Sarepta Therapeutics(US:SRPT)2024-11-06 21:01PART I — FINANCIAL INFORMATION Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flows, with detailed notes on accounting policies and financial matters Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | As of Sep 30, 2024 | As of Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $3,599,934 | $3,264,576 | | Cash and cash equivalents | $197,855 | $428,430 | | Total current assets | $2,685,369 | $2,579,331 | | Total Liabilities | $2,378,863 | $2,405,239 | | Total current liabilities | $699,489 | $653,659 | | Long-term debt | $1,135,965 | $1,132,515 | | Total Stockholders' Equity | $1,221,071 | $859,337 | Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands, except per share amounts) | Metric | Q3 2024 | Q3 2023 | 9 Months 2024 | 9 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $467,172 | $331,817 | $1,243,567 | $846,555 | | Products, net | $429,771 | $309,322 | $1,149,803 | $779,805 | | Operating Income (Loss) | $22,196 | $(20,842) | $56,400 | $(292,449) | | Net Income (Loss) | $33,611 | $(40,937) | $76,190 | $(581,632) | | Diluted EPS | $0.34 | $(0.46) | $0.78 | $(6.56) | Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(297,833) | $(446,336) | | Net cash used in investing activities | $(8,557) | $(101,445) | | Net cash provided by financing activities | $75,815 | $123,061 | | Decrease in cash, cash equivalents and restricted cash | $(230,575) | $(424,720) | Note 1. Organization and Nature of Business Sarepta is a commercial-stage biopharmaceutical company focused on RNA-targeted therapeutics and gene therapy for rare diseases, with four FDA-approved products for Duchenne muscular dystrophy - The company focuses on discovering and developing RNA-targeted therapeutics, gene therapy, and other genetic modalities for rare diseases, with multiple approved products for Duchenne muscular dystrophy13 - As of September 30, 2024, the company had approximately $1.396 billion in cash, cash equivalents, restricted cash, and investments, which it believes is sufficient to fund its operational plan for at least the next twelve months14 Note 3. License and Collaboration Agreements This note details collaboration agreements, primarily with Roche, including revenue recognition from option declines and potential future milestone payments up to $2.7 billion - On February 12, 2024, Roche declined to exercise an option for an early-stage program, leading to the immediate recognition of $48.0 million in collaboration revenue for Sarepta20 Roche Collaboration Activity (Q3 & 9-Months 2024, in thousands) | Activity | For the Three Months Ended Sep 30, 2024 | For the Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | Contract manufacturing revenue | $27,891 | $33,698 | | Royalty revenue | $9,510 | $12,066 | | Cost of sales (related to Roche) | $13,725 | $15,379 | - As of September 30, 2024, the company has potential future obligations of up to $2.7 billion in development, regulatory, commercial, and up-front royalty payments associated with its collaboration and license agreements26 Note 6. Product Revenues, Net Net product revenues are detailed by product line and geography, showing a significant increase to $1.15 billion for the nine months ended September 30, 2024, driven by ELEVIDYS sales Net Product Revenues Breakdown (in thousands) | Product Line | Q3 2024 | Q3 2023 | 9 Months 2024 | 9 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | PMO Products | $248,788 | $240,214 | $713,163 | $710,697 | | United States | $210,683 | $198,069 | $604,598 | $602,415 | | Rest of World | $38,105 | $42,145 | $108,565 | $108,282 | | ELEVIDYS | $180,983 | $69,108 | $436,640 | $69,108 | | United States | $180,983 | $69,108 | $436,640 | $69,108 | | Total Product Revenues, Net | $429,771 | $309,322 | $1,149,803 | $779,805 | Note 10. Indebtedness This note details the company's convertible senior notes, with total debt carrying value of approximately $1.23 billion as of September 30, 2024, and the reclassification of capped calls to derivative assets - In September 2024, the company modified its 2017 Capped Calls to require cash settlement, leading to a reclassification of the instruments from equity to derivative assets. The fair value on the reclassification date was $43.9 million50 Debt Instrument Summary (as of Sep 30, 2024, in thousands) | Instrument | Principal Amount | Carrying Value | Fair Value | | :--- | :--- | :--- | :--- | | 2024 Notes | $91,640 | $91,595 | $171,154 | | 2027 Notes | $1,150,000 | $1,135,965 | $1,307,930 | | Total | $1,241,640 | $1,227,560 | $1,479,084 | Note 16. Commitments and Contingencies The company has $1.186 billion in non-cancelable manufacturing obligations, incurred a $55.4 million R&D expense from a terminated agreement, and is involved in multiple patent infringement lawsuits - The company has aggregate non-cancelable contractual manufacturing obligations of $1.186 billion as of September 30, 20247072 - On July 18, 2024, the company terminated its manufacturing agreement with Thermo Fisher, resulting in a net charge of $55.4 million to R&D expense in Q3 202471 - Sarepta is engaged in multiple patent infringement lawsuits, including cases with Regenx regarding AAV gene therapy technology, Nippon Shinyaku concerning exon 53 skipping products, and Genzyme related to ELEVIDYS manufacturing747680 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, highlighting a 47% revenue increase to $1.24 billion and a shift from net loss to $76.2 million net income, driven by ELEVIDYS sales Overview Sarepta is a commercial-stage biopharmaceutical company with four FDA-approved Duchenne products, a pipeline of over 40 programs, and a hybrid manufacturing strategy, with $1.4 billion in cash - The company commercializes four FDA-approved products for Duchenne: the PMO-based EXONDYS 51, VYONDYS 53, and AMONDYS 45, and the AAV-based gene therapy ELEVIDYS85 - The company's pipeline includes over 40 programs, with notable candidates such as SRP-9003 for Limb-girdle muscular dystrophies (LGMDs), which entered a Phase 3 study in January 2024878990 - Sarepta has adopted a hybrid manufacturing strategy, building internal expertise while partnering with CMOs like Catalent for ELEVIDYS and LGMD programs and Aldevron for GMP-grade plasmid supply93 Results of Operations Total revenues increased 47% to $1.24 billion for the nine months ended September 30, 2024, resulting in $56.4 million operating income, driven by ELEVIDYS sales and despite a $91.9 million R&D charge Revenue Breakdown by Product (in thousands) | Product | 9 Months 2024 | 9 Months 2023 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | PMO Products | $713,163 | $710,697 | $2,466 | —% | | ELEVIDYS | $436,640 | $69,108 | $367,532 | NM* | | Total Products, net | $1,149,803 | $779,805 | $369,998 | 47% | - Cost of sales for the nine months ended Sep 30, 2024, increased by $80.6 million (76%) year-over-year, primarily due to higher sales volume of ELEVIDYS and write-offs of certain product batches112 - R&D expenses for the nine months ended Sep 30, 2024, decreased by $77.3 million (11%) year-over-year. This was driven by the capitalization of commercial ELEVIDYS batches post-approval and decreased spending on the PPMO platform, which more than offset a $91.9 million charge related to the termination of the Thermo manufacturing agreement115122 Liquidity and Capital Resources As of September 30, 2024, the company had $1.396 billion in cash and investments, deemed sufficient for the next twelve months, with potential future milestone payments up to $2.7 billion - The company believes its existing cash, cash equivalents, and investments of $1.396 billion as of September 30, 2024, are sufficient to fund its current operational plan for at least the next twelve months133 - The company may be obligated to make up to $2.7 billion in future development, regulatory, and commercial milestone payments associated with its license and collaboration agreements, which are not yet recorded on the balance sheet as they are contingent137 Cash Flow Summary (Nine Months Ended, in thousands) | Activity | Sep 30, 2024 | Sep 30, 2023 | Change | | :--- | :--- | :--- | :--- | | Operating Activities | $(297,833) | $(446,336) | $148,503 | | Investing Activities | $(8,557) | $(101,445) | $92,888 | | Financing Activities | $75,815 | $123,061 | $(47,246) | Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate fluctuations on its investment portfolio, with a hypothetical 10 basis point adverse movement causing an estimated $0.6 million loss in fair value - The company's investment portfolio is subject to interest rate risk. A hypothetical 10 basis point adverse movement in interest rates is estimated to cause a $0.6 million loss in the fair value of its interest rate-sensitive instruments as of September 30, 2024150151 - The company's convertible notes (2024 Notes and 2027 Notes) carry fixed interest rates and are therefore not subject to market risk from interest rate fluctuations152 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes in internal controls over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2024153 - There were no changes in internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, internal control154 PART II — OTHER INFORMATION Legal Proceedings The company is involved in several material patent infringement lawsuits, including cases with REGENXBIO, Nippon Shinyaku, and Genzyme, without material accruals for these contingencies - The company is in a patent dispute with REGENXBIO regarding technology allegedly used to make ELEVIDYS. A district court granted Sarepta summary judgment in one case, which is now on appeal, while a second case has been stayed pending an Inter Partes Review (IPR) of the patent in question7475 - Sarepta is in a legal battle with Nippon Shinyaku (NS) involving claims of breach of contract and patent infringement related to their respective exon 53 skipping products, VYONDYS 53 and Viltepso. A trial is scheduled for December 20247678 - On July 26, 2024, Genzyme Corporation filed a new lawsuit against Sarepta, alleging that the manufacture and sale of ELEVIDYS infringes on two of its patents80 Risk Factors This section details numerous risks, including high dependence on approved products, regulatory challenges, reimbursement uncertainty, intense competition, potential product cannibalization, and intellectual property litigation Risks Related to Business and Commercialization The company's success depends on its four Duchenne products, facing risks from sales expectations, regulatory requirements, reimbursement policies, intense competition, and potential product cannibalization - The company is highly dependent on the commercial success of its products (EXONDYS 51, VYONDYS 53, AMONDYS 45, and ELEVIDYS), and continued approval for these products may be contingent upon verification of clinical benefit in confirmatory trials158160 - Sarepta faces intense competition from numerous companies developing rival Duchenne therapies, including exon-skipping candidates, gene therapies, and gene editing approaches, which could render its technologies obsolete or noncompetitive195 - Future sales of ELEVIDYS may decrease sales of the company's PMO Products due to an overlapping patient population, which could negatively impact operating results and potentially lead to inventory write-offs199 Risks Related to Product Development Product development risks include patient enrollment difficulties, high clinical trial failure rates, regulatory uncertainty for novel gene therapies, and potential delays from undesirable side effects - Identifying and enrolling a sufficient number of patients in clinical trials for rare diseases like Duchenne and LGMDs is difficult and can lead to significant delays, increased costs, or termination of trials205206 - The company is investing heavily in novel gene therapy candidates, a field with few approved products. The regulatory pathway is uncertain, and development could be delayed or halted by manufacturing issues, safety concerns, or failure to show efficacy226227 - There is a risk that regulatory authorities like the FDA or EMA may not consider the endpoints of the company's clinical trials to be clinically meaningful, or may interpret data differently, which could delay or prevent regulatory approval231 Risks Related to Third Parties and Manufacturing Sarepta relies on limited third-party manufacturers, posing risks of supply disruption, quality control issues, and cGMP non-compliance, particularly for complex gene therapy manufacturing, which could impair supply and delay development - The company relies on a limited number of third-party manufacturers for its products. Any interruption, quality issue, or failure to secure sufficient capacity could impair commercial supply and hinder development programs251252 - Gene therapy products are complex and difficult to manufacture. The company could experience production problems, lot failures, or recalls, which would delay trials, limit supply, and harm the business259260 - Contract manufacturers may fail to comply with cGMP regulations, which could lead to product recalls, clinical holds, delayed approvals, and other significant negative consequences266269 Risks Related to Intellectual Property The company's success depends on defending its patent protection, facing risks of patent challenges, invalidation, and third-party infringement claims, which could lead to costly litigation and prevent product sales - The company's success depends on its ability to obtain and defend patent protection, but the patent process is uncertain and patents may be challenged, invalidated, or circumvented by competitors274279 - The company is exposed to significant litigation risk over intellectual property, which is costly and unpredictable. An adverse outcome could prevent the company from selling its products or require it to pay significant damages283284 - Third parties may successfully assert that Sarepta's products or technologies infringe on their patents, which could force the company to stop development, cease commercialization, or pay substantial damages and royalties285288 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - None reported for the period353 Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None reported for the period353 Mine Safety Disclosures No mine safety disclosures are applicable - None reported354 Other Information Executive Louise Rodino-Klapac adopted a Rule 10b5-1 trading plan for company securities during Q3 2024 - Executive Louise Rodino-Klapac entered into a Rule 10b5-1 trading plan on August 9, 2024, covering 28,875 stock options and 24,988 shares of common stock355 Exhibits This section indexes exhibits filed with the quarterly report, including corporate governance documents, capped call supplements, and officer certifications - The report includes exhibits such as supplements to capped call option transaction confirmations and certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act356