Sarepta Therapeutics(SRPT) - 2022 Q4 - Annual Report

PART I Business Sarepta Therapeutics is a commercial-stage biopharmaceutical company focused on RNA-targeted and gene therapies for rare diseases, primarily Duchenne muscular dystrophy Overview and Commercial Products This section details Sarepta's focus on RNA-targeted and gene therapies for rare diseases, particularly Duchenne, and its commercial products - Sarepta is a commercial-stage biopharmaceutical company focused on RNA-targeted therapeutics and gene therapy for rare diseases, with a primary focus on Duchenne muscular dystrophy (Duchenne)[14] - The company has three commercial products for Duchenne, all utilizing its proprietary phosphorodiamidate morpholino oligomer (PMO) chemistry and exon-skipping technology: EXONDYS 51 (for exon 51 skipping), VYONDYS 53 (for exon 53 skipping), and AMONDYS 45 (for exon 45 skipping)[19] Net Product Revenue (2020-2022) | Year | Net Revenue (in millions) | | :--- | :--- | | 2022 | $843.8 | | 2021 | $612.4 | | 2020 | $455.9 | - The company's technology platforms include PMO, next-generation PPMO (cell-penetrating peptide-conjugated PMO) designed for enhanced delivery, and AAV-based gene therapy (using the AAVrh.74 vector)[15][16][17] Pipeline – Key Programs This section highlights Sarepta's key pipeline programs, including late-stage candidates for Duchenne and Limb-girdle muscular dystrophy - SRP-5051 (Duchenne PPMO): A next-generation PPMO chemistry for exon 51 skipping, designed for enhanced cell delivery and potentially less frequent dosing; Part B of Study 5051-201 is anticipated to be a potentially pivotal trial[31][32] - SRP-9001 (Duchenne Gene Therapy): Aims to express a functional micro-dystrophin using the AAVrh.74 vector; a Biologics License Application (BLA) was submitted in September 2022 and accepted for Priority Review by the FDA, with a regulatory action date of May 29, 2023[33][36] - SRP-9003 (LGMD Gene Therapy): The most advanced Limb-girdle muscular dystrophy candidate, designed to restore beta-sarcoglycan protein; the company plans to meet with the FDA in 2023 to discuss a potentially pivotal trial[37][38] - The company's overall pipeline includes more than 40 programs at various stages of discovery, pre-clinical, and clinical development[19] Manufacturing and Material Agreements This section describes Sarepta's hybrid manufacturing strategy and key material agreements, including collaborations with Roche, BioMarin, and UWA - Sarepta utilizes a hybrid manufacturing strategy, relying on third-party Contract Manufacturing Organizations (CMOs) for large-scale GMP production while developing internal expertise at its Andover, MA facility[41][44] - Roche Collaboration: Sarepta granted Roche an exclusive license to commercialize SRP-9001 outside the U.S., receiving an upfront payment of approximately $1.2 billion and eligible for up to $1.7 billion in milestones, plus royalties, with shared global development costs[47][55] - BioMarin Agreement: Sarepta has a co-exclusive worldwide license from BioMarin for patent rights related to its Duchenne program, including its three commercial products, with obligations to pay regulatory milestones and royalties of 4% in the U.S. and 5% ex-U.S. on net sales[62][63][64] - University of Western Australia (UWA) Agreement: Sarepta has an exclusive license from UWA for compounds treating Duchenne via exon skipping, covering its three commercial products, including milestone payments and low-single-digit percentage royalties on net sales[70] Patents and Government Regulation This section details Sarepta's intellectual property strategy, including patent protection and regulatory exclusivity, and its exposure to extensive government regulation - The company relies on a combination of patent protection, regulatory exclusivity, and trade secrets; key patents for its commercial products extend into the 2030s, though some foundational patents expire sooner[72][77][89] - EXONDYS 51 has Orphan Drug Exclusivity until September 2023; VYONDYS 53 has NCE exclusivity until December 2024 and Orphan Drug Exclusivity until December 2026; AMONDYS 45 has NCE exclusivity until February 2026 and Orphan Drug Exclusivity until February 2028[80][84][86] - The company utilizes FDA's expedited programs, including accelerated approval for its commercial products; the recently enacted FDORA gives the FDA expanded authority for expedited withdrawal of accelerated approvals if post-approval studies are not conducted with due diligence[102] - The business is subject to extensive regulation regarding pharmaceutical pricing and reimbursement, including Medicaid rebates, Medicare Part B ASP-based payments, and the PHS 340B drug pricing program; the Inflation Reduction Act (IRA) of 2022 introduces new drug pricing reforms that could impact the business[142][143][147] Competition and Human Capital This section outlines the intense competitive landscape in Duchenne muscular dystrophy and provides an overview of the company's human capital - Sarepta faces intense competition in the Duchenne space from companies developing exon-skipping therapies (Nippon Shinyaku, Wave Life Sciences), gene therapies (Pfizer), and gene editing technologies (Vertex, CRISPR Therapeutics)[156][157][214] - As of December 31, 2022, the company had 1,162 employees, with 779 in research and development; women comprise 57% of the workforce and 52% of leadership roles (Director and above)[163][164] Risk Factors The company faces significant commercial, regulatory, pipeline, manufacturing, and financial risks, including dependence on approved products and potential operating losses - Commercial and Regulatory Risks: The company is highly dependent on its three products (EXONDYS 51, VYONDYS 53, AMONDYS 45), which received accelerated approval; continued approval is contingent upon verifying clinical benefit in confirmatory trials, and failure to do so could lead to withdrawal of approval, a risk heightened by the FDA's expanded powers under FDORA[175][179] - Pipeline and Development Risks: Clinical development is lengthy and uncertain, particularly for novel gene therapies like SRP-9001; risks include difficulty enrolling patients in trials for rare diseases, potential for undesirable side effects, and the possibility that early-stage trial results may not be indicative of late-stage success[227][234][238] - Manufacturing and Third-Party Reliance: Sarepta relies on a limited number of third-party manufacturers for its products and candidates; any failure by these partners to comply with cGMP, or any production problems, could delay development, limit supply, and harm the business, particularly for complex gene therapy manufacturing[271][279][285] - Financial Risks: The company has a history of operating losses ($536.2 million in 2022) and an accumulated deficit of $3.9 billion; achieving profitability is not guaranteed and may require significant future funding, with stock price highly volatile based on clinical trial and regulatory news[324][326][332] Properties Sarepta's principal facilities include corporate headquarters in Cambridge, MA, an owned lab in Andover, and leased spaces in MA, OH, and NC Key Company Facilities | Location | Type | Size (sq. ft.) | Status | | :--- | :--- | :--- | :--- | | Cambridge, MA | Laboratory and office | 149,589 | Leased (Corporate HQ) | | Andover, MA | Laboratory and office | 65,589 | Owned | | Columbus, OH | Laboratory and office | 131,926 | Leased | Legal Proceedings The company is involved in significant patent litigation with REGENXBIO over gene therapy technology and Nippon Shinyaku regarding exon 53 skipping products - REGENXBIO Lawsuit: REGENXBIO alleges that Sarepta's manufacture and use of its AAV gene therapy products, including SRP-9001, infringe on a REGENXBIO patent for cultured host cell technology; a trial is scheduled for January 2024[684] - Nippon Shinyaku Lawsuit: Sarepta and Nippon Shinyaku are in a legal dispute with mutual claims of patent infringement concerning their respective exon 53 skipping products; a trial is scheduled for May 2024[685][687] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Sarepta's common stock trades on Nasdaq under SRPT; the company retains earnings for operations and does not anticipate paying cash dividends - The company's common stock trades on the Nasdaq Global Select Market under the ticker symbol SRPT[372] - Sarepta has never declared or paid cash dividends and does not plan to in the foreseeable future, retaining any future earnings to finance operations[374] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, Sarepta's revenues grew 33% to $933.0 million, but operating loss widened to $536.2 million due to increased R&D and SG&A, with $2.0 billion cash on hand Results of Operations This section details Sarepta's 2022 financial performance, including revenue growth, increased operating loss due to higher R&D and SG&A expenses, and net loss Consolidated Statements of Operations Data (2022 vs 2021) | Metric | 2022 (in millions) | 2021 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $933.0 | $701.9 | 33% | | Products, net | $843.8 | $612.4 | 38% | | Collaboration and other | $89.2 | $89.5 | (0)% | | Total Cost and Expenses | $1,469.2 | $1,161.6 | 26% | | Cost of sales | $140.0 | $97.0 | 44% | | Research and development | $877.1 | $771.2 | 14% | | Selling, general and administrative | $451.4 | $282.7 | 60% | | Operating Loss | ($536.2) | ($459.7) | 17% | | Net Loss | ($703.5) | ($418.8) | 68% | | Net Loss Per Share | ($8.03) | ($5.15) | 56% | Net Product Revenues by Product (2022 vs 2021) | Product | 2022 (in millions) | 2021 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | EXONDYS 51 | $511.7 | $454.4 | 13% | | AMONDYS 45 | $214.6 | $68.5 | 213% | | VYONDYS 53 | $117.4 | $89.5 | 31% | | Total | $843.8 | $612.4 | 38% | - The 14% increase in R&D expenses was primarily driven by higher manufacturing costs for the SRP-9001 gene therapy program, increased compensation from higher headcount, and rising clinical trial expenses for the EMBARK pivotal study[401][402] - The 60% increase in SG&A expenses was primarily due to a $108.3 million increase in stock-based compensation, largely from a modification to the CEO's 2017 grant[404][406] - The company recorded a $125.4 million loss on debt extinguishment in 2022 related to the repurchase of a portion of its 2024 convertible notes and the full repayment of its 2019 term loan[408][409] Liquidity and Capital Resources This section discusses Sarepta's financial position, including cash, investments, borrowings, working capital, and its ability to fund operations Financial Condition Summary (as of Dec 31) | Metric | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Cash, cash equivalents and investments | $2,008.4 | $2,125.8 | | Total borrowings | $1,544.3 | $1,096.9 | | Working capital | $1,938.3 | $2,151.4 | - In September 2022, the company issued $1.15 billion of 1.25% convertible senior notes due 2027, receiving net proceeds of $1.127 billion[415] - Proceeds from the 2027 notes were used to repay the $550.0 million 2019 Term Loan, repurchase $150.6 million of the 2024 convertible notes, and pay for new capped call transactions[417] - Cash used in operating activities decreased to $325.3 million in 2022 from $443.2 million in 2021, despite a larger net loss, primarily due to non-cash charges like the loss on debt extinguishment and higher stock-based compensation[424][425] - The company believes its current cash, cash equivalents, and investments are sufficient to fund its operational plan for at least the next twelve months[418] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its investment portfolio, while its fixed-rate convertible notes are not subject to market rate changes - The company's investment portfolio is subject to interest rate risk; a hypothetical 10 basis point adverse change in interest rates would result in an estimated loss in fair value of approximately $0.4 million as of December 31, 2022[433] - The company's convertible senior notes (2024 Notes and 2027 Notes) have fixed interest rates and are therefore not subject to fluctuations in market interest rates[434] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2022, including balance sheets, income statements, cash flows, and the independent auditor's report Key Consolidated Balance Sheet Data (as of Dec 31, 2022) | Metric | Amount (in thousands) | | :--- | :--- | | Assets | | | Cash, cash equivalents & short-term investments | $1,989,374 | | Total Assets | $3,128,366 | | Liabilities & Equity | | | Total Liabilities | $2,743,416 | | Total Stockholders' Equity | $384,950 | | Total Liabilities & Stockholders' Equity | $3,128,366 | - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting; a critical audit matter identified was the evaluation of the lower of cost or net realizable value of raw materials inventory, due to subjective judgment required to estimate future demand[485][495] Controls and Procedures Management and KPMG LLP concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[437] - Management assessed the effectiveness of internal control over financial reporting and concluded that it was effective as of December 31, 2022; this assessment was audited by KPMG LLP, which concurred[441] PART III Directors, Executive Compensation, and Corporate Governance Information on directors, executive compensation, corporate governance, and related matters is incorporated by reference from the company's 2023 proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[447][448][449] PART IV Exhibits, Financial Statement Schedules This section lists the consolidated financial statements, schedules, and a comprehensive set of exhibits filed as part of the Form 10-K - This section includes the consolidated financial statements of the company and the report of the independent registered public accounting firm[454] - A detailed list of exhibits is provided, including the company's certificate of incorporation, bylaws, indentures for its convertible notes, material contracts such as the collaboration agreement with Roche, and various equity incentive plans[457]