reimbursement terms at sustainable levels in the member states of the EEA or through EAP Programs in the EEA and other territories. The marketing authorization requires annual review and renewal by theEuropean Commission following reassessment by the EMA of the benefit-risk balance 53 Table of Contents of the authorization and is subject to the specific obligation to conduct Study 041. Our ability to generate product revenue from Emflaza will largely depend on the coverage and reimbursement levels set by governmental authorities, private health insurers and other third-party payors. We have historically financed our operations primarily through the issuance and sale of our common stock in public offerings, our "at the market offering" of our common stock, proceeds from the Royalty Purchase Agreement, the private placements of our preferred stock, collaborations, bank and institutional lender debt, convertible debt financings and grants and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed by our product candidates. We expect to continue to incur significant expenses and operating losses for at least the next fiscal year. The net losses we incur may fluctuate significantly from quarter to quarter. InAugust 2015 , we closed a private offering of$150.0 million in aggregate principal amount of 3.00% convertible senior notes due 2022 including the exercise by the initial purchasers of an option to purchase an additional$25.0 million in aggregate principal amount of the 2022 Convertible Notes. The 2022 Convertible Notes bear cash interest payable onFebruary 15 andAugust 15 of each year, beginning onFebruary 15, 2016 . The 2022 Convertible Notes are senior unsecured obligations of ours and will mature onAugust 15, 2022 , unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. We received net proceeds from the offering of approximately$145.4 million , after deducting the initial purchasers' discounts and commissions and the estimated offering expenses payable by us. InAugust 2019 , we entered into the Sales Agreement, pursuant to which, we may offer and sell shares of our common stock, having an aggregate offering price of up to$125.0 million from time to time through the Sales Agents by any method that is deemed to be an "at the market offering" as defined in Rule 415(a)(4) promulgated under the Securities Act. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations-Corporate Updates-Funding" for additional information. InSeptember 2019 , we closed a private offering of$287.5 million aggregate principal amount of 1.50% convertible senior notes due 2026 including the full exercise by the initial purchasers of an option to purchase an additional$37.5 million in aggregate principal amount of the 2026 Convertible Notes. The 2026 Convertible Notes bear cash interest at a rate of 1.50% per year, payable semi-annually onMarch 15 andSeptember 15 of each year, beginning onMarch 15, 2020 . The 2026 Convertible Notes will mature onSeptember 15, 2026 , unless earlier repurchased or converted. We received net proceeds of$279.3 million after deducting the initial purchasers' discounts and commissions and the offering expenses payable by us.
In
Cash flows
As of
The following table provides information regarding our cash flows and our capital expenditures for the periods indicated.
Six Months Ended June 30, (in thousands) 2022 2021 Cash (used in) provided by: Operating activities (152,646) (131,302) Investing activities 121,297 86,204 Financing activities 5,029 13,547
Net cash used in operating activities was
54
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Net cash provided by investing activities was$121.3 million for the six months endedJune 30, 2022 and$86.2 million for the six months endedJune 30, 2021 . Cash provided by investing activities for the six months endedJune 30, 2022 and 2021 were primarily related net sales and redemption of marketable securities, partially offset by purchases of marketable securities, purchases of fixed assets and the acquisition of product rights. Net cash provided by financing activities was$5.0 million for the six months endedJune 30, 2022 and$13.5 million for the six months endedJune 30, 2021 . Cash provided by financing activities for the six months endedJune 30, 2022 and 2021 were primarily attributable to cash received from the exercise of options and proceeds from our Employee Stock Purchase Plan partially offset by payments on our finance lease principal.
Funding requirements
We anticipate that our expenses will continue to increase in connection with our commercialization efforts inthe 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 to the foregoing, we expect to continue to incur significant costs in connection with the research and development of our splicing, gene therapy, Bio-e, metabolic and oncology programs and our studies of emvododstat for COVID-19 as well as studies in our products for maintaining authorizations, including Study 041, label extensions and additional indications. In addition, we may incur substantial costs in connection with our efforts to advance our regulatory submissions. We continue to seek marketing authorization for Translarna for the treatment of nmDMD in territories that we do not currently have marketing authorization in. We are preparing a BLA for Upstaza for the treatment of AADC deficiency inthe United States and we expect to submit a BLA to the FDA in the fourth quarter of 2022. We filed for marketing authorization for Waylivra with ANVISA for the treatment of FPL and we expect a regulatory decision on approval from ANVISA in the second half of 2022. These efforts may significantly impact the timing and extent of our commercialization expenses.
In addition, our expenses will increase if and as we:
? seek to satisfy contractual and regulatory obligations we assumed in connection
with the Agilis Merger;
? seek to satisfy contractual and regulatory obligations in conjunction with the
Tegsedi-Waylivra Agreement;
? satisfy contractual and regulatory obligations that we assumed through our
other acquisitions and collaborations;
? execute our commercialization strategy for our products and product candidates
that may receive marketing authorization;
are required to complete any additional clinical trials, non-clinical studies
? or Chemistry, Manufacturing and Controls, or CMC, assessments or analyses in
order to advance Translarna for the treatment of nmDMD in
elsewhere;
? utilize the Hopewell Facility to manufacture program materials for certain of
our gene therapy product candidates;
initiate or continue the research and development of our splicing, gene
? therapy, Bio-e, metabolic and oncology programs and our studies of emvododstat
for COVID-19 as well as studies in our products for maintaining authorizations,
including Study 041, label extensions and additional indications;
? seek to discover and develop additional product candidates;
? seek to expand and diversify our product pipeline through strategic
transactions;
? maintain, expand and protect our intellectual property portfolio; and
55 Table of Contents
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 offerings of the Convertible Notes, public offerings of common stock, our "at the market offering" of our common stock, proceeds from the Royalty Purchase Agreement and marketable securities, will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next twelve months. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
Our future capital requirements will depend on many factors, including:
? our ability to commercialize and market our products and product candidates
that may receive marketing authorization;
our ability to negotiate, secure and maintain adequate pricing, coverage and
? reimbursement terms, on a timely basis, with third-party payors for our
products and products candidates;
our ability to maintain the marketing authorization for our products, including
in the EEA for Translarna for the treatment of nmDMD and whether the EMA
? determines on an annual basis that the benefit-risk balance of Translarna
supports renewal of our marketing authorization in the EEA, on the current
approved label;
? the costs, timing and outcome of Study 041;
the costs, timing and outcome of our efforts to advance Translarna for the
treatment of nmDMD in
? 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
? unexpected decreases in revenue or increases in expenses resulting from the
COVID-19 pandemic;
? our ability to maintain orphan exclusivity in
? our ability to successfully complete all post-marketing requirements imposed by
regulatory agencies with respect to our products;
the progress and results of activities under our splicing, gene therapy, Bio-e,
? metabolic and oncology programs and our studies of emvododstat for COVID-19 as
well as studies in our products for maintaining authorizations, label extensions and additional indications;
the scope, costs and timing of our commercialization activities, including
product sales, marketing, legal, regulatory, distribution and manufacturing,
? for any of our products and for any of our other product candidates that may
receive marketing authorization or any additional territories in which we
receive authorization to market Translarna;
the costs, timing and outcome of regulatory review of our splicing, gene
? therapy, Bio-e, metabolic and oncology programs and our studies of emvododstat
for COVID-19 and Translarna in other territories;
? our ability to utilize the Hopewell Facility to manufacture program materials
for certain of our gene therapy product candidates;
? our ability to satisfy our obligations under the indentures governing the
Convertible Notes;
? the timing and scope of growth in our employee base;
56 Table of Contents
the scope, progress, results and costs of preclinical development, laboratory
? testing and clinical trials for our other product candidates, including those
in our splicing, gene therapy, Bio-e, metabolic and oncology programs;
? revenue received from commercial sales of our products or any of our product
candidates;
our ability to obtain additional and maintain existing reimbursed named patient
? and cohort EAP Programs for Translarna for the treatment of nmDMD on adequate
terms, or at all;
the ability and willingness of patients and healthcare professionals to access
? Translarna through alternative means if pricing and reimbursement negotiations
in the applicable territory do not have a positive outcome;
the costs of preparing, filing and prosecuting patent applications,
? maintaining, and protecting our intellectual property rights and defending
against intellectual property-related claims;
the extent to which we acquire or invest in other businesses, products, product
candidates, and technologies, including the success of any acquisition,
? in-licensing or other strategic transaction we may pursue, and the costs of
subsequent development requirements and commercialization efforts, including
with respect to our acquisitions of Emflaza,
Censa and our licensing of Tegsedi and Waylivra; and
our ability to establish and maintain collaborations, including our
? collaborations with Roche and the
research funding and achieve milestones under these agreements.
With respect to our outstanding 2022 Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears, which require total funding of$4.5 million annually. The 2022 Convertible Notes will mature onAugust 15, 2022 and we will be required to pay any outstanding principal amount of the 2022 Convertible Notes at that time, unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. As ofFebruary 15, 2022 , until the close of business on the business day immediately preceding the maturity date, holders may convert their 2022 Convertible Notes at any time. Upon conversion, we will pay and deliver a combination of cash and shares of common stock. With respect to our outstanding 2026 Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears, which will require total funding of$4.3 million annually. We are obligated to pay the former equityholders ofAgilis $50.0 million as a result of theEuropean Commission's marketing approval of Upstaza for the treatment of AADC deficiency inJuly 2022 and we expect to pay such former equityholders an additional$20.0 million upon the acceptance for filing by the FDA of a BLA for Upstaza for the treatment of AADC deficiency, which we expect to occur in the fourth quarter of 2022. We also expect to pay the former securityholders of Censa a$30.0 million development milestone for the completion of enrollment of a Phase 3 clinical trial for PTC923 for PKU in 2022. If achieved, we have the option to pay such milestone payment in cash or shares of our common stock. We also have certain significant contractual obligations and commercial commitments that require funding and we have disclosed these items under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Funding requirements" in our 2021 Annual Report on Form 10-K. In addition to those obligations previously disclosed, we entered into theWarren Lease relating to the lease of two entire buildings comprised of approximately 360,000 square feet of shell condition, modifiable space at a facility located inWarren, New Jersey . The rental term of the Warren Lease commenced onJune 1, 2022 , with an initial term of seventeen years followed by three consecutive five-year renewal periods at our option. The aggregate base rent for the Initial Term will be approximately$163.0 million ; provided, however, that if we are not subject to an Event of Default (as defined in the Warren Lease), we will be entitled to a base rent abatement over the first three years of the Initial Term of approximately$18.6 million , reducing our total base rent obligation to$144.4 million . The rental rate for the renewal periods will be at the Fair Market Rental Value (as defined in the Warren Lease) and determined at the time of the exercise of the renewal. Beginning in the second lease year, we are also responsible for the payment of all taxes and operating expenses for the Premises. There were no other material changes to the contractual obligations and commercial commitments set forth in our 2021 Annual Report on Form 10-K during the period endedJune 30, 2022 . Furthermore, since we are a public company, we have incurred and expect to 57
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continue to incur additional costs associated with operating as such including significant legal, accounting, investor relations and other expenses.
We will need to generate significant revenues to achieve and sustain profitability, and we may never do so. We may need to obtain substantial additional funding in connection with our continuing operations. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs primarily through a combination of equity offerings, debt financings, collaborations, strategic alliances, grants and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed by our product and product candidates and marketing, distribution or licensing arrangements. Adequate additional financing may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our shareholders ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity, debt or other 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.
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