10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-14895

 

SAREPTA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

93-0797222

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

215 First Street, Suite 415

Cambridge, MA

 

02142

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617) 274-4000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of exchange on which registered

Common Stock, $0.0001 par value per share

SRPT

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller Reporting Company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common Stock with $0.0001 par value

 

87,500,961

(Class)

 

(Outstanding as of April 29, 2022)

 

 


SAREPTA THERAPEUTICS, INC.

FORM 10-Q

INDEX

 

 

 

 

 

Page

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets — As of March 31, 2022 and December 31, 2021

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss — For the Three Months Ended March 31, 2022 and 2021

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity For the Three Months Ended March 31, 2022 and 2021

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2022 and 2021

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

30

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

30

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

31

 

 

 

 

 

Item 1A.

 

Risk Factors

 

31

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

68

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

68

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

69

 

 

 

 

 

Item 5.

 

Other Information

 

69

 

 

 

 

 

Item 6.

 

Exhibits

 

69

 

 

 

 

 

Exhibits

 

70

 

 

 

 

 

Signatures

 

71

 

 

2


PART I — FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

SAREPTA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share and per share amounts)

 

 

 

As of
March 31, 2022

 

 

As of
December 31, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,233,877

 

 

$

2,115,869

 

Short-term investments

 

 

779,548

 

 

 

 

Accounts receivable

 

 

178,194

 

 

 

152,990

 

Inventory

 

 

198,997

 

 

 

186,212

 

Other current assets

 

 

140,331

 

 

 

149,028

 

Total current assets

 

 

2,530,947

 

 

 

2,604,099

 

Property and equipment, net

 

 

187,248

 

 

 

191,156

 

Intangible assets, net

 

 

13,328

 

 

 

14,239

 

Right of use assets

 

 

45,982

 

 

 

45,531

 

Other non-current assets

 

 

278,649

 

 

 

292,949

 

Total assets

 

$

3,056,154

 

 

$

3,147,974

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

54,007

 

 

$

76,741

 

Accrued expenses

 

 

293,908

 

 

 

271,697

 

Deferred revenue, current portion

 

 

89,244

 

 

 

89,244

 

Other current liabilities

 

 

17,803

 

 

 

15,051

 

Total current liabilities

 

 

454,962

 

 

 

452,733

 

Long-term debt

 

 

1,098,847

 

 

 

1,096,876

 

Lease liabilities, net of current portion

 

 

38,620

 

 

 

41,512

 

Deferred revenue, net of current portion

 

 

552,239

 

 

 

574,244

 

Contingent consideration

 

 

43,600

 

 

 

43,600

 

Other non-current liabilities

 

 

11,000

 

 

 

11,000

 

Total liabilities

 

 

2,199,268

 

 

 

2,219,965

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 3,333,333 shares authorized; none issued and
   outstanding

 

 

 

 

 

 

Common stock, $0.0001 par value, 198,000,000 shares authorized; 87,495,607
   and
87,126,974 issued and outstanding at March 31, 2022, and
   December 31, 2021, respectively

 

 

9

 

 

 

9

 

Additional paid-in capital

 

 

4,168,956

 

 

 

4,134,768

 

Accumulated other comprehensive loss, net of tax

 

 

(306

)

 

 

(20

)

Accumulated deficit

 

 

(3,311,773

)

 

 

(3,206,748

)

Total stockholders’ equity

 

 

856,886

 

 

 

928,009

 

Total liabilities and stockholders’ equity

 

$

3,056,154

 

 

$

3,147,974

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


SAREPTA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited, in thousands, except per share amounts)

 

 

 

For the Three Months Ended
 March 31,

 

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

Products, net

 

$

188,825

 

 

$

124,926

 

Collaboration

 

 

22,005

 

 

 

22,005

 

Total revenues

 

 

210,830

 

 

 

146,931

 

 

 

 

 

 

 

 

Cost and expenses:

 

 

 

 

 

 

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

 

 

31,443

 

 

 

22,346

 

Research and development

 

 

194,250

 

 

 

195,149

 

Selling, general and administrative

 

 

71,840

 

 

 

71,131

 

Settlement and license charges

 

 

 

 

 

10,000

 

Amortization of in-licensed rights

 

 

178

 

 

 

170

 

Total cost and expenses

 

 

297,711

 

 

 

298,796

 

Operating loss

 

 

(86,881

)

 

 

(151,865

)

 

 

 

 

 

 

 

Other loss, net:

 

 

 

 

 

 

Other expense, net

 

 

(17,265

)

 

 

(15,528

)

Total other loss, net

 

 

(17,265

)

 

 

(15,528

)

 

 

 

 

 

 

 

Loss before income tax expense (benefit)

 

 

(104,146

)

 

 

(167,393

)

Income tax expense (benefit)

 

 

879

 

 

 

(143

)

Net loss

 

 

(105,025

)

 

 

(167,250

)

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

Unrealized losses on investments, net of tax

 

 

(286

)

 

 

(6

)

Total other comprehensive loss

 

 

(286

)

 

 

(6

)

Comprehensive loss

 

$

(105,311

)

 

$

(167,256

)

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(1.20

)

 

$

(2.10

)

 

 

 

 

 

 

 

Weighted average number of shares of common stock used in
   computing basic and diluted net loss per share

 

 

87,253

 

 

 

79,454

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


SAREPTA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

87,127

 

 

$

9

 

 

$

4,134,768

 

 

$

(20

)

 

$

(3,206,748

)

 

$

928,009

 

Exercise of options for common stock

 

18

 

 

 

 

 

 

997

 

 

 

 

 

 

 

 

 

997

 

Vest of restricted stock units/awards

 

289

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under employee
   stock purchase plan

 

62

 

 

 

 

 

 

3,993

 

 

 

 

 

 

 

 

 

3,993

 

Stock-based compensation

 

 

 

 

 

 

 

29,198

 

 

 

 

 

 

 

 

 

29,198

 

Unrealized losses from available-for-sale
   securities, net of tax

 

 

 

 

 

 

 

 

 

 

(286

)

 

 

 

 

 

(286

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(105,025

)

 

 

(105,025

)

Balance at March 31, 2022

 

87,496

 

 

$

9

 

 

$

4,168,956

 

 

$

(306

)

 

$

(3,311,773

)

 

$

856,886

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2020

 

79,374

 

 

$

8

 

 

$

3,609,877

 

 

$

3

 

 

$

(2,848,129

)

 

$

761,759

 

Cumulative effect of accounting change to
    adopt ASU 2020-06

 

 

 

 

 

 

 

(156,953

)

 

 

 

 

 

60,161

 

 

 

(96,792

)

Exercise of options for common stock

 

108

 

 

 

 

 

 

4,683

 

 

 

 

 

 

 

 

 

4,683

 

Vest of restricted stock units/awards

 

204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under employee
   stock purchase plan

 

62

 

 

 

 

 

 

4,543

 

 

 

 

 

 

 

 

 

4,543

 

Stock-based compensation

 

 

 

 

 

 

 

28,508

 

 

 

 

 

 

 

 

 

28,508

 

Unrealized losses from available-for-sale
   securities, net of tax

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

 

 

 

(6

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(167,250

)

 

 

(167,250

)

Balance at March 31, 2021

 

79,748

 

 

$

8

 

 

$

3,490,658

 

 

$

(3

)

 

$

(2,955,218

)

 

$

535,445

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

5


SAREPTA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

 

For the Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(105,025

)

 

$

(167,250

)

Adjustments to reconcile net loss to cash flows from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

10,719

 

 

 

8,930

 

Reduction in the carrying amounts of the right of use assets

 

 

3,655

 

 

 

2,220

 

Non-cash interest expense

 

 

1,957

 

 

 

1,816

 

Stock-based compensation

 

 

29,198

 

 

 

28,508

 

Other

 

 

1,838

 

 

 

2,692

 

Changes in operating assets and liabilities, net:

 

 

 

 

 

 

Net increase in accounts receivable

 

 

(25,204

)

 

 

(16,863

)

Net increase in inventory

 

 

(4,687

)

 

 

(8,372

)

Net decrease in other assets

 

 

13,401

 

 

 

34,915

 

Net decrease in deferred revenue

 

 

(22,005

)

 

 

(22,005

)

Net decrease in accounts payable, accrued expenses, lease liabilities and other liabilities

 

 

(5,022

)

 

 

(44,962

)

Net cash used in operating activities

 

 

(101,175

)

 

 

(180,371

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(5,551

)

 

 

(21,149

)

Purchase of available-for-sale securities

 

 

(779,770

)

 

 

(29,989

)

Maturity and sale of available-for-sale securities

 

 

 

 

 

210,000

 

Other

 

 

(486

)

 

 

(2,196

)

Net cash (used in) provided by investing activities

 

 

(785,807

)

 

 

156,666

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercise of stock options and purchase of stock under the Employee Stock
   Purchase Program

 

 

4,990

 

 

 

9,226

 

Taxes paid related to net share settlement of equity awards

 

 

 

 

 

(6,333

)

Net cash provided by financing activities

 

 

4,990

 

 

 

2,893

 

 

 

 

 

 

 

 

Decrease in cash, cash equivalents and restricted cash

 

 

(881,992

)

 

 

(20,812

)

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Beginning of period

 

 

2,125,523

 

 

 

1,511,713

 

End of period

 

$

1,243,531

 

 

$

1,490,901

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,233,877

 

 

$

1,481,836

 

Restricted cash in other assets

 

 

9,654

 

 

 

9,065

 

Total cash, cash equivalents and restricted cash

 

$

1,243,531

 

 

$

1,490,901

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid during the period for interest

 

$

11,688

 

 

$

11,688

 

Supplemental schedule of non-cash investing activities and financing activities:

 

 

 

 

 

 

Intangible assets and property and equipment included in accounts payable and accrued expenses

 

$

4,415

 

 

$

5,729

 

Lease liabilities arising from obtaining right of use assets

 

$

4,106

 

 

$

901

 

Lease liabilities terminated

 

$

 

 

$

19,967

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

6


SAREPTA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. ORGANIZATION AND NATURE OF BUSINESS

Sarepta Therapeutics, Inc. (together with its wholly-owned subsidiaries, “Sarepta” or the “Company”) is a commercial-stage biopharmaceutical company focused on helping patients through the discovery and development of unique RNA-targeted therapeutics, gene therapy and other genetic therapeutic modalities for the treatment of rare diseases. Applying its proprietary, highly-differentiated and innovative technologies, and through collaborations with its strategic partners, the Company is developing potential therapeutic candidates for a broad range of diseases and disorders, including Duchenne muscular dystrophy (“Duchenne”), Limb-girdle muscular dystrophies (“LGMDs”) and other neuromuscular and central nervous system (“CNS”) disorders.

The Company's products in the U.S., EXONDYS 51 (eteplirsen) Injection (“EXONDYS 51”), VYONDYS 53 (golodirsen) Injection (“VYONDYS 53”) and AMONDYS 45 (casimersen) Injection (“AMONDYS 45”), were granted accelerated approval by the U.S. Food and Drug Administration (the “FDA”) on September 19, 2016, December 12, 2019 and February 25, 2021, respectively. Indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin gene that is amenable to exon 51, exon 53 and exon 45 skipping, respectively, EXONDYS 51, VYONDYS 53 and AMONDYS 45 use the Company’s phosphorodiamidate morpholino oligomer (“PMO”) chemistry and exon-skipping technology to skip exon 51, exon 53 and exon 45 of the dystrophin gene. Exon skipping is intended to promote the production of an internally truncated but functional dystrophin protein.

As of March 31, 2022, the Company had approximately $2,023.1 million of cash, cash equivalents, restricted cash and investments, consisting of $1,233.9 million of cash and cash equivalents, $779.5 million of short-term investments and $9.7 million of long-term restricted cash. The Company believes that its balance of cash, cash equivalents, restricted cash and investments as of the date of the issuance of this report is sufficient to fund its current operational plan for at least the next twelve months, though it may pursue raising additional cash resources through public or private debt and equity financings, seek funded research and development arrangements and additional government contracts and establish collaborations with or license its technology to other companies.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), reflect the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions between and among its consolidated subsidiaries have been eliminated. Management has determined that the Company operates in one segment: discovering, developing, manufacturing and delivering therapies to patients with rare diseases.

In the opinion of the Company’s management, all adjustments of a normal recurring nature necessary for a fair presentation have been reflected. Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. GAAP, but that is not required for interim reporting purposes, has been omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2021 which are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission on March 1, 2022. The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year.

Estimates and Uncertainties

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenue, expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of accounts receivable from customers, cash held at financial institutions and cash equivalents and investments.

7


As of March 31, 2022, the majority of the Company’s accounts receivable arose from product sales in the U.S. and all customers have standard payment terms that generally require payment within 60 to 91 days. Outside of the U.S., the majority of the Company’s customers have payment terms ranging between 45 and 150 days. Three individual customers accounted for 48%, 36% and 8% of net product revenues for the three months ended March 31, 2022 and 49%, 40% and 7% of net product revenues for the three months ended March 31, 2021. Three individual customers accounted for 41%, 39% and 8% of accounts receivable from product sales as of March 31, 2022 and 41%, 41% and 10% of accounts receivable from product sales as of December 31, 2021. The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in its customers’ credit profile. As of March 31, 2022, the Company believes that such customers are of high credit quality.

As of March 31, 2022, the Company’s cash was concentrated at three financial institutions in the U.S., which potentially exposes the Company to credit risks. However, the Company does not believe that there is significant risk of non-performance by the financial institutions. The Company also purchases commercial paper, government and government agency bonds, corporate bonds and certificates of deposit issued by highly rated corporations, financial institutions and governments and limits the amount of credit exposure to any one issuer. These amounts may at times exceed federally insured limits. The Company has not experienced any credit losses related to these financial instruments and does not believe to be exposed to any significant credit risk related to these instruments.

Significant Accounting Policies

For details about the Company’s accounting policies, please read Note 2, Summary of Significant Accounting Policies and Recent Accounting Pronouncements of the Annual Report on Form 10-K for the year ended December 31, 2021.

There have not been any material changes to the Company’s accounting policies through March 31, 2022.

3. LICENSE AND COLLABORATION AGREEMENTS

F. Hoffman-La Roche Ltd.

For both of the three months ended March 31, 2022 and 2021, the Company recognized $22.0 million of collaboration revenue associated with the license, collaboration and option agreement (the “Roche Agreement”) with F. Hoffman-La Roche Ltd. (“Roche”). As of March 31, 2022, the Company has total deferred revenue of $641.5 million associated with the Roche Agreement, of which $89.2 million is classified as current. The portion of deferred revenue related to the separate material rights for the options to acquire ex-U.S. rights to certain Duchenne-specific programs was $485.0 million as of March 31, 2022 and December 31, 2021.

The costs associated with co-development activities performed under the Roche Agreement are included in operating expenses, with any reimbursement of costs by Roche reflected as a reduction of such expenses when the related expense is incurred. For the three months ended March 31, 2022 and 2021, costs reimbursable by Roche and reflected as a reduction to operating expenses were $17.7 million and $13.4 million, respectively. As of March 31, 2022, there was $17.7 million of collaboration receivable included in other current assets.

Research and Option Agreements

 

The Company has research and option agreements with third parties in order to develop various technologies and biologics that may be used in the administration of the Company’s genetic therapeutics. The agreements generally provide for research services related to pre-clinical development programs and options to license the technology for clinical development. Prior to the options under these agreements being executed, the Company may be required to make up to $11.0 million in research milestone payments. Under these agreements, there are $187.1 million in potential option payments to be made by the Company upon the determination to exercise the options. Additionally, if the options for each agreement are executed, the Company would incur additional contingent obligations and may be required to make development, regulatory, and sales milestone payments and tiered royalty payments based on the sales of the developed products upon commercialization. As of March 31, 2022, the Company has not exercised any options nor have any additional research milestone payments become probable of occurring.

 

Milestone Obligations

 

The Company has license and collaboration agreements in place for which it could be obligated to pay, in addition to the payment of up-front fees upon execution of the agreements, certain milestone payments as a product candidate proceeds from the submission of an investigational new drug application through approval for commercial sale and beyond. As of March 31, 2022, the Company may be obligated to make up to $4.0 billion in future development, regulatory, commercial and up-front royalty milestone payments associated with its license and collaboration agreements. These obligations exclude potential future option and milestone payments for options that have yet to be exercised within agreements entered into by the Company as of March 31, 2022, which are discussed above. For the three months ended March 31, 2022 and 2021, the Company recognized up-front, development milestone

8


and settlement expenses of less than $0.1 million and $14.0 million, respectively, as research and development expense in the accompanying unaudited condensed consolidated statement of operations and comprehensive loss.

4. FAIR VALUE MEASUREMENTS

The Company has certain financial assets and liabilities that are recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

Level 1 — quoted prices for identical instruments in active markets;
Level 2 — quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3 — valuations derived from valuation techniques in which one or more significant value drivers are unobservable.

During the three months ended March 31, 2022, there were no transfers between Levels 1, 2 and 3. The tables below present information about the Company’s financial assets and liabilities that are measured and carried at fair value and indicate the level within the fair value hierarchy of valuation techniques it utilizes to determine such fair value:

 

 

 

Fair Value Measurement as of March 31, 2022

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

606,498

 

 

$

606,498

 

 

$

 

 

$

 

Commercial paper

 

 

145,335

 

 

 

 

 

 

145,335

 

 

 

 

Government and government agency bonds

 

 

602,288

 

 

 

54,856

 

 

 

547,432

 

 

 

 

Corporate bonds

 

 

187,232