UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended June 30, 2019
or
For the transition period from to
Commission file number: 001-35969
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) | ||
(908 ) 222-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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 þ 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 þ 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.
þ | 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 þ
As of August 5, 2019, there were 58,949,680 shares of Common Stock, $0.001 par value per share, outstanding.
TABLE OF CONTENTS | |
PTC Therapeutics, Inc. | |
Page No. | |
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:
• | Our ability to realize the anticipated benefits of our acquisition of Agilis Biotherapeutics, Inc., or Agilis, including the possibility that the expected impact of benefits from the acquisition, including with respect to the business of Agilis and our expectations with respect to the potential achievement of development, regulatory and sales milestones and our contingent payments to the former Agilis equityholders with respect thereto, will not be realized or will not be realized within the expected time period, significant transaction costs, the integration of Agilis's operations and employees into our business, our ability to obtain marketing approval of our gene therapy for the treatment of Aromatic L-Amino Acid Decarboxylase, or AADC, deficiency, or PTC-AADC, and other product candidates we acquired from Agilis, unknown liabilities, the risk of litigation and/or regulatory actions related to the acquisition, and other business effects, including the effects of industry, market, economic, political or regulatory conditions; |
• | our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms and processes on a timely basis, or at all, with third-party payors for Emflaza™ (deflazacort) for the treatment of Duchenne muscular dystrophy, or DMD, in the United States and for Translarna™ (ataluren) for the treatment of nonsense mutation DMD, or nmDMD, in the European Economic Area, or EEA, and other countries in which we have or may obtain regulatory approval, or in which there exist significant reimbursed early access programs, or EAP programs; |
• | our ability to maintain our marketing authorization of Translarna for the treatment of nmDMD in the EEA (which is subject to the specific obligation to conduct and submit the results of Study 041 to the European Medicines Agency, or EMA, and annual review and renewal by the European Commission following reassessment of the benefit-risk balance of the authorization by the EMA); |
• | our ability to enroll, fund, and complete Study 041, a multicenter, randomized, double-blind, 18-month, placebo-controlled clinical trial of Translarna for the treatment of nmDMD followed by an 18-month open label extension, according to the protocol agreed with the EMA, and by the trial’s deadline; |
• | the anticipated period of market exclusivity for Emflaza for the treatment of DMD in the United States under the Orphan Drug Act of 1983, or the Orphan Drug Act, the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act; |
• | our ability to complete the United States Food and Drug Administration, or FDA, post-marketing requirements to the marketing authorization of Emflaza; |
• | our ability to complete any dystrophin study necessary in order to resolve the matters set forth in the FDA’s denial of our appeal to the Complete Response Letter we received from the FDA in connection with our New Drug Application, or NDA, for Translarna for the treatment of nmDMD, and our ability to perform additional clinical trials, non-clinical studies or CMC assessments or analyses at significant cost; |
• | the timing and scope of our continued commercialization of Translarna as a treatment for nmDMD in the EEA or other territories outside of the United States; |
• | 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; |
• | our expectations and the potential financial impact and benefits related to our Collaboration and Licensing Agreement with Akcea Therapeutics, Inc., or Akcea, including with respect to the timing of regulatory approval of TegsediTM (inotersen) and WaylivraTM (volanesorsen) in countries in which we are licensed to commercialize them, the potential commercialization of Tegsedi and Waylivra, and our expectations with respect to contingent payments to Akcea based on the potential achievement of certain regulatory milestones and royalty payments by us to Akcea based on our potential achievement of certain net sales thresholds; |
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• | our estimates regarding the potential market opportunity for Translarna, Emflaza, PTC-AADC, Tegsedi, Waylivra, risdiplam or any other product candidate, including the size of eligible patient populations and our ability to identify such patients; |
• | our estimates regarding expenses, future revenues, third-party discounts and rebates, capital requirements and needs for additional financing, including our ability to maintain the level of our expenses consistent with our internal budgets and forecasts and to secure additional funds on favorable terms or at all; |
• | the timing and conduct of our ongoing, planned and potential future clinical trials and studies of Translarna for the treatment of nmDMD, aniridia, and Dravet syndrome/CDKL5, each caused by nonsense mutations, and Emflaza for the treatment of limb-girdle 2I, as well as studies in our gene therapy, splicing and oncology programs, including the timing of initiation, enrollment and completion of the trials and the period during which the results of the trials will become available; |
• | the rate and degree of market acceptance and clinical utility of Translarna, Emflaza, PTC-AADC, Tegsedi, Waylivra and risdiplam; |
• | 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 timing of, and our ability to obtain additional marketing authorizations for, Translarna, Tegsedi and our other product candidates; |
• | the ability of Translarna, Emflaza, PTC-AADC, Tegsedi, Waylivra and risdiplam and our other product candidates to meet existing or future regulatory standards; |
• | our ability to maintain the current labeling under the marketing authorization in the EEA or expand the approved product label of Translarna for the treatment of nmDMD in non-ambulatory patients or otherwise; |
• | the potential receipt of revenues from future sales of Translarna, Emflaza, and other product candidates, including our ability to earn a profit from sales or licenses of Translarna for the treatment of nmDMD in the countries in which we have or may obtain regulatory approval and of Emflaza for the treatment of DMD in the United States; |
• | the potential impact that enrollment, funding and completion of Study 041 may have on our revenue growth; |
• | our sales, marketing and distribution capabilities and strategy, including the ability of our third-party manufacturers to manufacture and deliver Translarna and Emflaza in clinically and commercially sufficient quantities and the ability of distributors to process orders in a timely manner and satisfy their other obligations to us; |
• | our ability to establish and maintain arrangements for the manufacture of Translarna, Emflaza and our other product candidates that are sufficient to meet clinical trial and commercial launch requirements; |
• | our ability to increase our manufacturing capabilities for our gene therapy platform; |
• | our expectations with respect to the potential financial impact of our leased biologics facility and our ability to satisfy our obligations under the terms of the lease agreement for such facility; |
• | our ability to satisfy our obligations under the terms of the credit and security agreement with MidCap Financial Trust, or MidCap Financial, as administrative agent and MidCap Financial and certain other financial institutions as lenders thereunder; |
• | our other regulatory submissions, including with respect to timing and outcome of regulatory review; |
• | our plans to pursue development of Translarna and Emflaza for additional indications; |
• | our ability to advance our earlier stage programs and pursue research and development of other product candidates, including our splicing, gene therapy and oncology programs; |
• | whether we may pursue business development opportunities, including potential collaborations, alliances, and acquisition or licensing of assets and our ability to successfully develop or commercialize any assets to which we may gain rights pursuant to such business development opportunities; |
• | the potential advantages of Translarna, Emflaza, PTC-AADC, Tegsedi, Waylivra and risdiplam and any other product candidate; |
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• | our intellectual property position; |
• | the impact of government laws and regulations; |
• | the impact of litigation that has been or may be brought against us or of litigation that we are pursuing against others; |
• | our competitive position; and |
• | our expectations with respect to the development and regulatory status of our product candidates and program directed against spinal muscular atrophy in collaboration with F. Hoffmann La Roche Ltd and Hoffmann La Roche Inc., which we refer to collectively as Roche, and the Spinal Muscular Atrophy Foundation, or the SMA Foundation, and our estimates regarding future revenues from achievement of milestones in that program. |
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in Part II, Item 1A. Risk Factors as well as in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2018 completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.
In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires, references to “PTC,” “PTC Therapeutics,” “the Company,” “we,” “us,” “our,” and similar references refer to PTC Therapeutics, Inc. and, where appropriate, its subsidiaries. The trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
All website addresses given in this Quarterly Report on Form 10-Q are for information only and are not intended to be an active link or to incorporate any website information into this document.
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
PTC Therapeutics, Inc.
Consolidated Balance Sheets (unaudited)
In thousands (except per share data)
June 30, 2019 | December 31, 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Marketable securities | ||||||||
Trade receivables, net | ||||||||
Inventory, net | ||||||||
Prepaid expenses and other current assets | ||||||||
Total current assets | ||||||||
Fixed assets, net | ||||||||
Intangible assets, net | ||||||||
Goodwill | ||||||||
Deposits and other assets | ||||||||
Total assets | $ | $ | ||||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | $ | ||||||
Current portion of long-term debt | ||||||||
Deferred revenue | ||||||||
Other current liabilities | ||||||||
Deferred consideration payable | ||||||||
Total current liabilities | ||||||||
Deferred revenue | ||||||||
Long-term debt | ||||||||
Contingent consideration payable | ||||||||
Deferred consideration payable | ||||||||
Deferred tax liability | ||||||||
Other long-term liabilities | ||||||||
Total liabilities | ||||||||
Stockholders’ equity: | ||||||||
Common stock, $0.001 par value. Authorized 125,000,000 shares; issued and outstanding 58,707,185 shares at June 30, 2019. Authorized 125,000,000 shares; issued and outstanding 50,606,147 shares at December 31, 2018. | ||||||||
Additional paid-in capital | ||||||||
Accumulated other comprehensive income | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total stockholders’ equity | ||||||||
Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying unaudited notes.
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PTC Therapeutics, Inc.
Consolidated Statements of Operations (unaudited)
In thousands (except per share data)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenues: | ||||||||||||||||
Net product revenue | $ | $ | $ | $ | ||||||||||||
Collaboration and grant revenue | ||||||||||||||||
Total revenues | ||||||||||||||||
Operating expenses: | ||||||||||||||||
Cost of product sales, excluding amortization of acquired intangible assets | ||||||||||||||||
Amortization of acquired intangible assets | ||||||||||||||||
Research and development | ||||||||||||||||
Selling, general and administrative | ||||||||||||||||
Change in the fair value of deferred and contingent consideration | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other (expense) income, net | ( | ) | ( | ) | ( | ) | ||||||||||
Loss before income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Weighted-average shares outstanding: | ||||||||||||||||
Basic and diluted (in shares) | ||||||||||||||||
Net loss per share—basic and diluted (in dollars per share) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying unaudited notes.
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PTC Therapeutics, Inc.
Consolidated Statements of Comprehensive Loss (unaudited)
In thousands
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Other comprehensive income (loss): | ||||||||||||||||
Unrealized gain (loss) on marketable securities | ( | ) | ||||||||||||||
Foreign currency translation gain (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying unaudited notes.
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PTC Therapeutics, Inc.
Consolidated Statements of Stockholders' Equity (unaudited)
In thousands
Three months ended June 30, 2019 | Common stock | Additional paid-in capital | Accumulated other comprehensive income | Accumulated deficit | Total stockholders’ equity | |||||||||||||||||
Shares | Amount | |||||||||||||||||||||
Balance, March 31, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
Issuance of common stock related to equity offering | — | — | ||||||||||||||||||||
Exercise of options | — | — | ||||||||||||||||||||
Restricted stock vesting and issuance | — | — | — | — | ||||||||||||||||||
Issuance of common stock in connection with an employee stock purchase plan | — | — | ||||||||||||||||||||
Share-based compensation expense | — | — | — | — | ||||||||||||||||||
Receivable from investor | — | — | — | — | ||||||||||||||||||
Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||
Comprehensive income | — | — | — | — | ||||||||||||||||||
Balance, June 30, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
Three months ended June 30, 2018 | Common stock | Additional paid-in capital | Accumulated other comprehensive (loss) income | Accumulated deficit | Total stockholders’ equity | |||||||||||||||||
Shares | Amount | |||||||||||||||||||||
Balance, March 31, 2018 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
Issuance of common stock related to equity offering | — | — | ||||||||||||||||||||
Exercise of options | — | — | — | |||||||||||||||||||
Issuance of common stock in connection with an employee stock purchase plan | — | — | ||||||||||||||||||||
Share-based compensation expense | — | — | — | — | ||||||||||||||||||
Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||
Comprehensive loss | — | — | — | ( | ) | — | ( | ) | ||||||||||||||
Balance, June 30, 2018 | ( | ) | ||||||||||||||||||||
Six months ended June 30, 2019 | Common stock | Additional paid-in capital | Accumulated other comprehensive income | Accumulated deficit | Total stockholders’ equity | |||||||||||||||||
Shares | Amount | |||||||||||||||||||||
Balance, December 31, 2018 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
Issuance of common stock related to equity offering | — | — | ||||||||||||||||||||
Exercise of options | — | — | ||||||||||||||||||||
Restricted stock vesting and issuance | — | — | — | |||||||||||||||||||
Issuance of common stock in connection with an employee stock purchase plan | — | — | ||||||||||||||||||||
Share-based compensation expense | — | — | — | — | ||||||||||||||||||
Receivable from investor | — | — | — | — | ||||||||||||||||||
Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||
Comprehensive income | — | — | — | — | ||||||||||||||||||
Balance, June 30, 2019 | ( | ) | ||||||||||||||||||||
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Six months ended June 30, 2018 | Common stock | Additional paid-in capital | Accumulated other comprehensive (loss) income | Accumulated deficit | Total stockholders’ equity | |||||||||||||||||
Shares | Amount | |||||||||||||||||||||
Balance, December 31, 2017 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
Adjustments to accumulated deficit and other | — | $ | — | ( | ) | $ | — | $ | $ | |||||||||||||
Issuance of common stock related to equity offering | — | — | ||||||||||||||||||||
Exercise of options | — | — | ||||||||||||||||||||
Restricted stock vesting and issuance | — | — | — | — | ||||||||||||||||||
Issuance of common stock in connection with an employee stock purchase plan | — | — | ||||||||||||||||||||
Share-based compensation expense | — | — | — | — | ||||||||||||||||||
Net loss | — | — | — | — | ( | ) | $ | ( | ) | |||||||||||||
Comprehensive loss | — | — | — | ( | ) | — | ( | ) | ||||||||||||||
Balance, June 30, 2018 | ( | ) | ||||||||||||||||||||
See accompanying unaudited notes.
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PTC Therapeutics, Inc. Consolidated Statements of Cash Flows (unaudited) In thousands | ||||||||
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | ||||||||
Change in valuation of deferred and contingent consideration | ||||||||
Unrealized gain on MRI investment | ( | ) | ||||||
Non-cash interest expense | ||||||||
Loss on disposal of asset | ||||||||
Amortization of discounts on investments, net | ( | ) | ( | ) | ||||
Amortization of debt issuance costs | ||||||||
Share-based compensation expense | ||||||||
Unrealized foreign currency transaction losses (gains), net | ( | ) | ||||||
Changes in operating assets and liabilities: | ||||||||
Inventory | ( | ) | ( | ) | ||||
Prepaid expenses and other current assets | ( | ) | ||||||
Trade receivables, net | ( | ) | ( | ) | ||||
Deposits and other assets | ( | ) | ( | ) | ||||
Accounts payable and accrued expenses | ( | ) | ||||||
Other liabilities | ||||||||
Deferred revenue | ||||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Cash flows from investing activities | ||||||||
Purchases of fixed assets | ( | ) | ( | ) | ||||
Purchases of equity investment in MRI | ( | ) | ||||||
Purchases of marketable securities | ( | ) | ( | ) | ||||
Sale and redemption of marketable securities | ||||||||
Acquisition of product rights and licenses | ( | ) | ||||||
Net cash (used in) provided by investing activities | ( | ) | ||||||
Cash flows from financing activities | ||||||||
Proceeds from exercise of options | ||||||||
Net proceeds from public offerings | ||||||||
Repayment of senior secured term loan | ( | ) | ||||||
Proceeds from shares issued under employee stock purchase plan | ||||||||
Net cash provided by financing activities | ||||||||
Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
Cash and cash equivalents, beginning of period | ||||||||
Cash and cash equivalents, end of period | $ | $ | ||||||
Supplemental disclosure of cash information | ||||||||
Cash paid for interest | $ | $ | ||||||
Cash paid for income taxes | $ | $ | ||||||
Supplemental disclosure of non-cash investing and financing activity | ||||||||
Change in unrealized gain (loss) on marketable securities, net of tax | $ | $ | ( | ) | ||||
Right-of-use assets obtained in exchange for lease obligations | $ | $ | ||||||
Acquisition of product rights and licenses | $ | $ | ||||||
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PTC Therapeutics, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2019
In thousands (except per share data unless otherwise noted)
1. | The Company |
PTC Therapeutics, Inc. (the “Company” or “PTC”) is a science-led global biopharmaceutical company focused on the discovery, development and commercialization of clinically-differentiated medicines that provide benefits to patients with rare disorders. The Company’s ability to globally commercialize products is the foundation that drives its continued investment in a robust pipeline of transformative medicines and its mission to provide access to best-in-class treatments for patients who have an unmet medical need.
The Company has two products, Translarna™ (ataluren) and Emflaza™ (deflazacort), for the treatment of Duchenne muscular dystrophy, or DMD, a rare, life threatening disorder. Translarna received marketing authorization from the European Commission in August 2014 for the treatment of nonsense mutation Duchenne muscular dystrophy, or nmDMD, in ambulatory patients aged five years and older in the 31 member states of the European Economic Area, or EEA. In July 2018, the European Commission approved a label-extension request to the marketing authorization for Translarna in the EEA to include patients from two to up to five years of age. Emflaza is approved in the United States for the treatment of DMD in patients two years and older.
The Company has a pipeline of gene therapy product candidates, including PTC-AADC for the treatment of Aromatic L-Amino Acid Decarboxylase, or AADC, deficiency, or AADC deficiency. The Company is preparing a biologics license application, or BLA, for PTC-AADC for the treatment of AADC deficiency in the United States, which it anticipates submitting to the U.S. Food and Drug Administration, or FDA, in the fourth quarter of 2019, with anticipated commercial launch in the United States in 2020, subject to approval. The Company is also preparing a marketing authorization application, or MAA, for PTC-AADC for the treatment of AADC deficiency in the European Union, or EU, for submission to the European Medicines Agency, or EMA, which will follow its BLA submission to the FDA.
The Company holds the rights for the commercialization of Tegsedi™ (inotersen) and Waylivra™ (volanesorsen) for the treatment of rare diseases in countries in Latin America and the Caribbean. Tegsedi has received marketing authorization in the U.S., EU and Canada for the treatment of stage 1 or stage 2 polyneuropathy in adult patients with hATTR amyloidosis. The Company filed for marketing authorization with ANVISA, the Brazilian health regulatory authority, which granted priority review. It expects approval in Brazil by the end of 2019. Waylivra has received conditional marketing authorization in the EU for the treatment of familial chylomicronemia syndrome, or FCS.
The Company also has a spinal muscular atrophy ("SMA") collaboration with F. Hoffman-La Roche Ltd and Hoffman-La Roche Inc., referred to collectively as Roche, and the Spinal Muscular Atrophy Foundation, or SMA Foundation. Currently, its collaboration has two pivotal clinical trials ongoing to evaluate the safety and effectiveness of risdiplam (RG7916, RO7034067), the lead compound in the SMA program. Roche is preparing an NDA and a MAA for risdiplam for the treatment of SMA in the United States and the EU, respectively, which Roche anticipates submitting to the FDA in the second half of 2019 and the EMA in the first half of 2020. In addition, the Company has 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.
The Company’s marketing authorization for Translarna in the EEA is subject to annual review and renewal by the European Commission following reassessment by the EMA of the benefit-risk balance of the authorization, which the Company refers to as the annual EMA reassessment. This marketing authorization is further subject to the specific obligation to conduct and submit the results of a multi-center, randomized, double-blind, 18-month, placebo-controlled trial, followed by an 18-month open-label extension, according to an agreed protocol, in order to confirm the efficacy and safety of Translarna. The final report on the trial and open-label extension is to be submitted by the Company to the EMA by the end of the third quarter of 2022. The Company refers to the trial and open-label extension together as Study 041.
The marketing authorization in the EEA was last renewed in July 2019 and is effective, unless extended, through August 5, 2020. The renewal was based on the Company’s commitment to conduct Study 041 and the totality of the clinical data available from its trials and studies of Translarna for the treatment of nmDMD, including the safety and efficacy results of the Phase 2b and Phase 3 clinical trials. The primary efficacy endpoint was not achieved in either trial within the pre-specified level of statistical significance.
In June 2014, the Company initiated reimbursed early access programs, or EAP programs, for Translarna for nmDMD patients in selected territories in the EEA and recorded its first sales of Translarna in the third quarter of 2014 pursuant to an EAP program. In December 2014, the Company recorded its first commercial sales in Germany. As of June 30, 2019, Translarna was available in over 40 countries on a commercial basis or pursuant to an EAP program. The Company expects to expand its commercial
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activities across the EEA pursuant to the marketing authorization granted by the EMA throughout 2019 and future years, subject to continued renewal of its marketing authorization following annual EMA reassessments and successful completion of pricing and reimbursement negotiations. Concurrently, the Company plans to continue to pursue EAP programs in select countries where those mechanisms exist, both within the EEA and in other countries that will reference the marketing authorization in the EEA.
Translarna is an investigational new drug in the United States. During the first quarter of 2017, the Company filed a New Drug Application, or NDA, over protest with the FDA, for which the FDA granted a standard review. In October 2017, the Office 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, the Company filed a formal dispute resolution request with the Office of New Drugs of the FDA. In February 2018, the Office of New Drugs of the FDA denied PTC’s appeal of the Complete Response Letter. In its response, the Office 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. The Company intends to follow the FDA’s recommendation and will collect, using newer technologies via procedures and methods that the Company designed, such dystrophin data in a new study, Study 045, which the Company initiated in the fourth quarter of 2018. The Company expects that a potential re-submission of an NDA could occur in 2020. Additionally, should a re-submission of an NDA receive accelerated approval, the Office of New Drugs stated that Study 041, which is currently enrolling, could serve as the confirmatory post-approval trial required in connection with the accelerated approval framework.
Emflaza was initially approved in the United States for the treatment of DMD in patients five years and older. In June 2019, the FDA approved the Company's label expansion request for Emflaza for patients two to five years of age.
On April 20, 2017, the Company completed its acquisition of all rights to Emflaza, or the Transaction. Emflaza is approved in the United States for the treatment of DMD in patients two years and older. The Transaction was completed pursuant to an asset purchase agreement, dated March 15, 2017, as amended on April 20, 2017, (the "Asset Purchase Agreement"), by and between the Company and Marathon Pharmaceuticals, LLC (now known as Complete Pharma Holdings, LLC), or Marathon. The Transaction was accounted for as an asset acquisition. The assets acquired by the Company in the Transaction include intellectual property rights related to Emflaza, inventories of Emflaza, and certain contractual rights related to Emflaza. The Company assumed certain liabilities and obligations in the Transaction arising out of, or relating to, the assets acquired in the Transaction.
Upon the closing of the Transaction, the Company paid to Marathon total upfront consideration comprised of $75.0 million in cash, funded through cash on hand, and 6,683,598 shares of the Company’s common stock. The number of shares of common stock issued at closing was determined by dividing $65.0 million by the volume-weighted average price per share of the Company’s common stock on the Nasdaq Stock Market for the 15 trading-day period ending on the third trading day immediately preceding the closing. Marathon is entitled to receive contingent payments from the Company based on annual net sales of Emflaza, up to a specified aggregate maximum amount over the expected commercial life of the asset, and a single $50.0 million sales-based milestone, in each case subject to the terms and conditions of the Asset Purchase Agreement.
On August 23, 2018, the Company completed its acquisition of Agilis Biotherapeutics, Inc., or Agilis, pursuant to an Agreement and Plan of Merger, dated as of July 19, 2018 (the “Merger Agreement”), by and among the Company, Agility Merger Sub, Inc., a Delaware corporation and the Company's wholly owned, indirect subsidiary, Agilis and, solely in its capacity as the representative, agent and attorney-in-fact of the equityholders of Agilis, Shareholder Representative Services LLC (the "Merger").
Upon the closing of the Merger, the Company paid to Agilis equityholders total upfront consideration comprised of $49.2 million in cash and 3,500,907 shares of the Company’s common stock (the “Closing Stock Consideration”). The Closing Stock Consideration was determined by dividing $150.0 million by the volume-weighted average price per share of the Company’s common stock on the Nasdaq Global Select Market for the 10 consecutive trading-day period ending on the second trading-day immediately preceding the closing of the Merger. Agilis equityholders may become entitled to receive contingent payments from the Company based on the achievement of certain development, regulatory and net sales milestones as well as based upon a percentage of net sales of certain products. Under the Merger Agreement, the Company is required to pay $40.0 million of the development milestone payments no later than the second anniversary of the closing of the Merger, regardless of whether the applicable milestones have been achieved.
As of June 30, 2019, the Company had an accumulated deficit of approximately $1,052.8 million. The Company has financed its operations to date primarily through the private offering in August 2015 of 3.0 % convertible senior notes due 2022 (see Note 10), public offerings of common stock in February 2014, October 2014, April 2018 and January 2019, its initial public offering of common stock in June 2013, private placements of its convertible preferred stock, collaborations, bank debt, convertible debt financings, grant funding and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease area addressed by the Company’s product candidates. Since 2014, the Company has also relied on revenue generated from net sales of Translarna for the treatment of nmDMD in territories outside of the United States, and since May 2017, the Company has generated revenue from net sales of Emflaza for the treatment of DMD in the United States. The
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Company expects that cash flows from the sales of its products, together with the Company’s cash, cash equivalents and marketable securities, will be sufficient to fund its operations for at least the next twelve months.
2. | Summary of significant accounting policies |
The Company’s complete listing of significant accounting policies is set forth in Note 2 of the notes to the Company’s audited financial statements as of December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 1, 2019 (the "2018 Form 10-K"). Additional significant accounting policies adopted during the six month period ended June 30, 2019 are discussed in further detail below.
Basis of presentation
The accompanying financial information as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 has been prepared by the Company, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. These interim financial statements should be read in conjunction with the Company’s audited financial statements as of December 31, 2018 and notes thereto included in the 2018 Form 10-K.
In the opinion of management, the unaudited financial information as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 reflects all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations, stockholders' equity, and cash flows. The results of operations for the three and six month period ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ended December 31, 2019 or for any other interim period or for any other future year.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in these consolidated financial statements have been made in connection with the calculation of net product sales, certain accruals related to the Company’s research and development expenses, stock-based compensation, valuation procedures for the convertible notes, allowance for doubtful accounts, inventory, acquired intangible assets, fair value of the contingent consideration, and the provision for or benefit from income taxes. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.
Inventory and cost of product sales
Inventory
Inventories are stated at the lower of cost and net realizable value with cost determined on a first-in, first-out basis by product. The Company capitalizes inventory costs associated with products following regulatory approval when future commercialization is considered probable and the future economic benefit is expected to be realized. Translarna and Emflaza product which may be used in clinical development programs are included in inventory and charged to research and development expense when the product enters the research and development process and no longer can be used for commercial purposes. Inventory used for marketing efforts are charged to selling, general and administrative expense.
The following table summarizes the components of the Company’s inventory for the periods indicated:
June 30, 2019 | December 31, 2018 | |||||||
Raw materials | $ | $ | ||||||
Work in progress | ||||||||
Finished goods | ||||||||
Total inventory | $ | $ | ||||||
The Company periodically reviews its inventories for excess amounts or obsolescence and writes down obsolete or otherwise unmarketable inventory to its estimated net realizable value. No write downs were recorded for the three and six month periods ended June 30, 2019 and 2018. Additionally, though the Company’s product is subject to strict quality control and monitoring which it performs throughout the manufacturing processes, certain batches or units of product may not meet quality specifications resulting in a charge to cost of product sales. For the three and six month periods ended June 30, 2019 and 2018, these amounts were immaterial.
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Cost of product sales
Costs of product sales consists of the cost of inventory sold, manufacturing and supply chain costs, including personnel costs, storage costs, amortization of the acquired intangible asset and royalty payments associated with net product sales.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, “Revenue from Contracts with Customers (Topic 606)”. ASU No. 2014-9 eliminated transaction- and industry-specific revenue recognition guidance under FASB Accounting Standards Codification (“ASC”) Subtopic 605-15, Revenue Recognition-Products (Topic 605) and replaced it with a principle-based approach for determining revenue recognition. ASC Topic 606 requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Net product revenue
The Company's net product revenue primarily consists of sales of Translarna in territories outside of the U.S. for the treatment of nmDMD and sales of Emflaza in the U.S. for the treatment of DMD. The Company recognizes revenue when its performance obligations with its customers have been satisfied. The Company’s performance obligations are to provide Translarna or Emflaza based on customer orders from distributors, hospitals, specialty pharmacies or retail pharmacies. The performance obligations are satisfied at a point in time when the Company’s customer obtains control of either Translarna or Emflaza, which is typically upon delivery. The Company invoices its customers after the products have been delivered and invoice payments are generally due within 30 to 90 days of the invoice date. The Company determines the transaction price based on fixed consideration in its contractual agreements. Contract liabilities arise in certain circumstances when consideration is due for goods the Company has yet to provide. As the Company has identified only one distinct performance obligation, the transaction price is allocated entirely to either product sales of Translarna or Emflaza. In determining the transaction price, a significant financing component does not exist since the timing from when the Company delivers 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.
The Company records product sales net of any variable consideration, which includes discounts, allowances, rebates and distribution fees. The Company uses the expected value or most likely amount method when estimating its variable consideration, unless discount or rebate terms are specified within contracts. Historically, returns of Translarna and Emflaza are immaterial to the financial statements, except as related to labeling changes and changes in specialty pharmacies. 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.
In relation to customer contracts, the Company incurs costs to fulfill a contract but does 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.
Upon adoption of ASC Topic 606 on January 1, 2018, the Company elected the following practical expedients:
• | Portfolio Approach - the Company applied the Portfolio Approach to contract reviews within its identified revenue streams that have similar characteristics and the Company believes this approach would not differ materially than if applying ASC Topic 606 to each individual contract. |
• | Significant Financing Component - the Company expects the period between when it transfers a promised good to a customer and when the customer pays for the good or service to be one year or less. |
• | Immaterial Performance Obligations - the Company disregards promises deemed to be immaterial in the context of the contract. |
• | Shipping and Handling Activities - the Company considers 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.
Collaboration revenue
The terms of these agreements typically include payments to the Company of one or more of the following: nonrefundable, upfront license fees; milestone payments; research funding and royalties on future product sales. In addition, the Company generates service revenue through agreements that generally provide for fees for research and development services and may include additional payments upon achievement of specified events.
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At the inception of a collaboration arrangement, the Company needs to first evaluate if the arrangement meets the criteria in ASC Topic 808 “Collaborative Arrangements” to then determine if ASC Topic 606 is applicable by considering whether the collaborator meets the definition of a customer. If the criteria are met, the Company assesses the promises in the arrangement to identify distinct performance obligations.
For licenses of intellectual property, the Company assesses, at contract inception, whether the intellectual property is distinct from other performance obligations identified in the arrangement. If the licensing of intellectual property is determined to be distinct, revenue is recognized for nonrefundable, upfront license fees when the license is transferred to the customer and the customer can use and benefit from the license. If the licensing of intellectual property is determined not to be distinct, then the license will be bundled with other promises in the arrangement into one distinct performance obligation. The Company needs to determine if the bundled performance obligation is satisfied over time or at a point in time. If the Company concludes that the nonrefundable, upfront license fees will be recognized over time, the Company will need to assess the appropriate method of measuring proportional performance.
For milestone payments, the Company assesses, at contract inception, whether the development or sales-based milestones are considered probable of being achieved. If it is probable that a significant revenue reversal will occur, the Company will not record revenue until the uncertainty has been resolved. Milestone payments that are contingent upon regulatory approval are not considered probable of being achieved until the applicable regulatory approvals or other external conditions are obtained as such conditions are not within the Company's control. If it is probable that a significant revenue reversal will not occur, the Company will estimate the milestone payments using the most likely amount method. The Company will re-assess the development and sales-based milestones each reporting period to determine the probability of achievement.
The Company recognizes revenue for reimbursements of research and development costs under collaboration agreements as the services are performed. The Company records these reimbursements as revenue and not as a reduction of research and development expenses as the Company has the risks and rewards as the principal in the research and development activities.
Allowance for doubtful accounts
Indefinite-lived intangible assets
Indefinite-lived intangible assets consist of in-process research and development ("IPR&D"). IPR&D acquired directly in a transaction other than a business combination is capitalized if the projects will be further developed or have an alternative future use; otherwise they are expensed. The fair values of IPR&D projects acquired in business combinations are capitalized. Several methods may be used to determine the estimated fair value of the IPR&D acquired in a business combination. The Company utilizes the "income method”, and uses estimated future net cash flows that are derived from projected sales revenues and estimated costs. These projections are based on factors such as relevant market size, patent protection, and expected pricing and industry trends. The estimated future net cash flows are then discounted to the present value using an appropriate discount rate. These assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written off, as appropriate. IPR&D intangible assets that are determined to have had a drop in their fair value are adjusted downward and an impairment is recognized in the statement of operations. These assets are tested at least annually or sooner when a triggering event occurs that could indicate a potential impairment.
Goodwill
Goodwill represents the amount of consideration paid in excess of the fair value of net assets acquired as a result of the Company’s business acquisitions accounted for using the acquisition method of accounting. Goodwill is not amortized and is subject to impairment testing on an annual basis or when a triggering event occurs that may indicate the carrying value of the goodwill is impaired.
Income Taxes
On December 22, 2017, the U.S. government enacted the 2017 Tax Cuts and Jobs Act ("the 2017 Tax Act"), which significantly revises U.S. tax law by, among other provisions, lowering the U.S. federal statutory income tax rate to 21%, imposing a mandatory one-time transition tax on previously deferred foreign earnings, and eliminating or reducing certain income tax deductions. The Global Intangible Low-tax Income ("GILTI") provisions of the 2017 Tax Act require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company
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has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the period ended June 30, 2019.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured at rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. A valuation allowance is recorded when it is not more likely than not that all or a portion of the net deferred tax assets will be realized.
The Company recorded a deferred tax liability in conjunction with the Merger of $122.0 million related to the tax basis difference in the IPR&D indefinite-lived intangibles acquired. The Company's policy is to record a deferred tax liability related to acquired IPR&D which may eventually be realized either upon amortization of the asset when the research is completed and a product is successfully launched or the write-off of the asset if it is abandoned or unsuccessful.
Leases
In February 2016, the FASB issued ASU No. 2016-2, “Leases (Topic 842)” along with other amendments issued in 2017 and 2018. Topic 842 supersedes the lease accounting requirements in Accounting Standards Codification Topic 840, Leases (Topic 840). Topic 842 requires organizations to recognize leased assets and liabilities on the balance sheet. The standard also requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company accounts for as a single lease component for all leases.
Under the standard, operating leases are classified as right of use ("ROU") assets, short term lease liabilities, and long term lease liabilities. Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. ROU assets are amortized and lease liabilities accrete to yield straight-line expense over the term of the lease. Lease payments included in the measurement of the lease liability are comprised of fixed payments.
Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented in the Company’s consolidated statements of operations in the same line item as expense arising from fixed lease payments for operating leases.
Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company applies this policy to all underlying asset categories.
Topic 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Leasehold improvements are capitalized and depreciated over the lesser of useful life or lease term.
See the "Impact of recently adopted accounting pronouncements" section within this Note below and Note 3 Leases for additional information. The information presented for periods prior to January 1, 2019 has not been adjusted and is reported under Topic 840.
Recently issued accounting standards
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This standard requires financial assets measured at amortized cost basis to be presented at the
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net amount expected to be collected. This standard is effective for public companies who are SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those years. The Company expects to adopt this guidance when effective and is assessing what effect the adoption of ASU 2016-13 will have on its consolidated financial statements and accompanying notes.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement". This standard eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The new guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. An entity is permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. Entities can elect to early adopt in interim periods, including periods for which they have not yet issued financial statements or made their financial statements available for issuance. The Company expects to adopt this guidance when effective and is currently assessing what effect the adoption of ASU No. 2018-13 will have on its consolidated financial statements and accompanying notes.
In August 2018, the FASB issued ASU 2018-15,"Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract". ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. For public business entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. For all other entities, it is effective for annual periods beginning after December 15, 2020 and interim periods in annual periods beginning after December 15, 2021. Early adoption is permitted, including adoption in any interim period for all entities. The Company expects to adopt this guidance when effective and is currently assessing what effect the adoption of ASU No. 2018-13 will have on its consolidated financial statements and accompanying notes.
In November 2018, the FASB issued ASU 2018-18,"Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606”. ASU 2018-18 provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under Topic 606. For public business entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. For all other entities, it is effective for annual periods beginning after December 15, 2020 and interim periods in annual periods beginning after December 15, 2021. Early adoption is permitted, including adoption in any interim period for all entities. The Company expects to adopt this guidance when effective and is currently assessing what effect the adoption of ASU No. 2018-18 will have on its consolidated financial statements and accompanying notes.
Impact of recently adopted accounting pronouncements
In February 2016, the FASB issued ASU No. 2016-2, “Leases (Topic 842)”. This standard requires organizations that lease assets with lease terms of more than 12 months to recognize assets and liabilities for the rights and obligations created by those leases on their balance sheets. The ASU also requires new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. Additionally, in March 2019, the FASB issued ASU 2019-01,"Leases (Topic 842): Codification Improvements”. ASU 2019-01 clarifies the transition guidance related to interim disclosures provided in the year of adoption. The Company adopted the new guidance on January 1, 2019 using the modified retrospective method. Prior period results were not adjusted and continue to be presented under Topic 840 based on the accounting standards originally in effect for such periods. As part of the adoption, the Company has elected to utilize practical expedients including the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to: 1) carry forward the historical determination of contracts as leases, lease classification and not reassess initial direct costs for historical lease arrangements, 2) not separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component (the Company elected to apply this practical expedient to all underlying asset classes), 3) not apply the recognition requirements in ASC 842 to short-term leases, and 4) not record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered immaterial. Upon adoption, the Company recorded an operating lease liability with a corresponding operating lease ROU asset of $11.3 million. The adoption did not have a material impact on the consolidated results of operations, stockholder's equity, and cash flows for the three and six month periods ended June 30, 2019. As the Company is not a lessor, the aspects of the new guidance pertaining to lessors was not applicable for the Company.
In February 2018, the FASB issued ASU 2018-02, "Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". This standard permits the reclassification of tax effects stranded in other comprehensive income as a result of tax reform to retained earnings related to the change in federal
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tax rate in addition to other stranded effects that relate to the 2017 Tax Act but do not directly relate to the change in the federal rate. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted for periods for which financial statements have not yet been issued or made available for issuance. The Company adopted this guidance on January 1, 2019 and elected not to reclassify the tax effects in other comprehensive income related to the 2017 Tax Act, as these amounts were immaterial. The adoption of the guidance did not have a material impact on the consolidated financial statements and accompanying notes.
In June 2018, the FASB issued ASU 2018-07, "Compensation — Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting". This standard expands the scope of ASC 718 to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in the entity’s own operations and supersedes the guidance in ASC 505-50. The ASU retains the existing cost attribution guidance, which requires entities to recognize compensation cost for nonemployee awards in the same period and in the same manner they would if they paid cash for the goods or services, but it moves the guidance to ASC 718. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted for periods for which financial statements have not yet been issued or made available for issuance. The Company adopted this guidance on January 1, 2019. The adoption of the guidance did not have a material impact on the consolidated financial statements and accompanying notes.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. ASU No. 2014-09 eliminated transaction- and industry-specific revenue recognition guidance under FASB Accounting Standards Codification (“ASC”) Subtopic 605-15, Revenue Recognition-Products and replaced it with a principle-based approach for determining revenue recognition. ASC Topic 606 requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On January 1, 2018, the Company adopted ASC Topic 606 using the modified retrospective approach and applied this approach only to contracts that were not completed as of January 1, 2018. The Company calculated a one-time transition adjustment of $3.3 million, which was recorded on January 1, 2018 to deferred revenue and accumulated deficit, related to the product sales of Emflaza.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. This standard enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The new guidance affects all reporting organizations (whether public or private) that hold financial assets or owe financial liabilities. The Company adopted the guidance on January 1, 2018. In March 2018, the FASB issued ASU 2018-04, "Investments - Debt Securities (Topic 320) and Regulated Operations (Topic 980): Amendments to SEC Paragraphs Pursuant to the SEC Staff Accounting Bulletin ("SAB") No. 117 and SEC Release No. 33-9273 (SEC Update)". This standard supersedes SEC paragraphs in ASC 320, Investments- Debt Securities, as a result of the issuance of SAB 117 and also updates the Codification for a 2011 SEC release and is effective when a registrant adopts ASU 2016-01, which in the case of the Company was on January 1, 2018. The adoption of the guidance did not have a material impact on the consolidated financial statements and accompanying notes.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”. This standard clarifies the presentation of certain specific cash flow issues in the Statement of Cash Flows. The Company adopted the guidance on January 1, 2018. The adoption of the guidance did not have a material impact on the consolidated financial statements and accompanying notes.
In November 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory”. ASU 2016-16 requires companies to account for the income tax effects of intercompany transfers of assets other than inventory (e.g., intangible assets) when the transfer occurs. The Company adopted the guidance on January 1, 2018. The adoption of the guidance did not have a material impact on the consolidated financial statements and accompanying notes.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. This standard requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows and no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The Company adopted the guidance on January 1, 2018. The adoption of the guidance did not have a material impact on the consolidated financial statements and accompanying notes.
In May 2017, the FASB issued ASU No. 2017-09, "Stock Compensation (Topic 718): Scope of Modification Accounting". This standard clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as a modification, with entities applying the modification accounting guidance if the value, vesting conditions or classification of the award changes. In addition to all disclosures about modifications that are required under the current guidance, entities will be also required to disclose that compensation expense has not changed if applicable. The Company adopted the guidance on January 1, 2018. The adoption of the guidance did not have a material impact on the consolidated financial statements and accompanying notes.
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3. | Leases |
The Company leases office space in South Plainfield, New Jersey for its principal office under three noncancelable operating leases through May 2022 and August 2024, in addition to office space in various countries for international employees primarily through workspace providers. The Company also leases certain vehicles, lab equipment, and office equipment under operating leases. The Company’s operating leases have remaining lease terms ranging from 0.4 years to 7.0 years and certain of the leases include renewal options to extend the lease for up to 10 years.
The components of lease expense were as follows:
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | ||||||
Operating Lease Cost | |||||||
Fixed lease cost | $ | $ | |||||
Variable lease cost | |||||||
Short-term lease cost | |||||||
Total operating lease cost | $ | $ | |||||
Total operating lease cost is a component of operating expenses on the consolidated statements of operations.
Supplemental balance sheet information related to leases was as follows:
June 30, 2019 | |||
Operating lease ROU asset | $ | ||
Operating lease liabilities- current | $ | ||
Operating lease liabilities- noncurrent | |||
Total operating lease liability | $ | ||
Operating lease ROU asset is a component of deposits and other assets on the consolidated balance sheet. The current portion of operating lease liability is a component of other current liabilities on the consolidated balance sheet. The long term portion of operating lease liabilities is a component of other long term liabilities on the consolidated balance sheet.
Supplemental lease term and discount rate information related to leases was as follows:
June 30, 2019 | ||
Weighted-average remaining lease terms - operating leases (years) | ||
Weighted-average discount rate - operating leases | % | |
Supplemental cash flow information related to leases was as follows:
Six Months Ended June 30, 2019 | |||
Cash paid for amounts included in the measurement of lease liabilities: | |||
Operating cash flows from operating leases | $ | ||
Right-of-use assets obtained in exchange for lease obligations: | |||
Operating leases | $ | ||
Future minimum lease payments under non-cancelable leases as of June 30, 2019 were as follows:
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Operating Leases | |||
2019 (Excludes the six months ended June 30, 2019) | $ | ||
2020 | |||
2021 | |||
2022 | |||
2023 and thereafter | |||
Total lease payments | |||
Less: Imputed Interest | |||
Total | $ | ||
As of June 30, 2019, the Company had no operating leases that had not yet commenced.
4. | Fair value of financial instruments and marketable securities |
The Company follows the fair value measurement rules, which provide guidance on the use of fair value in accounting and disclosure for assets and liabilities when such accounting and disclosure is called for by other accounting literature. These rules establish a fair value hierarchy for inputs to be used to measure fair value of financial assets and liabilities. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3 (lowest priority).
· | Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the balance sheet date. |
· | Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). |
· | Level 3—Inputs are unobservable and reflect the Company’s assumptions as to what market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available. |
Cash equivalents and investments are reflected in the accompanying financial statements at fair value. The carrying amount of receivables and accounts payable and accrued expenses approximates fair value due to the short-term nature of those instruments.
In May 2019, the Company purchased $4.0 million of shares of MRI Interventions, Inc.'s ("MRI") common stock, at a purchase price of $3.10 per share, in connection with a securities purchase agreement that the Company entered into with MRI, a publicly traded medical device company. The Company determined that the equity investment represents a financial instrument and therefore, recorded it at fair value, which is readily determinable. The equity investment is a component of deposits and other assets on the consolidated balance sheet. During the three and six month periods ended June 30, 2019, the Company recorded an unrealized gain of $0.1 million, which is a component of other (expense) income, net within the consolidated statement of operations. The fair value of the equity investment was $4.1 million as of June 30, 2019. The Company classifies its equity investment in MRI as a Level 1 asset within the fair value hierarchy, as the value is based on a quoted market price in an active market, which is not adjusted.
Fair value of certain marketable securities is based upon market prices using quoted prices in active markets for identical assets quoted on the last day of the period. In establishing the estimated fair value of the remaining investments, the Company used the fair value as determined by its investment advisors using observable inputs other than quoted prices.
The Company reviews its investments on a periodic basis for other-than-temporary impairments. This review is subjective, as it requires management to evaluate whether an event or change in circumstances has occurred in that period that may have a significant adverse effect on the fair value of the investment.
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The following represents the fair value using the hierarchy described above for the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018:
June 30, 2019 | ||||||||||||||||
Total | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) | |||||||||||||
Marketable securities | $ | $ | $ | $ | ||||||||||||
Equity investment in MRI | $ | $ | $ | — | $ | — | ||||||||||
Stock appreciation rights liability | $ | $ | $ | $ | ||||||||||||
Deferred consideration payable | $ | $ | $ | $ | ||||||||||||
Contingent consideration payable- development and regulatory milestones | $ | $ | $ | $ | ||||||||||||
Contingent consideration payable- net sales milestones and royalties | $ | $ | $ | $ | ||||||||||||
December 31, 2018 | ||||||||||||||||
Total | Quoted prices in active markets for identical assets (level 1) | Significant other observable inputs (level 2) | Significant unobservable inputs (level 3) | |||||||||||||
Marketable securities | $ | $ | $ | $ | ||||||||||||
Stock appreciation rights liability | $ | $ | $ | $ | ||||||||||||
Deferred consideration payable | $ | $ | $ | $ | ||||||||||||
Contingent consideration payable- development and regulatory milestones | $ | $ | $ | $ | ||||||||||||
Contingent consideration payable- net sales milestones and royalties | $ | $ | $ | $ | ||||||||||||
No transfers of assets between Level 1, Level 2, or Level 3 of the fair value measurement hierarchy occurred during the periods ended June 30, 2019 and December 31, 2018.
The following is a summary of marketable securities accounted for as available-for-sale securities at June 30, 2019 and December 31, 2018:
June 30, 2019 | ||||||||||||||||
Amortized Cost | Gross Unrealized | Fair Value | ||||||||||||||
Gains | Losses | |||||||||||||||
Commercial paper | $ | $ | $ | $ | ||||||||||||
Corporate debt securities | ( | ) | ||||||||||||||
Asset-backed securities | ||||||||||||||||
Total | $ | $ | $ | ( | ) | $ | ||||||||||
December 31, 2018 | ||||||||||||||||
Amortized Cost | Gross Unrealized | Fair Value | ||||||||||||||
Gains | Losses | |||||||||||||||
Commercial paper | $ | $ | $ | ( | ) | $ | ||||||||||
Corporate debt securities | ( | ) | ||||||||||||||
Total | $ | $ | $ | ( | ) | $ | ||||||||||
At June 30, 2019 and December 31, 2018, the Company held securities with an unrealized loss position that were not considered to be other-than-temporarily impaired as the Company has the ability to hold such investments until recovery of their fair value. Unrealized gains and losses are reported as a component of accumulated other comprehensive (loss) income in stockholders’ equity. As of June 30, 2019 and December 31, 2018, the Company did not have any realized gains/losses from the sale of marketable securities.
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The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of June 30, 2019 are as follows:
June 30, 2019 | ||||||||||||||||||||||||
Securities in an unrealized loss position less than 12 months | Securities in an unrealized loss position greater than 12 months | Total | ||||||||||||||||||||||
Unrealized losses | Fair Value | Unrealized losses | Fair Value | Unrealized losses | Fair Value | |||||||||||||||||||
Commercial paper | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Corporate debt securities | ( | ) | ( | ) | ||||||||||||||||||||
Asset-backed securities | ||||||||||||||||||||||||
Total | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||
The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of December 31, 2018 are as follows:
December 31, 2018 | ||||||||||||||||||||||||
Securities in an unrealized loss position less than 12 months | Securities in an unrealized loss position greater than 12 months | Total | ||||||||||||||||||||||
Unrealized losses | Fair Value | Unrealized losses | Fair Value | Unrealized losses | Fair Value | |||||||||||||||||||
Commercial paper | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||
Corporate debt securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Total | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||
Marketable securities on the balance sheet at June 30, 2019 and December 31, 2018 mature as follows:
June 30, 2019 | ||||||||
Less Than 12 Months | More Than 12 Months | |||||||
Commercial paper | $ | $ | ||||||
Corporate debt securities | ||||||||
Asset-backed securities | ||||||||
Total Marketable securities | $ | $ | ||||||
December 31, 2018 | ||||||||
Less Than 12 Months | More Than 12 Months | |||||||
Commercial paper | $ | $ | ||||||
Corporate debt securities | ||||||||
Total Marketable securities | $ | $ | ||||||
The Company classifies all of its securities as current as they are all available for sale and are available for current operations.
Convertible 3.0% senior notes
In August 2015, the Company issued $150.0 million of 3.0 % convertible senior notes due August 15, 2022 (the “Convertible Notes”). Interest is payable semi-annually on February 15 and August 15 of each year, beginning on February 15, 2016. The Company separately accounted for the liability and equity components of the Convertible Notes by allocating the proceeds between the liability component and equity component, as further discussed in Note 10. The fair value of the Convertible Notes, which differs from their carrying values, is influenced by interest rates, the Company’s stock price and stock price volatility and is determined by prices for the Convertible Notes observed in market trading which are Level 2 inputs. The estimated fair value of the Convertible Notes at June 30, 2019 and December 31, 2018 was $166.2 million and $146.6 million, respectively.
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and borrowings under the credit and security agreement with MidCap Financial Trust and other financial institutions (as further discussed in Note 10) approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts for the credit and security agreement approximate fair value based on market activity for other debt instruments with similar characteristics and comparable risk.
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Deferred consideration payable
Pursuant to the Merger Agreement, Agilis equityholders may become entitled to receive contingent consideration payments from the Company based on the achievement of certain development milestones up to an aggregate maximum amount of $60.0 million and the achievement of certain regulatory approval milestones together with a milestone payment following the receipt of a priority review voucher up to an aggregate maximum amount of $535.0 million. The Company is required to pay $40.0 million of development milestone payments no later than the second anniversary of the closing of the Merger, regardless of whether the applicable milestones have been achieved. The fair value of the deferred consideration payable at June 30, 2019 was estimated to be $38.2 million by applying a discounted cash flow approach. The discount rates are estimated utilizing Corporate B rated bonds maturing in the years of expected payments based on the Company’s estimated development timelines for the acquired product candidates. As of June 30, 2019, $19.4 million of the deferred consideration payable was classified as current on the balance sheet.
Level 3 valuation
The stock appreciation rights ("SARs") liability is classified in other liabilities on the Company’s consolidated balance sheets. The SARs liability is marked-to-market each reporting period with the change in fair value recorded as compensation expense on the Company’s consolidated statements of operations until the SARs vest. The fair value of the SARs liability is determined at each reporting period by utilizing the Black-Scholes option pricing model.
The table presented below is a summary of changes in the fair value of the Company’s Level 3 valuations for the SARs liability, and the contingent consideration payable for the period ended June 30, 2019. The changes in the fair value of the Company's Level 3 valuations for the period ended June 30, 2018 were immaterial.
Level 3 liabilities | |||||||||||
SARs | Contingent consideration payable- development and regulatory milestones | Contingent consideration payable- net sales milestones and royalties | |||||||||
Beginning balance as of December 31, 2018 | $ | $ | $ | ||||||||
Additions | |||||||||||
Change in fair value | |||||||||||
Payments | ( | ) | |||||||||
Ending balance as of June 30, 2019 | $ | $ | $ | ||||||||
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The following significant unobservable inputs were used in the valuation of the SARs liability, and the contingent consideration payable for the periods ended June 30, 2019 and December 31, 2018:
June 30, 2019 | ||||||||
Fair Value | Valuation Technique | Unobservable Input | Range | |||||
SARs | $ | Option-pricing model | Volatility | |||||
Risk free interest rate | ||||||||
Strike price | $6.76 - $30.86 | |||||||
Fair value of common stock | $ | |||||||
Expected life | 0.52 years | |||||||
Contingent consideration payable- development and regulatory milestones | $ | Probability-adjusted discounted cash flow | Potential development and regulatory milestones | $0 - $555 million | ||||
Probabilities of success | 25% - 94% | |||||||
Discount rates | 3.8% - 5.7% | |||||||
Projected years of payments | 2020 - 2026 | |||||||
Contingent considerable payable- net sales milestones and royalties | $ | Option-pricing model with Monte Carlo simulation | Potential net sales milestones | $0 - $150 million | ||||
Probabilities of success | 25% - 89% | |||||||
Potential percentage of net sales for royalties | 2% - 6% | |||||||
Discount rate | ||||||||
Projected years of payments | 2021 - 2038 | |||||||
December 31, 2018 | ||||||||
Fair Value | Valuation Technique | Unobservable Input | Range | |||||
SARs | $ | Option-pricing model | Volatility | 46.53% - 59.59% | ||||
Risk free interest rate | 2.44% - 2.63% | |||||||
Strike price | $6.76 - $30.86 | |||||||
Fair value of common stock | $ | |||||||
Expected life | 0.01 - 1.01 years | |||||||
Contingent consideration payable- development and regulatory milestones | $ | Probability-adjusted discounted cash flow | Potential development and regulatory milestones | $0 - $555 million | ||||
Probabilities of success | 25% - 94% | |||||||
Discount rates | 5.8% - 8.0% | |||||||
Projected years of payments | 2020 - 2026 | |||||||
Contingent considerable payable- net sales milestones and royalties | $ | Option-pricing model with Monte Carlo simulation | Potential net sales milestones | $0 - $150 million | ||||
Probabilities of success | 25% - 89% | |||||||
Potential percentage of net sales for royalties | 2% - 6% | |||||||
Discount rate | ||||||||
Projected years of payments | 2021 - 2038 | |||||||
The contingent consideration is classified as a Level 3 liability as its valuation requires substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were used for the various inputs to the valuation approach, including but not limited to, assumptions involving probability adjusted sales estimates for the Agilis platform and estimated discount rates, the estimated fair value could be significantly higher or lower than the fair value determined.
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5. | Other comprehensive income (loss) and accumulated other comprehensive items |
Other comprehensive income (loss) includes changes in equity that are excluded from net income (loss), such as unrealized gains and losses on marketable securities.
The following tables summarize other comprehensive income (loss) and the changes in accumulated other comprehensive items for the three and six months ended June 30, 2019:
Unrealized Gains/(Losses) On Marketable Securities, net of tax | Foreign Currency Translation | Total Accumulated Other Comprehensive Items | ||||||||||
Balance at March 31, 2019 | $ | $ | $ | |||||||||
Other comprehensive income before reclassifications | ||||||||||||
Amounts reclassified from other comprehensive items | ||||||||||||
Other comprehensive income | ||||||||||||
Balance at June 30, 2019 | $ | $ | $ | |||||||||
Unrealized Gains/(Losses) On Marketable Securities, net of tax | Foreign Currency Translation | Total Accumulated Other Comprehensive Items | ||||||||||
Balance at December 31, 2018 | $ | $ | $ | |||||||||
Other comprehensive income (loss) before reclassifications | ( | ) | ||||||||||
Amounts reclassified from other comprehensive items | ||||||||||||
Other comprehensive income (loss) | ( | ) | ||||||||||
Balance at June 30, 2019 | $ | $ | $ | |||||||||
6. | Accounts payable and accrued expenses |
Accounts payable and accrued expenses at June 30, 2019 and December 31, 2018 consist of the following:
June 30, 2019 | December 31, 2018 | |||||||
Employee compensation, benefits, and related accruals | $ | $ | ||||||
Consulting and contracted research | ||||||||
Professional fees | ||||||||
Sales allowance and other costs | ||||||||
Sales rebates and royalties | ||||||||
Accounts payable | ||||||||
Other | ||||||||
$ | $ | |||||||
7. | Capitalization |
In January 2019, the Company closed an underwritten public offering of its common stock pursuant to a registration statement on Form S-3. The Company issued and sold an aggregate of 7,563,725 shares of common stock under the registration statement at a public offering price of $30.20 per share, including 843,725 shares issued upon exercise by the underwriter of its option to purchase additional shares in February 2019. The Company received net proceeds of $224.5 million after deducting underwriting discounts and commissions and other offering expenses payable by the Company.
Warrants
All of the Company’s outstanding warrants were classified as liabilities as of June 30, 2019 and December 31, 2018 because they contained non-standard antidilution provisions. The fair value of the warrants as of June 30, 2019 and December 31, 2018 was immaterial.
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The following is a summary of the Company’s outstanding warrants as of June 30, 2019 and December 31, 2018:
Warrant shares | Exercise price | Expiration | |||||||
Common stock | $ | September 2019 | |||||||
Common stock | $ | August 2019 | |||||||
8. Net loss per share
Basic earnings per share is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net loss by the weighted-average number of common shares plus the effect of any dilutive potential common shares outstanding during the period.
The following tables set forth the computation of basic and diluted net loss per share:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Numerator | ||||||||||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Denominator | ||||||||||||||||
Denominator for basic and diluted net loss per share | ||||||||||||||||
Net loss per share: | ||||||||||||||||
Basic and diluted | $ | ( | ) | * | $ | ( | ) | * | $ | ( | ) | * | $ | ( | ) | * |
*In the three and six months ended June 30, 2019 and 2018, the Company experienced a net loss and therefore did not report any dilutive share impact.
The following table shows historical dilutive common share equivalents outstanding, which are not included in the above historical calculation, as the effect of their inclusion is anti-dilutive during each period.
As of June 30, | |||||
2019 | 2018 | ||||
Stock Options | |||||
Unvested restricted stock awards and units | |||||
Total | |||||
9. | Stock award plan |
On March 5, 2013, the Company’s Board of Directors approved the 2013 Stock Incentive Plan, which provides for the granting of stock option awards, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards in the aggregate of 739,937 shares of common stock. On March 5, 2013, the Board approved a grant of 735,324 shares of restricted stock and 4,613 stock options. There are no additional shares available for issuance under this plan.
In 2009, the Company’s shareholders approved the 2009 Equity and Long-Term Incentive Plan, which provides for the granting of stock option awards, restricted stock awards, and other stock-based and cash-based awards, subject to certain adjustments and annual increases. In May 2013, the Company’s Board of Directors and stockholders increased by 2,500,000 the number of shares authorized under the 2009 Equity and Long Term Incentive Plan, which provides for the granting of stock option awards, restricted stock awards, and other stock-based and cash-based awards. There are no additional shares available for issuance under this plan.
In May 2013, the Company’s Board of Directors and stockholders approved the 2013 Long Term Incentive Plan, which became effective upon the closing of the Company’s initial public offering. The 2013 Long Term Incentive Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards and other stock-based awards. The number of shares of common stock reserved for issuance under the 2013 Long Term Incentive Plan is the sum of (1) 122,296 shares of common stock available for issuance under the Company’s 2009 Equity and Long Term Incentive Plan and 2013 Stock Incentive Plan, (2) the number of shares (up to 3,040,444 shares) equal to the sum of the number of shares of common stock subject to outstanding awards under the Company’s 1998 Employee, Director and Consultant Stock Option Plan, 2009 Equity and Long Term Incentive
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Plan and 2013 Stock Incentive Plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right plus (3) an annual increase, to be added on the first day of each fiscal year until the expiration of the 2013 Long Term Incentive Plan, equal to the lowest of 2,500,000 shares of common stock, 4 % of the number of shares of common stock outstanding on the first day of the fiscal year and an amount determined by the Company’s Board of Directors. As of June 30, 2019, awards for 302,538 shares of common stock are available for issuance.
From January 1, 2019 through June 30, 2019, the Company issued a total of 2,845,620 stock options to various employees. Of those, 579,700 were inducement grants for non-statutory stock options. The inducement grant awards were made pursuant to the Nasdaq Listing Rule 5635(c)(4) inducement grant exception as a material component of the Company's new hires’ employment compensation and not under the 2013 Long Term Incentive Plan.
A summary of stock option activity is as follows:
Number of options | Weighted- average exercise price | Weighted- average remaining contractual term | Aggregate intrinsic value (in thousands) | ||||||||||
Outstanding at December 31, 2018 | $ | ||||||||||||
Granted | $ | ||||||||||||
Exercised | ( | ) | $ | ||||||||||
Forfeited/Cancelled | ( | ) | $ | ||||||||||
Outstanding at June 30, 2019 | $ | $ | |||||||||||
Vested or Expected to vest at June 30, 2019 | $ | $ | |||||||||||
Exercisable at June 30, 2019 | $ | $ | |||||||||||
The fair value of grants made in the six months ended June 30, 2019 was contemporaneously estimated on the date of grant using the following assumptions:
Six months ended June 30, 2019 | ||
Risk-free interest rate | 1.98 - 2.63% | |
Expected volatility | 61.90 - 63.09% | |
Expected term | 6.11 years | |
The Company assumed no expected dividends for all grants. The weighted average grant date fair value of options granted during the six-month period ended June 30, 2019 was $20.01 per share.
The Company uses the “simplified method” to determine the expected term of options. Under this method, the expected term represents the average of the vesting period and the contractual term. The expected volatility of share options was estimated based on a historical volatility analysis of peers that were similar to the Company with respect to industry, stage of life cycle, size, and financial leverage. The risk-free rate of the option is based on U.S. Government Securities Treasury Constant Maturities yields at the date of grant for a term similar to the expected term of the option.
Restricted Stock Awards—Restricted stock awards are granted subject to certain restrictions, including in some cases service or time conditions (restricted stock). The grant-date fair value of restricted stock awards, which has been determined based upon the market value of the Company’s shares on the grant date, is expensed over the vesting period.
Restricted Stock Units—Restricted stock units are granted subject to certain restrictions, including in some cases service or time conditions (restricted stock). The grant-date fair value of restricted stock units, which has been determined based upon the market value of the Company’s shares on the grant date, is expensed over the vesting period.
26
The following table summarizes information on the Company’s restricted stock awards and units:
Restricted Stock Awards and Units | |||||||
Number of Shares | Weighted Average Grant Date Fair Value | ||||||
January 1, 2019 | $ | ||||||
Granted | $ | ||||||
Vested | ( | ) | $ | ||||
Forfeited | ( | ) | $ | ||||
Unvested at June 30, 2019 | $ | ||||||
Stock Appreciation Rights—SARs entitle the holder to receive, upon exercise, an amount of the Company's common stock or cash (or a combination thereof) determined by reference to appreciation, from and after the date of grant, in the fair market value of a share of the Company's common stock over the measurement price based on the exercise date.
In May 2016, a total of 897,290 SARs were granted to non-executive employees (the "2016 SARs"). The 2016 SARs will vest annually in equal installments over four years and will be settled in cash on each vest date, requiring the Company to remeasure the SARs at each reporting period until vesting occurs. For the six month period ended June 30, 2019, a total of 157,930 SARs vested. For the three and six month periods ended June 30, 2019, the Company recorded $0.9 million and $1.9 million, respectively, in compensation expense related to the 2016 SARs.
Employee Stock Purchase Plan—In June 2016, the Company established an Employee Stock Purchase Plan (“ESPP” or the "Plan”) for certain eligible employees. The Plan is administered by the Company’s Board of Directors or a committee appointed by the Company's Board of Directors. The total number of shares available for purchase under the Plan is one million shares of the Company’s common stock. Employees may participate over a six-month period through payroll withholdings and may purchase, at the end of the six-month period, the Company’s common stock at a purchase price of at least 85 % of the closing price of a share of the Company’s common stock on the first business day of the offering period or the closing price of a share of the Company’s common stock on the last business day of the offering period, whichever is lower. No participant will be granted a right to purchase the Company’s common stock under the Plan if such participant would own more than 5 % of the total combined voting power of the Company or any subsidiary of the Company after such purchase. For the three and six month periods ended June 30, 2019, the Company recorded $0.3 million and $0.6 million, respectively, in compensation expense related to the ESPP.
The Company recorded share-based compensation expense in the statement of operations related to incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock units and the ESPP as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Research and development | $ | $ | $ | $ | ||||||||||||
Selling, general and administrative | ||||||||||||||||
Total | $ | $ | $ | $ | ||||||||||||
As of June 30, 2019, there was approximately $105.8 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the 2009 Equity and Long Term Incentive Plan, the 2013 Long Term Incentive Plan and equity awards made pursuant to the Nasdaq Listing Rule 5635(c)(4) inducement grant exception for new hires. This cost is expected to be recognized as share-based compensation expense over the weighted average remaining service period of approximately 3.10 years.
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10. | Debt |
2017 Credit Facility
In May 2017, the Company entered into a credit and security agreement (the "Credit Facility") with MidCap Financial Trust, a Delaware statutory trust (“MidCap”), as administrative agent and MidCap and certain other financial institutions as lenders thereunder (the “Credit Agreement”) that provides for a senior secured term loan facility of $60.0 million, of which $40.0 million was drawn by the Company on May 5, 2017. The Company's ability to draw on the remaining $20.0 million under the senior secured term loan facility expired on December 31, 2018. The Company capitalized approximately $0.4 million of debt issuance costs, which were netted against the carrying value of the Credit Facility and will be amortized over the term of the Credit Facility. As of June 30, 2019, the Company had made loan repayments of $1.7 million on the Credit Facility.
Borrowings under the Credit Agreement bear interest at a rate per annum equal to LIBOR (with a LIBOR floor rate of 1.00 %) plus 6.15 %. The Company was obligated to make interest only payments (payable monthly in arrears) through April 30, 2019. Commencing on May 1, 2019 and continuing for the remaining twenty-four months of the facility, the Company is required to make monthly interest payments and monthly principal payments. The principal payments are to be made based on straight-line amortization of the principal over the twenty-four month period. The maturity date of the Credit Agreement is May 1, 2021, unless terminated earlier.
The Credit Facility is subject to certain financial covenants. As of June 30, 2019, the Company was in compliance with all required covenants.
Convertible Notes
In August 2015, the Company issued, at par value, $150.0 million aggregate principal amount of 3.0 % convertible senior notes due 2022 (the "Convertible Notes"). The Convertible Notes bear cash interest at a rate of 3.0 % per year, payable semi-annually on February 15 and August 15 of each year, beginning on February 15, 2016. The Convertible Notes will mature on August 15, 2022, unless earlier repurchased or converted. The net proceeds to the Company from the offering were $145.4 million after deducting the initial purchasers’ discounts and commissions and the offering expenses payable by the Company.
The Convertible Notes are governed by an indenture (the "Convertible Notes Indenture") with U.S Bank National Association as trustee (the "Convertible Notes Trustee").
Holders may convert their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding February 15, 2022 only under the following circumstances:
· during any calendar quarter commencing on or after September 30, 2015 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;
· during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Convertible Notes Indenture) per $1,000 principal amount of Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;
· during any period after the Company has issued notice of redemption until the close of business on the scheduled trading day immediately preceding the relevant redemption date; or
· upon the occurrence of specified corporate events.
On or after February 15, 2022, until the close of business on the business day immediately preceding the maturity date, holders may convert their Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and deliver shares of its common stock in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of Convertible Notes being converted.
The conversion rate for the Convertible Notes was initially, and remains, 17.7487 shares of the Company’s common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $56.34 per share of the Company’s common stock.
The Company was not permitted to redeem the Convertible Notes prior to August 20, 2018. As of August 20, 2018, the Company may redeem for cash all or any portion of the Convertible Notes, at its option, if the last reported sale price of its common stock has been at least 130 % of the conversion price then in effect on the last trading day of, and for at least 19 other trading days
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(whether or not consecutive) during, any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100 % of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Convertible Notes, which means that the Company is not required to redeem or retire the Convertible Notes periodically. There have been no redemptions to date.
If the Company undergoes a “fundamental change” (as defined in the Indenture governing the Convertible Notes Indenture), subject to certain conditions, holders of the Convertible Notes may require the Company to repurchase for cash all or part of their Convertible Notes at a repurchase price equal to 100 % of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Convertible Notes Indenture contains customary events of default with respect to the Convertible Notes, including that upon certain events of default (including the Company’s failure to make any payment of principal or interest on the Convertible Notes when due and payable) occurring and continuing, the Convertible Notes Trustee by notice to the Company, or the holders of at least 25 % in principal amount of the outstanding Convertible Notes by notice to the Company and the Convertible Notes Trustee, may, and the Convertible Notes Trustee at the request of such holders (subject to the provisions of the Convertible Notes Indenture) shall, declare 100 % of the principal of and accrued and unpaid interest, if any, on all the Convertible Notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving the Company or a significant subsidiary, 100 % of the principal of and accrued and unpaid interest on the Convertible Notes will automatically become due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately.
The Company accounts for the Convertible Notes as a liability and equity component where the carrying value of the liability component will be valued based on a similar instrument. In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Convertible Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized to interest expense over the seven-year term of the Convertible Notes. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The equity component recorded at issuance related to the Convertible Notes is $57.5 million and was recorded in additional paid-in capital.
In accounting for the transaction costs related to the issuance of the Convertible Notes, the Company allocated the total costs incurred to the liability and equity components of the Convertible Notes based on their relative values. Transaction costs attributable to the liability component are amortized to interest expense over the seven-year term of the Convertible Notes, and transaction costs attributable to the equity component are netted with the equity components in stockholders’ equity. Additionally, the Company initially recorded a net deferred tax liability of $22.3 million in connection with the Notes.
The Convertible Notes consist of the following:
Liability component | June 30, 2019 | December 31, 2018 | ||||||
Principal | $ | $ | ||||||
Less: Debt issuance costs | ( | ) | ( | ) | ||||
Less: Debt discount, net(1) | ( | ) | ( | ) | ||||
Net carrying amount | $ | $ | ||||||
(1) Included in the consolidated balance sheets within convertible senior notes (due 2022) and amortized to interest expense over the remaining life of the Convertible Notes using the effective interest rate method.
As of June 30, 2019, the remaining contractual life of the Convertible Notes is approximately 3.1 years.
The following table sets forth total interest expense recognized related to the Convertible Notes:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Contractual interest expense | $ | $ | $ | $ | ||||||||||||
Amortization of debt issuance costs | ||||||||||||||||
Amortization of debt discount | ||||||||||||||||
Total | $ | $ | $ | $ | ||||||||||||
Effective interest rate of the liability component | % | % | % | % | ||||||||||||
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11. | Commitments and contingencies |
Under various agreements, the Company will be required to pay royalties and milestone payments upon the successful development and commercialization of products. The Company has entered into funding agreements with The Wellcome Trust Limited ("Wellcome Trust") for the research and development of small molecule compounds in connection with the Company's oncology and antibacterial programs. As the Company has discontinued development under its antibacterial program, it no longer expects that milestone and royalty payments from the Company to Wellcome Trust will apply under that agreement, resulting in a change to the total amount of development and regulatory milestone payments the Company may become obligated to pay for this program. Under the oncology program funding agreement, to the extent that the Company develops and commercializes program intellectual property on a for-profit basis itself or in collaboration with a partner (provided the Company retains overall control of worldwide commercialization), the Company may become obligated to pay to Wellcome Trust development and regulatory milestone payments and single-digit royalties on sales of any research program product. The Company’s obligation to pay such royalties would continue on a country-by-country basis until the longer of the expiration of the last patent in the program intellectual property in such country covering the research program product and the expiration of market exclusivity of such product in such country. The Company’s first such milestone payment of $0.8 million payable to Wellcome Trust occurred in the second quarter of 2016. Additional milestone payments of up to an aggregate of $22.4 million may become payable by the Company to Wellcome Trust under this agreement.
The Company has also entered into a collaboration agreement with the SMA Foundation. The Company may become obligated to pay the SMA Foundation single-digit royalties on worldwide net product sales of any collaboration product that is successfully developed and subsequently commercialized or, if the Company outlicenses rights to a collaboration product, a specified percentage of certain payments the Company receives from its licensee. The Company is not obligated to make such payments unless and until annual sales of a collaboration product exceed a designated threshold. The Company’s obligation to make such payments would end upon the Company's payment to the SMA Foundation of a specified amount.
Pursuant to the Merger Agreement with Agilis, Agilis equityholders may become entitled to receive contingent consideration payments from the Company based on (i) the achievement of certain development milestones up to an aggregate maximum amount of $60.0 million, (ii) the achievement of certain regulatory approval milestones together with a milestone payment following the receipt of a priority review voucher up to an aggregate maximum amount of $535.0 million, (iii) the achievement of certain net sales milestones up to an aggregate maximum amount of $150.0 million, and (iv) a percentage of annual net sales for Friedreich Ataxia and Angelman Syndrome during specified terms, ranging from 2 %-6 %. The Company is required to pay $40.0 million of the development milestone payments no later than the second anniversary of the closing of the Merger, regardless of whether the applicable milestones have been achieved.
The Company also has a Collaboration and License Agreement with Akcea Therapeutics, Inc. ("Akcea") for the commercialization of Tegsedi and Waylivra, and products containing those compounds in countries in Latin America and the Caribbean (the "Akcea Collaboration and License Agreement"). Pursuant to the agreement, the Company paid Akcea an upfront licensing fee, which included an initial payment of $12.0 million. An additional $6.0 million was paid to Akcea in the three month period ended June 30, 2019 upon regulatory approval of Waylivra from the EMA. In addition, Akcea is eligible to receive milestone payments, on a Product-by-Product basis, of $4.0 million upon receipt of regulatory approval for a product from ANVISA, subject to a maximum aggregate amount of $8.0 million for all such products. Akcea is also entitled to receive royalty payments subject to certain terms set forth in the Akcea Collaboration and License Agreement. The Company filed a request for marketing authorizations for Tegsedi with ANVISA.
The Company has employment agreements with certain employees which require the funding of a specific level of payments, if certain events, such as a change in control or termination without cause, occur. Additionally, the Company has royalty payments associated with Translarna and Emflaza product net sales, payable quarterly or annually in accordance with the terms of the related agreements.
From time to time in the ordinary course of its business, the Company is subject to claims, legal proceedings and disputes, including as a result of patients seeking to participate in the Company's clinical trials or otherwise gain access to its product candidates. The Company is not currently aware of any material legal proceedings against it.
12. Revenue recognition
Net product sales
The Company views its operations and manages its business in one operating segment. During the three months ended June 30, 2019 and 2018, net product sales in the United States were $27.6 million and $20.3 million respectively, consisting solely of Emflaza, and net product sales not in the United States were $57.8 million and $47.8 million, respectively, consisting of Translarna and Tegsedi. During the six months ended June 30, 2019 and 2018, net product sales in the United States were $45.4 million and
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$39.5 million respectively, consisting solely of Emflaza, and net product sales not in the United States were $93.0 million and $84.6 million, respectively, consisting of Translarna and Tegsedi.
The following table presents changes in the Company’s contract liabilities from December 31, 2018 to June 30, 2019 and December 31, 2017 to June 30, 2018:
Balance as of December 31, 2018 | Additions | Deductions | ASC 606 Adjustment | Balance as of June 30, 2019 | ||||||||||||||||
Deferred Revenue | $ | $ | $ | $ | $ | |||||||||||||||
Balance as of December 31, 2017 | Additions | Deductions | ASC 606 Adjustment | Balance as of June 30, 2018 | ||||||||||||||||
Deferred Revenue | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
The Company did not have any contract assets for the three and six month periods ended June 30, 2019 and 2018.
During the three and six month periods ended June 30, 2019 and 2018, the Company recognized revenue in the period from:
Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | ||||||||||||
Amounts included in contract liabilities at the beginning of the period | $ | $ | $ | $ | |||||||||||
Performance obligations satisfied in previous period | |||||||||||||||
Performance obligations satisfied in current period | |||||||||||||||
Total product revenue | $ | $ | $ | $ | |||||||||||
The Company has not made significant changes to the judgments made in applying ASC Topic 606 for the three and six month periods ended June 30, 2019 and 2018.
Remaining performance obligations
Remaining performance obligations represent the transaction price for goods the Company has yet to provide. As of June 30, 2019 and 2018, the aggregate amount of transaction price allocated to remaining performance obligations relating to Translarna net product revenue was $15.8 million and $10.5 million, respectively. The Company expects to recognize revenue over the next one to three years as the specific timing for satisfying the performance obligations is contingent upon a number of factors, including customers’ needs and schedules.
Collaboration revenue
The Company has ongoing collaborations with the Spinal Muscular Atrophy Foundation ("SMA Foundation") and F. Hoffman-La Roche Ltd and Hoffman- La Roche Inc. (collectively, "Roche") and early stage discovery arrangements with other institutions. The following are the key terms to the Company’s (i) ongoing collaborations and (ii) early stage discovery and development arrangements.
Roche and SMA Foundation
In November 2011, the Company and the SMA Foundation entered into a licensing and collaboration agreement with Roche for a spinal muscular atrophy program. Under the terms of the agreement, Roche acquired an exclusive worldwide license to the Company’s spinal muscular atrophy program, which includes three compounds currently in preclinical development, as well as potential back-up compounds. The Company received a nonrefundable upfront cash payment of $30.0 million during the research term, which was terminated effective December 31, 2014, after which Roche provided the Company with funding, based on an agreed- upon full-time equivalent rate, for an agreed-upon number of full-time equivalent employees that the Company contributed to the research program.
The Company identified two material promises in the collaboration agreement, the license and the research activities. The Company evaluated whether these material promises are distinct and determined that the license does not have standalone functionality and there is a significant integration of the license and research activities. As such, both promises were bundled into one distinct performance obligation. As a result, the Company deferred the $30.0 million upfront payment which was recognized over the
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estimated performance period of two years, which was the contracted research period. As of adoption of ASC Topic 606 on January 1, 2018, all performance obligations had been satisfied and the balance of the remaining deferred upfront payment was fully recognized.
Under the agreement, the Company is 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.
In August 2013, a lead development compound, RG7800, was selected to move into IND-enabling studies, which triggered a milestone payment to the Company from Roche of $10.0 million. Under ASC Topic 605, the Company considered this milestone event substantive because the applicable criteria of its revenue recognition policy would be satisfied and recorded it as collaboration revenue for the year ended December 31, 2013.
In January 2014, the Company announced the initiation of a Phase 1 clinical program in its spinal muscular atrophy collaboration with Roche and the SMA Foundation which triggered a $7.5 million milestone payment from Roche. Under ASC Topic 605, the Company considered this milestone event substantive because the applicable criteria of its revenue recognition policy would be satisfied and recorded it as collaboration revenue for the year ended December 31, 2014.
In November 2014, the Company announced the initiation of a Phase 2 study in adult and pediatric patients in its spinal muscular atrophy collaboration with Roche and the SMA Foundation which triggered a $10 million payment from Roche. Under ASC Topic 605, the Company considered this milestone event substantive because the applicable criteria of its revenue recognition policy would be satisfied and recorded it as collaboration revenue for the year ended December 31, 2014.
In October 2017, the Company announced that the Sunfish, a two-part clinical trial in pediatric and adult type 2 and type 3 spinal muscular atrophy initiated in the fourth quarter of 2016 with Roche and SMA Foundation, had transitioned into the pivotal second part of its study. The achievement of this milestone triggered a $20.0 million payment to the Company from Roche. Under ASC Topic 605, the Company considered this milestone event substantive because the applicable criteria of its revenue recognition policy would be satisfied and recorded it as collaboration revenue for the year ended December 31, 2017.
The remaining potential research and development event milestones that can be received as of June 30, 2019 is $87.5 million. The remaining potential sales milestones as of June 30, 2019 is $325.0 million upon achievement of certain sales events. In addition, the Company is eligible to receive up to double digit royalties on worldwide annual net sales of a commercial product.
For the three months ended June 30, 2019 and 2018, the Company recognized revenue related to the licensing and collaboration agreement with Roche of $0.1 million and $0.1 million, respectively. For the six months ended June 30, 2019 and 2018, the Company recognized revenue related to the licensing and collaboration agreement with Roche of $0.1 million and $0.1 million, respectively.
Early stage collaboration and discovery agreements
From time to time, the Company has arrangements with several organizations pursuant to which the Company uses its discovery technologies to help identify potential drug candidates. The Company does not take ownership of the potential compounds, but rather provides research services to the collaborator using its specialized technology platform.
Generally, these arrangements are structured such that the collaborator and the Company work together to jointly select targets from which to apply its discovery technologies. The research period for the Company to apply its technology is generally three to four years. The Company will typically receive a nonrefundable, upfront cash payment and the collaborator agrees to provide funding for research activities performed on its behalf.
Generally, the two material promises in these arrangements are the license and the research activities. The Company evaluated whether these material promises are distinct and determined that the license does not have standalone functionality and there is a significant integration of the license and research activities. As such, both promises are bundled into one distinct performance obligation. As of adoption of ASC Topic 606 on January 1, 2018, all deferred revenue related to these arrangements had been recognized. For the three and six months ended June 30, 2019 and 2018, the Company did not recognize any revenue related to discovery agreements.
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13. | Intangible assets and goodwill |
Definite-lived intangibles
On April 20, 2017, the Company completed its previously announced acquisition of all rights to Emflaza pursuant to the Asset Purchase Agreement, dated March 15, 2017, and amended on April 20, 2017, by and between the Company and Marathon. The assets acquired by the Company in the Transaction include intellectual property rights related to Emflaza, inventories of Emflaza, and certain contractual rights related to Emflaza. In accordance with ASU No. 2017-01, the Company determined that substantially all of the fair value is concentrated in the Emflaza rights intangible asset and as such accounted for the transaction as an asset acquisition under ASC 805-50 and recorded an intangible asset of $148.4 million.
The Emflaza rights intangible asset is being amortized to cost of product sales over its expected useful life of approximately seven years on a straight line basis.
Marathon is entitled to receive contingent payments from the Company based on annual net sales of Emflaza up to a specified aggregate maximum amount over the expected commercial life of the asset. In accordance with the guidance for an asset acquisition, the Company will record the milestone payment when it becomes payable to Marathon and increase the cost basis for the Emflaza rights intangible asset. For the three month periods ended June 30, 2019 and 2018, milestone payments of $8.3 million and $3.9 million were recorded, respectively.
Pursuant to the Akcea Collaboration and License Agreement, in May 2019 the Company made a $6.0 million milestone payment to Akcea upon regulatory approval of Waylivra from the EMA. The payment was recorded as an intangible asset and is being amortized to cost of product sales over its expected useful life of approximately ten years on a straight line basis. Akcea is also entitled to receive royalty payments subject to certain terms set forth in the Akcea Collaboration and License Agreement related to sales of Waylivra. In accordance with the guidance for an asset acquisition, the Company will record royalty payments when they become payable to Akcea and increase the cost basis for the Waylivra intangible asset.
For the three month periods ended June 30, 2019 and 2018, the Company recognized amortization expense of $6.6 million and $5.6 million, respectively, related to the Emflaza rights and Waylivra intangible assets. For the six month periods ended June 30, 2019 and 2018, the Company recognized amortization expense of $12.7 million and $11.0 million, respectively, related to the Emflaza rights and Waylivra intangible assets.
The estimated future amortization of the Emflaza rights and Waylivra intangible asset is expected to be as follows:
As of June 30, 2019 | ||||
2019 | $ | |||
2020 | ||||
2021 | ||||
2022 | ||||
2023 and thereafter | ||||
Total | $ | |||
Indefinite-lived intangibles
In connection with the acquisition of Agilis, the Company acquired rights to PTC-AADC, for the treatment of AADC deficiency. AADC deficiency is a rare CNS disorder arising from reductions in the enzyme AADC that result from mutations in the dopa decarboxylase gene. The Agilis platform also includes a gene therapy asset targeting Friedreich ataxia, a rare and life-shortening neurodegenerative disease caused by a single defect in the FXN gene which causes reduced production of the frataxin protein. An investigational new drug ("IND") submission with the FDA for this program is expected in late 2019. Additionally, the Agilis platform includes two other gene therapy programs targeting CNS disorders, including Angelman syndrome, a rare, genetic, neurological disorder characterized by severe developmental delays.
In accordance with the acquisition method of accounting, the Company allocated the acquisition cost for the Merger to the underlying assets acquired and liabilities assumed, based upon the estimated fair values of those assets and liabilities at the date of acquisition. The Company classified the fair value of the acquired IPR&D as indefinite lived intangible assets until the successful completion or abandonment of the associated research and development efforts. The value allocated to the indefinite lived intangible assets was $576.5 million.
Goodwill
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As a result of the Merger on August 23, 2018, the Company recorded $82.3 million of goodwill. There were no changes to the recorded value of goodwill for the three and six month periods ended June 30, 2019.
14. | Subsequent events |
On August 4, 2019, the Company and Bristol-Myers Squibb Company, (the “Landlord”) entered into a Lease Agreement (the “Lease”), relating to the lease of approximately 185,000 square feet of office, production and laboratory space at a facility located in Hopewell Township, New Jersey (the “Campus”).
The rental term of the Lease is currently estimated to commence on July 1, 2020 (the “Commencement Date”). Upon the Commencement Date, the Lease has an initial term of fifteen years (the “Initial Term”), with two consecutive 10-year renewal periods at the Company’s option.
The aggregate rent for the Initial Term will be approximately $88.0 million. The rental rate for the renewal periods will be 95 % of the Prevailing Market Rate (as defined in the Lease) and determined at the time of the exercise of the renewal. The Company is also responsible for maintaining certain insurance and the payment of proportional taxes, utilities and common area operating expenses.
Subject to the terms of the Lease, the Company has a right of first refusal to rent certain other space of the Campus, which would be triggered upon the Landlord’s issuance of a second round proposal or letter of intent to another tenant for such space. The Company also may seek to build a new separate building on the Campus, which may not contain less than 75,000 square feet (the “New Building”). Upon receipt of notice of the Company’s intention to build the New Building, the Landlord may, in its sole discretion, construct and lease the New Building to the Company or enter into a ground lease with the Company permitting the Company to construct the New Building. The term for the New Building will be fifteen years with two consecutive five-year renewal rights. Rent terms for the New Building will be determined based on the land value, construction and project costs subject to whether the Landlord or Company constructs the New Building.
The Company is also obligated to provide the Landlord with either an unconditional, irrevocable and transferable letter of credit (the “Letter of Credit”) in the amount of $7.5 million, for a term of not less than five years , as a security deposit, or the same amount as a cash security deposit within thirty days upon entering into the Lease. The Letter of Credit shall remain in effect continuously and shall either expire (i) sixty days after the Expiration Date (as defined in the Lease) or (ii) be automatically self-renewing until the Expiration Date. If the Lease is extended, the Company must continue to provide and maintain the Letter of Credit until sixty days after the extended Expiration Date. If after the fifth anniversary of the Commencement Date, the Company has not received notice of being in default of the Lease, then the Letter of Credit shall be reduced to $3.8 million.
The Lease contains customary events of default, representations, warranties and covenants.
The foregoing summary of the Lease and Letter of Credit are not complete and are qualified in their entirety by reference to the Lease and Letter of Credit, which will be filed as exhibits to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ending September 30, 2019.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 ended December 31, 2018 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2019, or our 2018 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 2018 Annual Report, and our actual results may differ materially from those anticipated in these forward-looking statements.
Our Company
We are a science-led 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 commercialize products is the foundation that drives our continued investment in a robust pipeline of transformative medicines and our mission to provide access to best-in-class treatments for patients who have an unmet medical need. Our strategy is to bring best-in-class therapies with differentiated clinical benefit to patients affected by rare disorders and to leverage our global commercial infrastructure to maximize value for our patients and other stakeholders.
Corporate Updates
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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 received marketing authorization from the European Commission in August 2014 for the treatment of nonsense mutation Duchenne muscular dystrophy, or nmDMD, in ambulatory patients aged five years and older in the 31 member states of the European Economic Area, or EEA. In July 2018, the European Commission approved a label-extension request to our marketing authorization for Translarna in the EEA to include patients from two to up to five years of age. During the quarter ended June 30, 2019, we recognized $57.8 million in net sales of Translarna. Translarna is currently available for the treatment of nmDMD in over 40 countries on a commercial basis or through a reimbursed early access program, or EAP program. We hold worldwide commercialization rights to Translarna for all indications in all territories. Emflaza is approved in the United States for the treatment of DMD in patients two years and older. During the quarter ended June 30, 2019, Emflaza achieved net sales of $27.6 million.
Our marketing authorization for Translarna in the EEA is subject to annual review and renewal by the European Commission following reassessment by the European Medicines Agency, or EMA, of the benefit-risk balance of the authorization, which we refer to as the annual EMA reassessment. In July 2019, the European Commission renewed our marketing authorization, making it effective, unless extended, through August 5, 2020. 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. The final report on the trial and open-label extension is to be submitted by us to the EMA by the end of the third quarter of 2022.
In September 2018, we submitted to the EMA a label-extension request to our marketing authorization in the EEA to include patients who are non-ambulatory. In June 2019, the Committee for Medicinal Products for Human Use, or CHMP, of the EMA informed us that it had adopted a negative opinion of our label-extension request. We have requested a re-examination of the procedure and expect the new examination to last approximately four months. However, there can be no assurances that we will successfully obtain such label extension. In conjunction with informing us of the negative opinion of our label-extension request, we were also informed by EMA representatives that the European Public Assessment Report, or EPAR, would be updated to clarify that patients who start Translarna while ambulatory are not required to discontinue treatment after loss of ambulation. Subsequently, we were informed that the EPAR could not be changed in the context of the current procedure. Should the re-examination of our label-extension request end with a negative opinion, we expect to continue our discussions with the EMA about their ability to change the EPAR as originally communicated to us.
In April 2019 we received approval for marketing authorization for Translarna in Brazil from ANVISA, the Brazilian health regulatory authority, for the treatment of nmDMD in ambulatory patients aged five years and older.
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 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 in the 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 the United States Food and Drug Administration, or FDA. In October 2017, the Office 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 the Office of New Drugs of the FDA. In February 2018, the Office of New Drugs of the FDA denied our appeal of the Complete Response Letter. In its response, the Office 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 intend to follow the FDA’s recommendation and will collect, using newer technologies via procedures and methods that we designed, such dystrophin data in a new study, Study 045, which we initiated in the fourth quarter of 2018. We expect that a potential re-submission of an NDA could occur in 2020. Additionally, should a re-submission of an NDA receive accelerated approval, the Office of New Drugs stated that Study 041, which is currently enrolling, could serve as the confirmatory post-approval trial required in connection with the accelerated approval framework.
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There is substantial risk that Study 045, or any other studies we may use to collect the dystrophin data, will not provide the necessary data to support a marketing approval for Translarna for the treatment of nmDMD in the U.S.
Emflaza was initially approved in the United States for the treatment of DMD in patients five years and older. In June 2019, the FDA approved our label expansion request for Emflaza for patients two to five years of age.
Gene Therapy Platform
We have a pipeline of gene therapy product candidates for rare monogenic diseases that affect the central nervous system, or CNS, including PTC-AADC for the treatment of Aromatic L-Amino Acid Decarboxylase, or AADC, deficiency, or AADC deficiency, a rare CNS disorder arising from reductions in the enzyme AADC that result from mutations in the dopa decarboxylase gene. We are preparing a biologics license application, or BLA, for PTC-AADC for the treatment of AADC deficiency in the United States, which we anticipate submitting to the FDA in the fourth quarter of 2019, with an anticipated commercial launch in the United States in 2020. We are also preparing a marketing authorization application, or MAA, for PTC-AADC for the treatment of AADC deficiency in the European Union, or EU, for submission to the EMA, which will follow our BLA submission to the FDA.
Akcea Partnership
We hold the rights for the commercialization of Tegsedi™ (inotersen) and Waylivra™ (volanesorsen) for the treatment of rare diseases in countries in Latin America and the Caribbean, or the PTC Territory, pursuant to our collaboration and license agreement with Akcea Therapeutics, Inc, or the Akcea Agreement.
Tegsedi has received marketing authorization in the U.S., EU and Canada for the treatment of stage 1 or stage 2 polyneuropathy in adult patients with hATTR amyloidosis. We filed for marketing authorization with ANVISA, the Brazilian health regulatory authority, which granted priority review. We expect approval in Brazil by the end of 2019.
Waylivra has received conditional marketing authorization in the EU for the treatment of familial chylomicronemia syndrome, or FCS. In connection with the conditional marketing approval for Waylivra in the EU, the European Commission is requiring Akcea to provide results of a study based on a registry of patients to investigate how blood checks and adjustments to frequency of injections are carried out in practice and how well they work to prevent thrombocytopenia and bleeding in FCS patients taking Waylivra.
Neither Tegsedi nor Waylivra is currently approved for marketing in the PTC Territory.
Splicing Platform
We also have a spinal muscular atrophy, or SMA, collaboration with F. Hoffman-La Roche Ltd. and Hoffman-La Roche Inc., which we refer to collectively as Roche, and the Spinal Muscular Atrophy Foundation, or SMA Foundation. Currently, our collaboration has two pivotal clinical trials ongoing to evaluate the safety and effectiveness of risdiplam (RG7916, RO7034067), the lead compound in the SMA program. Roche is preparing an NDA and a MAA for risdiplam for the treatment of SMA in the United States and the EU, respectively, which Roche anticipates submitting to the FDA in the second half of 2019 and the EMA in the first half of 2020.
Pre-clinical and other programs
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, product candidates 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 territories where we are permitted to distribute Translarna under our EAP programs and in countries in the EEA where we were able to obtain acceptable commercial pricing and reimbursement terms, and from sales of Emflaza for the treatment of DMD in the United States.
To date, we have financed our operations primarily through our offering of 3.0% convertible senior notes due August 15, 2022, or the Convertible Notes offering, our public offerings of common stock in February 2014, October 2014, April 2018, and January 2019, our initial public offering of common stock in June 2013, private placements of our preferred stock, collaborations, bank debt and convertible debt financings, a credit and security agreement, or the Credit Agreement, with MidCap Financial Trust, or MidCap Financial, as administrative agent and MidCap Financial and other certain institutions as lenders thereto, 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 of the United States, and in May 2017, we began to recognize revenue generated from net sales of Emflaza for the treatment of DMD in the United States.
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The Credit Agreement provides for a senior secured term loan facility of $60 million, of which $40 million was drawn by us on May 5, 2017. Our ability to draw on the remaining $20 million under the senior secured term loan facility expired on December 31, 2018. The maturity date of the Credit Agreement is May 1, 2021, unless terminated earlier. As of June 30, 2019, we made loan repayments of $1.7 million on the Credit Facility.
In January 2019, we closed an underwritten public offering of our common stock pursuant to a registration statement on Form S-3. We issued and sold an aggregate of 7,563,725 shares of common stock under the registration statement at a public offering price of $30.20 per share, including 843,725 shares issued upon exercise by the underwriter of its option to purchase additional shares in February 2019. We received net proceeds of approximately $224.5 million after deducting underwriting discounts and commissions and other offering expenses payable by us.
As of June 30, 2019, we had an accumulated deficit of $1,052.8 million. We had a net loss of $113.9 million and $28.8 million for the six month periods ended June 30, 2019 and 2018, respectively.
We anticipate that our expenses will continue to increase in connection with our commercialization efforts in the 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 Study 041 and Study 045 and our open label extension trials of Translarna for the treatment of nmDMD as well as our studies for nonsense mutation aniridia and nonsense mutation Dravet syndrome/CDKL5 and our FDA post-marketing requirements with respect to Emflaza in the United States and studies for limb-girdle 2I. We also expect to incur ongoing research and development expenses for our other product candidates, including our gene therapy, splicing and oncology programs. In addition, we may incur substantial costs in connection with our efforts to advance our regulatory submissions. We have begun seeking and intend to continue to seek marketing authorization for Translarna for the treatment of nmDMD in territories outside of the EEA and we may also seek marketing authorization for Translarna for other indications. In the fourth quarter of 2019, we plan to submit a request for marketing authorization for PTC-AADC with the FDA, followed by a request for marketing authorization for PTC-AADC with the EMA and we recently submitted a request for marketing authorization for Tegsedi with ANVISA. These efforts may significantly impact the timing and extent of our commercialization expenses.
We may seek to continue 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 Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears, which require total funding of $4.5 million annually. Additionally, under the terms of our Credit Agreement cash interest and principal payments are payable monthly in arrears. Furthermore, as a result of our initial public offering in June 2013, we have incurred and expect to continue to incur additional costs associated with operating as a public company 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
To date, our net product sales have consisted primarily of sales of Translarna for the treatment of nmDMD in territories outside of the United States and sales of Emflaza for the treatment of DMD in the United States. Our process for recognizing revenue is described below under “Critical accounting policies and significant judgments and estimates—Revenue recognition”.
Roche and the SMA Foundation Collaboration. In November 2011, we entered into a license and collaboration agreement, or licensing agreement, with Roche and the SMA Foundation pursuant to which we are collaborating with Roche and the SMA Foundation to further develop and commercialize compounds identified under our SMA program with the SMA Foundation. The research component of this agreement terminated effective December 31, 2014. The licensing agreement included a $30 million upfront payment made in 2011 which was recognized on a deferred basis over the research term, and the potential for up to $460 million in milestone payments and royalties on net sales.
In August 2013, we announced the selection of a development candidate. The achievement of this milestone triggered a $10.0 million payment to us from Roche, which we recorded as collaboration revenue for the year ended December 31, 2013.
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In January 2014, we initiated a Phase 1 clinical program, which triggered a $7.5 million milestone payment to us from Roche which we recorded as collaboration revenue for the year ended December 31, 2014.
In November 2014, we announced that our joint development program in SMA with Roche and the SMA Foundation had started a Phase 2 study in adult and pediatric patients. The achievement of this milestone triggered a $10.0 million payment to us from Roche which we recorded as collaboration revenue for the year ended December 31, 2014.
In October 2017, we announced that the joint development program in SMA with Roche and SMA Foundation had transitioned into the pivotal second part of its study evaluating the efficacy and safety of RG7916 in pediatric and adult Type 2/3 SMA patients. The achievement of this milestone triggered a $20.0 million payment to us from Roche which we recorded as collaboration revenue at time of achievement.
Grant revenue. From time to time, we receive grant funding from various institutions and governmental bodies. The grants are typically for early discovery research, and generally such grant programs last from two to five years.
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.
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 studies of Translarna in nonsense mutation aniridia and nonsense mutation Dravet syndrome/CDKL5, our studies of Emflaza in limb-girdle 2I, activities under our gene therapy, splicing and oncology programs, and performance of our FDA post-marketing requirements with respect to Emflaza in the United States. 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 June 30, 2019 and 2018.
Three Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
(in thousands) | ||||||||
Translarna (nmDMD, aniridia and Dravet) | $ | 19,021 | $ | 16,942 | ||||
Gene Therapy | 14,305 | — | ||||||
Oncology | 5,833 | 3,081 | ||||||
Emflaza | 7,381 | 2,754 | ||||||
Other research and preclinical | 13,439 | 9,830 | ||||||
Total research and development | $ | 59,979 | $ | 32,607 | ||||
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Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
(in thousands) | ||||||||
Translarna (nmDMD, aniridia and Dravet) | $ | 34,778 | $ | 34,470 | ||||
Gene Therapy | 25,740 | — | ||||||
Oncology | 13,204 | 5,314 | ||||||
Emflaza | 13,382 | 5,823 | ||||||
Other research and preclinical | 25,440 | 18,363 | ||||||
Total research and development | $ | 112,544 | $ | 63,970 | ||||
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 and to obtain and maintain marketing authorizations we currently have or may receive in the future for our products and product candidates; |
· | 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 Translarna or any other product candidate 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.
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 Emflaza in the United States, our continued efforts to commercialize Translarna for the treatment of nmDMD in territories outside the United States, our efforts to commercialize Waylivra and Tegsedi in Latin America and the Caribbean and to support our operations, including increased payroll, expanded infrastructure, commercial operations, increased consulting, legal, accounting and investor relations expenses.
Interest expense, net
Interest expense, net consists of interest income earned on investments and interest expense from the Convertible Notes outstanding and interest expense from the Credit Agreement.
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 in the 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.
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During the three and six months ended June 30, 2019, there were no material changes to our critical accounting policies as reported in our 2018 Annual Report on Form 10-K, other than those disclosed below.
Revenue recognition
Net Product Revenue
Our net product revenue primarily consists of sales of Translarna in territories outside of the U.S. for the treatment of nmDMD and sales of Emflaza in the U.S. for the treatment of DMD. We recognize revenue when performance obligations with customers have been satisfied. Our performance obligations are to provide Translarna or Emflaza 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 either Translarna or Emflaza, 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 either product sales of Translarna or Emflaza. 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 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. Historically, returns of Translarna and Emflaza have been immaterial to our financial statements, except as related to labeling changes and changes in specialty pharmacies. 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.
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.
Upon adoption of ASC Topic 606 on January 1, 2018, we have elected the following practical expedients:
• | Portfolio Approach - We applied the Portfolio Approach to contract reviews within identified revenue streams that have similar characteristics and we believe this approach would not differ materially than if applying ASC Topic 606 to each individual contract. |
• | Significant Financing Component - We expect the period between when we transfer a promised good or service to a customer and when the customer pays for the good or service to be one year or less. |
• | Immaterial Performance Obligations - We disregard promises deemed to be immaterial in the context of the contract. |
• | Shipping and Handling Activities - 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.
Collaboration Revenue
The terms of these agreements typically include payments to us of one or more of the following: nonrefundable, upfront license fees; milestone payments; research funding and royalties on future product sales. In addition, we generate service revenue through agreements that generally provide for fees for research and development services and may include additional payments upon achievement of specified events.
At the inception of a collaboration arrangement, we need to first evaluate if the arrangement meets the criteria in ASC Topic 808 “Collaborative Arrangements” to then determine if ASC Topic 606 is applicable by considering whether the collaborator meets the definition of a customer. If the criteria are met, we assess the promises in the arrangement to identify distinct performance obligations.
For licenses of intellectual property, we assess, at contract inception, whether the intellectual property is distinct from other performance obligations identified in the arrangement. If the licensing of intellectual property is determined to be distinct, revenue is recognized for nonrefundable, upfront license fees when the license is transferred to the customer and the customer can use and benefit from the license. If the licensing of intellectual property is determined not to be distinct, then the license will be bundled with other promises in the arrangement into one distinct performance obligation. We determine if the bundled performance
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obligation is satisfied over time or at a point in time. If we conclude that the nonrefundable, upfront license fees will be recognized over time, we assess the appropriate method of measuring proportional performance.
For milestone payments, we assess, at contract inception, whether the development or sales-based milestones are considered probable of being achieved. If it is probable that a significant revenue reversal will occur, we will not record revenue until the uncertainty has been resolved. Milestone payments that are contingent upon regulatory approval are not considered probable of being achieved until the applicable regulatory approvals or other external conditions are obtained as such conditions are not within our control. If it is probable that a significant revenue reversal will not occur, we will estimate the milestone payments using the most likely amount method. We will re-assess the development and sales-based milestones each reporting period to determine the probability of achievement.
We recognize revenue for reimbursements of research and development costs under collaboration agreements as the services are performed. We record these reimbursements as revenue and not as a reduction of research and development expenses as we have the risks and rewards as the principal in the research and development activities.
Leases
In February 2016, the FASB issued ASU No. 2016-2, “Leases (Topic 842)” along with other amendments issued in 2017 and 2018. Topic 842 supersedes the lease accounting requirements in Accounting Standards Codification Topic 840, Leases (Topic 840). Topic 842 requires organizations to recognize leased assets and liabilities on the balance sheet. The standard also requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.
We determine if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to us the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to us if we obtain the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. We have lease agreements which include lease and non-lease components, which we account for as a single lease component for all leases.
Under the standard, operating leases are classified as right of use ("ROU") assets, short term lease liabilities, and long term lease liabilities. Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. ROU assets are amortized and lease liabilities accrete to yield straight-line expense over the term of the lease. Lease payments included in the measurement of the lease liability are comprised of fixed payments.
Variable lease payments associated with our leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented in our consolidated statements of operations in the same line item as expense arising from fixed lease payments for operating leases.
Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and we recognize lease expense for these leases on a straight-line basis over the lease term. We apply this policy to all underlying asset categories.
Topic 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We give consideration to our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.
The lease term for all of our leases includes the non-cancellable period of the lease plus any additional periods covered by either our option to extend (or not to terminate) the lease that we are reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.
Results of operations
Three months ended June 30, 2019 compared to three months ended June 30, 2018
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The following table summarizes revenues and selected expense and other income data for the three months ended June 30, 2019 and 2018.
Three Months Ended June 30, | Change 2019 vs. 2018 | |||||||||||
(in thousands) | 2019 | 2018 | ||||||||||
Net product revenue | $ | 85,476 | $ | 68,170 | $ | 17,306 | ||||||
Collaboration and grant revenue | 46 | 573 | (527 | ) | ||||||||
Cost of product sales, excluding amortization of acquired intangible asset | 3,211 | 2,572 | 639 | |||||||||
Amortization of acquired intangible asset | 6,575 | 5,593 | 982 | |||||||||
Research and development expense | 59,979 | 32,607 | 27,372 | |||||||||
Selling, general and administrative expense | 49,215 | 33,545 | 15,670 | |||||||||
Change in the fair value of deferred and contingent consideration | 5,300 | — | 5,300 | |||||||||
Interest expense, net | (2,074 | ) | (2,884 | ) | 810 | |||||||
Other expense, net | (183 | ) | (673 | ) | 490 | |||||||
Income tax expense | (774 | ) | (389 | ) | (385 | ) | ||||||
Net product revenues. Net product revenues were $85.5 million for the three months ended June 30, 2019, an increase of $17.3 million, or 25%, from $68.2 million for the three months ended June 30, 2018. The increase in net product revenue was primarily due to the increase in net product sales in existing markets where Translarna is available as well as continued geographic expansion into new territories, in addition to an increase of $7.3 million in net product sales of Emflaza.
Collaboration and grant revenues. Collaboration and grant revenues were $0.1 million for the three months ended June 30, 2019, a decrease of $0.5 million, or 92% from $0.6 million for the three months ended June 30, 2018. The decrease in collaboration and grant revenues is related to our ongoing collaboration arrangements.
Cost of product sales, excluding amortization of acquired intangible asset. Cost of product sales, excluding amortization of acquired intangible asset, were $3.2 million for the three months ended June 30, 2019, an increase of $0.6 million, or 25%, from $2.6 million for the three months ended June 30, 2018. Cost of product sales consist primarily of royalty payments associated with Emflaza and Translarna net product sales, excluding contingent payments to Marathon Pharmaceuticals, LLC (now known as Complete Pharma Holdings, LLC) or Marathon, and costs associated with Emflaza and Translarna product sold during the period.
Amortization of acquired intangible asset. Amortization of our intangible assets were $6.6 million for the three months ended June 30, 2019, an increase of $1.0 million, or 18%, from $5.6 million for the three months ended June 30, 2018. These amounts are related to the acquisition of all rights to Emflaza acquired in May 2017, Marathon contingent payments, and the Waylivra intangible asset. 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 are amortized prospectively as incurred, straight-line, over the remaining useful life of the Emflaza intangible asset. The Waylivra asset is amortized on a straight-line basis over its estimated useful life of approximately ten years.
Research and development expense. Research and development expense was $60.0 million for the three months ended June 30, 2019, an increase of $27.4 million, or 84%, from $32.6 million for the three months ended June 30, 2018. The increase reflects costs associated with advancing the gene therapy platform and increased investment in research programs as well as advancement of the clinical pipeline.
Selling, general and administrative expense. Selling, general and administrative expense was $49.2 million for the three months ended June 30, 2019, an increase of $15.7 million, or 47%, from $33.5 million for the three months ended June 30, 2018. The increase was primarily due to 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 $5.3 million for the three months ended June 30, 2019. The change is related to the fair valuation of the potential future consideration to be paid to former equity holders of Agilis Biotherapeutics, Inc., or Agilis, as a result of our merger with Agilis which closed in August 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 $2.1 million for the three months ended June 30, 2019, a decrease of $0.8 million, or 28%, from $2.9 million for the three months ended June 30, 2018. The decrease in interest expense, net was primarily due to
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increased interest income from investments, which partially offset current year interest expense recorded from the Convertible Notes and the Credit Agreement.
Other expense, net. Other expense, net was $0.2 million for the three months ended June 30, 2019, a decrease of $0.5 million, or 73%, from other expense, net of $0.7 million for the three months ended June 30, 2018. The decrease in other expense, net resulted primarily from exchange rate changes in the current period and an unrealized gain on our equity investment in MRI Interventions, Inc. of $0.1 million.
Income tax expense. Income tax expense was $0.8 million for the three months ended June 30, 2019 and $0.4 million for the three months ended June 30, 2018. 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. We are paying minimum income taxes in the United States because of incurred losses in the various state jurisdictions.
Six months ended June 30, 2019 compared to six months ended June 30, 2018
The following table summarizes revenues and selected expense and other income data for the six months ended June 30, 2019 and 2018.
Six Months Ended June 30, | Change 2019 vs. 2018 | |||||||||||
(in thousands) | 2019 | 2018 | ||||||||||
Net product revenue | $ | 138,530 | $ | 124,151 | $ | 14,379 | ||||||
Collaboration and grant revenue | 575 | 654 | (79 | ) | ||||||||
Cost of product sales, excluding amortization of acquired intangible asset | 5,587 | 5,616 | (29 | ) | ||||||||
Amortization of acquired intangible asset | 12,652 | 11,022 | 1,630 | |||||||||
Research and development expense | 112,544 | 63,970 | 48,574 | |||||||||
Selling, general and administrative expense | 89,760 | 66,514 | 23,246 | |||||||||
Change in the fair value of deferred and contingent consideration | 26,460 | — | 26,460 | |||||||||
Interest expense, net | (4,362 | ) | (6,187 | ) | 1,825 | |||||||
Other (expense) income, net | (292 | ) | 332 | (624 | ) | |||||||
Income tax expense | (1,350 | ) | (610 | ) | (740 | ) | ||||||
Net product revenues. Net product revenues were $138.5 million for the six months ended June 30, 2019 an increase of $14.4 million, or 12%, from $124.2 million for the six months ended June 30, 2018. The increase in net product revenue was primarily due to the increase in net product sales in existing markets where Translarna is available as well as continued geographic expansion into new territories, in addition to an increase of $5.9 million in net product sales of Emflaza.
Collaboration and grant revenues. Collaboration and grant revenues were $0.6 million for the six months ended June 30, 2019, a decrease of $0.1 million, or 12%, from $0.7 million for the six months ended June 30, 2018. The decrease in collaboration and grant revenues is related to our ongoing collaboration arrangements.
Cost of product sales, excluding amortization of acquired intangible asset. Cost of product sales, excluding amortization of acquired intangible asset, were $5.6 million for the six months ended June 30, 2019, which remained consistent from $5.6 million for the six months ended June 30, 2018. Cost of product sales consist primarily of royalty payments associated with Emflaza and Translarna net product sales, excluding contingent payments to Marathon, and costs associated with Emflaza and Translarna product sold during the period.
Amortization of acquired intangible asset. Amortization of our intangible assets were $12.7 million for the six months ended June 30, 2019, an increase of $1.6 million, or 15%, from $11.0 million for the six months ended June 30, 2018. These amounts are related to the acquisition of all rights to Emflaza acquired in May 2017, Marathon contingent payments, and our Waylivra intangible asset. 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 are amortized prospectively as incurred, straight-line, over the remaining useful life of the Emflaza intangible asset. The Waylivra asset is amortized on a straight-line basis over its estimated useful life of approximately ten years.
Research and development expense. Research and development expense was $112.5 million for the six months ended June 30, 2019, an increase of $48.6 million, or 76%, from $64.0 million for the six months ended June 30, 2018. The increase reflects costs associated with advancing the gene therapy platform and increased investment in research programs as well as advancement of the clinical pipeline.
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Selling, general and administrative expense. Selling, general and administrative expense was $89.8 million for the six months ended June 30, 2019, an increase of $23.2 million, or 35%, from $66.5 million for the six months ended June 30, 2018. The increase was primarily due to 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 $26.5 million for the six months ended June 30, 2019. The change is related to the fair valuation of the potential future consideration to be paid to former equity holders of Agilis, as a result of our merger with Agilis which closed in August 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 $4.4 million for the six months ended June 30, 2019, a decrease of $1.8 million, or 29%, from $6.2 million for the six months ended June 30, 2018. The decrease in interest expense, net was primarily due to increased interest income from investments, which partially offset current year interest expense recorded from the Convertible Notes and the Credit Agreement.
Other (expense) income, net. Other expense, net was $0.3 million for the six months ended June 30, 2019, a change of $0.6 million, or 188%, from other income, net of $0.3 million for the six months ended June 30, 2018. The change in other (expense) income, net resulted primarily from exchange rate changes in the current period.
Income tax expense. Income tax expense was $1.4 million for the six months ended June 30, 2019 and $0.6 million for the six months ended June 30, 2018. 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. We are paying minimum income taxes in the United States because of incurred losses in the various state 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 Translarna for nmDMD and Emflaza for the treatment of DMD while also devoting a substantial portion of our efforts on research and development related to our products, product candidates and other programs. To date, almost all of our product revenue has been attributable to sales of Translarna for the treatment of nmDMD in territories outside of the United States and from Emflaza for the treatment of DMD in the 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 authorization 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 the European Commission following reassessment by the EMA of the benefit-risk balance 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, the private placements of our preferred stock, collaborations, bank debt, convertible debt financings, the Credit Agreement 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 revenues generated from net sales of Translarna for the treatment of nmDMD in territories outside of the United States, and since May 2017, we have recognized revenue generated from net sales of Emflaza for the treatment of DMD in the United States. Based on our current commercial, research and development plans, we expect to continue to incur significant operating expenses for the foreseeable future, which we anticipate will be partially offset by revenues generated from the sale of both Translarna and Emflaza, as well as Waylivra and Tegsedi once our commercialization efforts for them commence. As a result, while we expect to continue to generate operating losses in 2019, we anticipate that operating losses generated in future periods should decline versus prior periods. The net losses we incur may fluctuate significantly from quarter to quarter.
In August 2015, we closed a private offering of $150 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 million in aggregate principal amount of the Convertible Notes. The Convertible Notes bear cash interest payable on February 15 and August 15 of each year, beginning on February 15, 2016. The Convertible Notes are senior unsecured obligations of ours and will mature on August 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.
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On May 5, 2017, we entered into the Credit Agreement with MidCap Financial, which provides for a senior secured term loan facility of $60 million, of which $40 million was drawn by us on May 5, 2017. Our ability to draw on the remaining $20 million under the senior secured term loan facility expired on December 31, 2018. The maturity date of the Credit Agreement is May 1, 2021, unless terminated earlier. The facility is structured to require only monthly interest payments for the initial two years with principal amortization beginning in years three and four. The facility bears interest at a rate per annum equal to LIBOR (with a LIBOR floor rate of 1.00%) plus 6.15%, as well as additional upfront and administrative fees and expenses.
In January 2019, we closed an underwritten public offering of our common stock pursuant to a registration statement on Form S-3. We issued and sold an aggregate of 7,563,725 shares of common stock under the registration statement at a public offering price of $30.20 per share, including 843,725 shares issued upon exercise by the underwriter of its option to purchase additional shares in February 2019. We received net proceeds of approximately $224.5 million after deducting underwriting discounts and commissions and other offering expenses payable by us.
Cash flows
As of June 30, 2019, we had cash, cash equivalents and marketable securities of $363.5 million.
The following table provides information regarding our cash flows and our capital expenditures for the periods indicated.
Six Months Ended June 30, | ||||||
(in thousands) | 2019 | 2018 | ||||
Cash (used in) provided by: | ||||||
Operating activities | (72,931 | ) | (15,875 | ) | ||
Investing activities | (188,669 | ) | 6,096 | |||
Financing activities | 228,571 | 122,765 | ||||
Net cash used in operating activities was $72.9 million for the six months ended June 30, 2019 and $15.9 million for the six months ended June 30, 2018. The net cash used in operating activities primarily relates to supporting clinical development and commercial activities.
Net cash used in investing activities was $188.7 million for the six months ended June 30, 2019. Cash used in investing activities for the six months ended June 30, 2019 was primarily related to net purchases of marketable securities. Cash provided by investing activities for the six months ended June 30, 2018 was $6.1 million and was primarily related to net sales of marketable securities.
Net cash provided by financing activities was $228.6 million for the six months ended June 30, 2019 and $122.8 million for the six months ended June 30, 2018. Cash provided by financing activities for the six months ended June 30, 2019 was primarily attributable to our equity offering in January 2019 and the exercise of options. Cash provided by financing activities for the six months ended June 30, 2018 was primarily attributable to our equity offering in April 2018 and the exercise of options.
Funding requirements
We anticipate that our expenses will continue to increase in connection with our commercialization efforts in the 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 Study 041 and Study 045 and our open label extension trials of Translarna for the treatment of nmDMD as well as our studies for nonsense mutation aniridia and nonsense mutation Dravet syndrome/CDKL5 and our FDA post-marketing requirements with respect to Emflaza in the United States and our studies for limb-girdle 2I. We also expect to incur ongoing research and development expenses for our other product candidates, including our gene therapy, splicing and oncology programs. In addition, we may incur substantial costs in connection with our efforts to advance our regulatory submissions. We have begun seeking and intend to continue to seek marketing authorization for Translarna for the treatment of nmDMD in territories outside of the EEA and we may also seek marketing authorization for Translarna for other indications. In the fourth quarter of 2019, we plan to submit a request for marketing authorization for PTC-AADC with the FDA, followed by a request for marketing authorization for PTC-AADC with the EMA and we recently submitted a request for marketing authorization for Tegsedi with ANVISA. 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 integrate Agilis's operations and employees into our business and seek to satisfy contractual and regulatory obligations we assumed in connection with the Agilis acquisition; |
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• | seek to satisfy contractual and regulatory obligations in conjunction with the Akcea Agreement, including the potential commercialization of Tegsedi and Waylivra in the PTC Territory; |
• | execute our strategy for Emflaza in the United States, including commercialization and integration efforts; |
• | satisfy contractual and regulatory obligations that we assumed through the Emflaza acquisition; |
• | are required to complete any additional clinical trials, non-clinical studies or CMC assessments or analyses in order to advance Translarna for the treatment of nmDMD in the United States or elsewhere; |
• | are required to take other steps, in addition to Study 041, to maintain our current marketing authorization in the EEA for Translarna for the treatment of nmDMD or to obtain further marketing authorizations for Translarna for the treatment of nmDMD or other indications; |
• | initiate or continue the research and development of Translarna and Emflaza for additional indications and of our other product candidates; |
• | 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 |
• | 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 the net proceeds from our term loan facility with MidCap Financial, our offering of the Convertible Notes, public offerings of common stock, marketable securities and research funding that we expect to receive under our collaborations, 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 Emflaza for the treatment of DMD in the United States; |
• | our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms, on a timely basis, with third-party payors for Emflaza for the treatment of DMD in the United States and for Translarna for the treatment of nmDMD in the EEA and other territories outside of the United States; |
• | our ability to maintain orphan exclusivity for, and successfully complete all FDA post-marketing requirements with respect to, Emflaza; |
• | our ability to maintain the marketing authorization in the EEA for Translarna for the treatment of nmDMD, including 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 the United States, including, whether we will be required 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 submission by us and, ultimately, may support approval of Translarna for nmDMD in the United States; |
• | our ability to commercialize and market Tegsedi and Waylivra in the PTC Territory; |
• | the progress and results of our open label extension clinical trials of Translarna for the treatment of nmDMD as well as our studies for nonsense mutation aniridia, nonsense mutation Dravet syndrome/CDKL5 and limb-girdle 2I and activities under our gene therapy, splicing and oncology programs; |
• | the scope, costs and timing of our commercialization activities, including product sales, marketing, legal, regulatory, distribution and manufacturing, for both Emflaza for the treatment of DMD and Translarna for the treatment of nmDMD, for Tegsedi, for Waylivra and for any of our other product candidates that may receive marketing authorization or any additional indications or territories in which we receive authorization to market Translarna; |
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• | the costs, timing and outcome of regulatory review of our other product candidates, including those in our gene therapy and oncology programs, and Translarna in other territories or for indications other than nmDMD; |
• | our ability to satisfy our obligations under the terms of the lease agreement for our leased biologics facility; |
• | our ability to satisfy our obligations under the terms of the Credit Agreement with MidCap Financial; |
• | the timing and scope of growth in our employee base; |
• | the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for Translarna and Emflaza for additional indications and for our other product candidates, including those in our gene therapy and oncology programs; |
• | revenue received from commercial sales of Translarna, Emflaza, Tegsedi, Waylivra, or any of our other 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 acquisition of Emflaza, our acquisition of Agilis, and our licensing of Tegsedi and Waylivra; and |
• | our ability to establish and maintain collaborations, including our collaborations with Roche and the SMA Foundation, and our ability to obtain research funding and achieve milestones under these agreements. |
With respect to our outstanding Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears, which require total funding of $4.5 million annually. Additionally, under the terms of our Credit Agreement cash interest and principal payments are payable monthly in arrears. Furthermore, as a result of our initial public offering in June 2013, we have incurred and expect to continue to incur additional costs associated with operating as a public company. These costs include significant legal, accounting, investor relations and other expenses that we did not incur as a private company.
We have never been profitable and 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 or debt 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.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under Securities and Exchange Commission rules.
Contractual obligations
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During the period ended June 30, 2019, there were no material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations” in our 2018 Annual Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
During the period ended June 30, 2019, there were no material changes in our market risk or how our market risk is managed, compared to those disclosed under the heading “Quantitative and Qualitative Disclosures about Market Risk” in our 2018 Annual Report.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
In the first quarter of 2019, we implemented an enterprise resource planning (“ERP”) system, Oracle, on a worldwide basis, which is expected to improve the efficiency of certain financial and related transactional processes. We have completed the implementation of certain processes, including the financial consolidation and reporting, sales order to cash, fixed assets, supplier management and indirect procure-to-pay processes, and have revised and updated the related controls. These changes did not materially affect our internal control over financial reporting for the three and six months ended June 30, 2019. As we implement the remaining functionality under this ERP system over the next several years, we will continue to assess the impact on our internal control over financial reporting. No other changes in our internal control over financial reporting occurred during the quarter ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time in the ordinary course of our business, we are subject to claims, legal proceedings and disputes, including as a result of patients seeking to participate in our clinical trials or otherwise gain access to our product candidates. We are not currently aware of any material legal proceedings to which we are a party or of which any of our property is subject.
Item 1A. Risk Factors
We have set forth in Item 1A to our Annual Report on Form 10-K for the year ended December 31, 2018, risk factors relating to our business, our industry, our structure and our common stock. Readers of this Quarterly Report on Form 10-Q are referred to such Item 1A for a more complete understanding of risks concerning us. There have been no material changes in our risk factors since those published in such Form 10-K for the year ended December 31, 2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
Inducement grant awards. Pursuant to the Nasdaq Listing Rule 5635(c)(4) inducement grant exception, during the quarter ended June 30, 2019, we issued options to purchase an aggregate of 287,150 shares of common stock to certain new hire employees at a weighted-average exercise price of $36.82 per share. The shares underlying these options will be registered on a Form S-8 registration statement prior to the first vesting event applicable to each such award.
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Item 6. Exhibits.
Exhibit Number | Description of Exhibit | |
10.1+ | ||
10.2+ | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document* | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Database* | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
* Submitted electronically herewith.
+ Management contract, compensatory plan or arrangement.
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PTC THERAPEUTICS, INC. | ||
Date: August 6, 2019 | By: | /s/ Emily Hill |
Emily Hill | ||
Chief Financial Officer | ||
(Principal Financial Officer and Duly Authorized Signatory) | ||
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the “Agreement”) is made as of December 11, 2017 (the “Effective Date”), by and between PTC Therapeutics, Inc., a Delaware corporation (the “Company”) and Emily Hill (“Executive”). In consideration of the mutual covenants contained in this Agreement, the Company and Executive agree as follows:
1.Employment. The Company agrees to continue to employ Executive and Executive agrees to continue to be employed by the Company on the terms and conditions set forth in this Agreement.
(a) Capacity. Executive shall serve the Company as Vice President, Head of Investor Relations reporting to Stuart Peltz, or such other senior executive as the Company shall specify. Executive shall have the responsibilities, duties and authority commensurate with the position of Vice President, Head of Investor Relations. In addition to Executive’s primary duties, Executive shall perform such other services for the Company that are consistent with his/her position as Vice President, Head of Investor Relations as may be reasonably assigned to Executive from time to time by the individual to whom s/he reports or the Board of Directors of the Company (the “Board”) or their respective designees. The principal location at which Executive shall perform such services shall be the Company’s corporate headquarters currently located at 100 Corporate Court, Middlesex Business Center, South Plainfield, NJ 07080, subject to relocation and Section 2(c)(i) of this Agreement.
(b) Devotion of Duties; Representations. During the Term (as defined below) of Executive’s employment with the Company, Executive shall devote his/her best efforts and full business time and energies to the business and affairs of the Company, and shall endeavor to perform the duties and services contemplated hereunder to the reasonable satisfaction of the individual to whom s/he reports and the Board. During the Term of Executive’s employment with the Company, Executive shall not, without the prior written approval of the Company (by action of the Board), undertake any other employment from any person or entity or serve as a director of any other company; provided, however, that (i) the Company will entertain requests as to such other employment or directorships in good faith and (ii) Executive will be eligible to participate in any policy relating to outside activities that is applicable to the senior executives of the Company and approved by the Board after the date hereof.
2. Term of Employment.
(a) Executive’s employment hereunder shall continue on the Effective Date. Executive’s employment hereunder shall be terminated upon the first to occur of the following:
(i)Immediately upon Executive’s death;
(ii) By the Company:
(A) By written notice to Executive effective the date of such notice, following the Disability of Executive. “Disability” means that Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to
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result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company. Such incapacity shall be determined by a physician chosen by the Company and reasonably satisfactory to Executive (or Executive’s legal representative) upon examination requested by the Company (to which Executive hereby agrees to submit). Notwithstanding the foregoing, such Disability must result in Executive becoming “Disabled” within the meaning of Section 409A(a)(2)(C) of the Internal Revenue Code of 1986, as amended (the “Code”) and the guidance issued thereunder. (In this Agreement we refer to Section 409A of the Code and any guidance issued thereunder as “Section 409A”).
(B) By written notice to Executive, effective the date of such notice, for Cause (as defined below); or
(C) By written notice to Executive, effective ninety (90) days after the date of such notice and subject to Section 4 hereof, without Cause; or
(iii) By Executive:
(A) At any time by written notice to the Company, effective forty-five (45) days after the date of such notice; or
(B) By written notice to the Company for Good Reason (as defined below), effective on the date specified in such notice.
The term of Executive’s employment by the Company under this Agreement is referred to herein as the “Term.”
(b) Definition of “Cause”. For purposes of this Agreement, “Cause” shall, pursuant to the reasonable good faith determination by a majority of the Board (excluding Executive) as documented in writing, include: (i) the willful and continued failure by Executive to substantially perform Executive’s material duties or responsibilities under this Agreement (other than such a failure as a result of Disability); (ii) any action or omission by Executive involving willful misconduct or gross negligence with regard to the Company, which has a detrimental effect on the Company; (iii) Executive’s conviction of a felony, either in connection with the performance of Executive’s obligations to the Company or which otherwise shall adversely affect Executive’s ability to perform such obligations or shall materially adversely affect the business activities, reputation, goodwill or image of the Company; (iv) the material breach of a fiduciary duty to the Company; or (v) the material breach by Executive of any of the provisions of this Agreement, provided that any breach of Executive’s obligations with respect to Sections 5 or 6 of this Agreement, subject to the cure provision in the next sentence, shall be deemed “material.” In respect of the events described in clauses (i) and (v) above, the Company shall give Executive notice of the failure of performance or breach, reasonable as to time, place and manner in the circumstances, and a 30-day opportunity to cure, provided that such failure of
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performance or breach is reasonably amenable to cure as determined by the Board in its sole discretion.
(c) Definition of “Good Reason”. For purposes of this Agreement, a “Good Reason” shall mean any of the following, unless (i) the basis for such Good Reason is cured within a reasonable period of time (determined in the light of the cure appropriate to the basis of such Good Reason, but in no event less than thirty (30) nor more than ninety (90) days) after the Company receives written notice (which must be received from Executive within ninety (90) days of the initial existence of the condition giving rise to such Good Reason) specifying the basis for such Good Reason or (ii) Executive has consented to the condition that would otherwise be a basis for Good Reason:
(i) A change in the principal location at which Executive provides services to the Company to a location more than fifty (50) miles from such principal location and/or to a location in New York City (either of which change, the Company has reasonably determined as of the date hereof, would constitute a material change in the geographic location at which Executive provides services to the Company), provided that such a relocation shall not be deemed to occur under circumstances where Executive’s responsibilities require him/her to work at a location other than the corporate headquarters for a reasonable period of time;
(ii) A material adverse change by the Company in Executive’s duties, authority or responsibilities as Vice President, Head of Investor Relations of the Company which causes Executive’s position with the Company to become of materially less responsibility or authority than Executive’s position immediately following the Effective Date. For purposes of this definition of “Good Reason,” a “material adverse change” following a Corporate Change shall not include any diminution in authority, duties or responsibilities that is solely attributable to the change in the Company’s ownership structure but does not otherwise change Executive’s authority, duties or responsibilities (except in a positive manner) otherwise with respect to the Company’s business.
(iii) A material reduction in Executive’s base compensation (including Base Salary) except if the reduction is in connection with a general reduction of not more than 20% in compensation of senior executives of the Company generally that occurs prior to the effective date of any Corporate Change;
(iv) A material breach of this Agreement by the Company which has not been cured within thirty (30) days after written notice thereof by Executive; or
(v) Failure to obtain the assumption (assignment) of this Agreement by any successor to the Company.
(d) Definition of “Corporate Change”. For purposes of this Agreement, “Corporate Change” shall mean any circumstance in which (i) the Company is not the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary or affiliate of an entity other than a previously wholly-owned subsidiary of the Company); (ii) the Company sells, leases or exchanges or agrees to sell, lease or exchange all or substantially all of
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its assets to any other person or entity (other than a wholly-owned subsidiary of the Company); (iii) any person or entity, including a “group” as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934 (excluding, for this purpose, the Company or any Subsidiary, or any employee benefit plan of the Company or any Subsidiary, or any “group” in which all or substantially all of its members or its members’ affiliates are individuals or entities who are or were beneficial owners of the Company’s outstanding shares prior to the initial public offering, if any, of the Company’s stock), acquires or gains ownership or control (including, without limitations, powers to vote) of more than 50% of the outstanding shares of the Company’s voting stock (based upon voting power); or (iv) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election shall cease to constitute a majority of the Board of Directors of the Company. Notwithstanding the foregoing, a “Corporate Change” shall not occur as a result of an initial public offering of the Company’s common stock, or as a result of a merger, consolidation, reorganization or restructuring after which either (1) a majority of the Board of Directors of the controlling entity consists of persons who were directors of the Company prior to the merger, consolidation, reorganization or restructuring or (2) Executive forms part of an executive management team that consists of substantially the same group of individuals and Executive is performing in a similar role, with similar authority and responsibility (other than changes solely attributable to the change in ownership structure), to that which existed prior to the reorganization or restructuring. Notwithstanding the foregoing, for any payments or benefits hereunder that are subject to Section 409A, the Corporate Change must constitute a “change in control event” within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(i).
3. Compensation.
(a) Base Salary. Executive’s minimum base salary during the Term shall be at the rate of $235,000.08 per year (the “Base Salary”). Base Salary shall be payable in substantially equal installments in accordance with the Company’s payroll practices as in effect from time to time, less any amounts required to be withheld under applicable law. The Base Salary will be subject to adjustment from time to time in the sole discretion of the Board; provided that, the Company covenants that it shall not reduce the Base Salary below $235,000.08 or the Base Salary then in effect immediately prior to the reduction unless (i) Executive consents to such reduction, or (ii) the reduction is in connection with a general reduction of not more than 20% in compensation of senior executives of the Company generally that occurs prior to the effective date of any Corporate Change.
(b) Bonus. In addition to the Base Salary, the Company may pay Executive an annual bonus (the “Bonus”) as determined by the Board, solely in its discretion (it being understood that Executive’s target annual bonus shall be at 30% of Base Salary, but may be higher or lower in any year in the Board’s discretion). The Board’s decision to issue a Bonus to Executive in any particular year shall have no effect on the absolute discretion of the Board to grant or not to grant a Bonus in subsequent years. Any Bonus for a particular year shall be paid or provided to Executive in a lump sum no later than March 15th of the calendar year following the calendar year in which the Bonus was earned.
(c) Equity Compensation. Executive shall be eligible to participate in PTC’s annual equity and long term incentive plan(s) and may be eligible to receive discretionary awards
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under such plan(s), subject to the terms and conditions of such plan(s). Except as explicitly set forth below, Executive’s rights with respect to equity (including stock options) shall be covered in PTC’s equity and long term incentive plan(s) and separate stock option certificates or agreements for each grant.
(i) Accelerated Vesting.
(A) For the avoidance of doubt, in the event that Executive’s employment hereunder is terminated by the Company without Cause or by Executive for Good Reason, no unvested equity awards granted under the Company’s equity and long-term incentive plan(s) following the date hereof shall be subject to any accelerated vesting except as otherwise provided for in the applicable award agreement or in Section 3(c)(i)(B) below.
(B) Except as otherwise provided in the applicable award, in the event that Executive’s employment hereunder is terminated by the Company without Cause or by Executive for Good Reason within the period of three (3) months prior to (but only if negotiations relating to the particular Corporate Change that occurs are ongoing at the date of the notice of termination) or twelve (12) months after a Corporate Change that occurs during the Term (such fifteen-month period, the “Protected Period”), one hundred percent (100%) of all of Executive’s outstanding unvested equity awards granted under the Company’s equity and long-term incentive plan(s) following the date hereof shall vest immediately.
(d) Vacation. Executive is eligible for time off programs outlined in the Company’s Time Off Policy. Executive shall accrue over the calendar year 160 hours of paid vacation. Executive may accrue up to 200 hours of vacation. Once Executive has reached the maximum accrual, no further vacation time will be accrued unless and until the Executive uses vacation time. Upon termination of employment, the value of Executive’s current balance of accrued but unused vacation shall be paid out in cash based on his/her Base Salary that was in effect immediately prior to his/her termination of employment.
(e) Fringe Benefits. Executive shall be entitled to participate in any employee benefit plans that the Company makes available to its senior executives (including, without limitation, group life, disability, medical, dental and other insurance, retirement, pension, profit-sharing and similar plans) (collectively, the “Fringe Benefits”), provided that the Fringe Benefits shall not include any stock option or similar plans relating to the grant of equity securities of the Company. These benefits may be modified or changed from time to time at the sole discretion of the Company. Where a particular benefit is subject to a formal plan (for example, medical or life insurance), eligibility to participate in and receive any particular benefit is governed solely by the applicable plan document, and eligibility to participate in such plan(s) may be dependent upon, among other things, a physical examination.
(f) Reimbursement of Expenses. Executive shall be entitled to reimbursement for all ordinary and reasonable out-of-pocket business expenses that are reasonably incurred by him/her in furtherance of the Company’s business in accordance with reasonable policies adopted from time to time by the Company for senior executives.
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(g) Taxes and Withholdings. The Company shall deduct and withhold from all compensation and benefits under this Agreement all social security and other federal, state and local taxes and charges which currently are or which hereafter may be required by law to be so deducted and withheld.
4. Severance Compensation.
(a) In the event of any termination of Executive’s employment for any reason the Company shall pay Executive (or Executive’s estate) such portions of Executive’s Base Salary as have accrued prior to such termination and have not yet been paid, together with (i) amounts for accrued unused vacation days (as provided above), (ii) any amounts for expense reimbursement which have been properly incurred or the Company has become obligated to pay prior to termination and have not been paid as of the date of such termination and (iii) the amount of any Bonus previously granted to Executive by the Board but not yet paid, which amount shall not include any pro rata portion of any Bonus which would have been earned if such termination had not occurred (the “Accrued Obligations”). Such amounts shall be paid as soon as possible after termination.
(b) In the event that Executive’s employment hereunder is terminated (i) by Executive for a Good Reason or (ii) by the Company without Cause, the Company shall pay to Executive the Accrued Obligations. In addition, the Company shall pay to Executive the severance benefits set forth below for six (6) months following Executive’s termination of employment (the “Severance Period”). The receipt of any severance benefits provided in this Section shall be dependent upon Executive’s execution (and, as applicable, non-revocation) of a standard separation agreement and general release of claims, substantially in the form attached hereto as Exhibit A (the “Release”). The Company will also consider in good faith (but without any binding commitment) requests from Executive that the Company include in the Release a release of Executive by the Company from matters specifically disclosed to the Company by Executive in writing in advance of execution of the Release and not involving any illegality, fraud, concealment, criminal acts or acts outside the scope of Executive's employment. The distribution of severance benefits in this Section 4 is subject to section (iii) of this Section 4(b).
(i) If Executive’s employment is terminated (A) by Executive for a Good Reason or (B) by the Company without Cause, in either case before or after the Protected Period, the Company shall pay Executive his/her Base Salary, less any amounts required to be withheld under applicable law, for the Severance Period in substantially equal installments in accordance with the Company’s payroll practices as in effect from time to time, commencing no later than sixty (60) days following the effective date of such termination. If Executive’s employment is terminated (A) by Executive for a Good Reason or (B) by the Company without Cause, in either case during the Protected Period, the Company shall pay Executive his/her Base Salary for the Severance Period, which total amount shall be payable in a lump sum no later than sixty (60) days following Executive’s termination of employment. In each case, payments shall commence or be paid provided that the Release has been executed and any applicable revocation period has expired as of the 60th day following Executive’s termination.
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(ii) The Company shall continue to provide Executive and his/her then-enrolled eligible dependents with group health insurance and shall continue to pay the amount of the premium as in effect on the date of such termination for the Severance Period commencing on the effective date of such termination, subject to applicable law and the terms of the respective policies; provided that the Company’s obligation to provide the benefits contemplated herein shall terminate upon Executive’s becoming eligible for coverage under the medical benefits program of a subsequent employer. The foregoing shall not be construed to extend any period of continuation coverage (e.g., COBRA) required by Federal law.
(iii) Compliance with Section 409A. Subject to the provisions in this Section 4(b)(iii), any severance payments or benefits under this Agreement shall begin only upon the date of Executive’s “separation from service” (determined as set forth below) which occurs on or after the date of termination of Executive’s employment. The following rules shall apply with respect to the distribution of the severance payments and benefits, if any, to be provided to Executive under this Agreement:
(1) It is intended that each installment of the severance payments and benefits provided under this Agreement shall be treated as a separate “payment” for purposes of Section 409A. Neither the Company nor Executive shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.
(2) If, as of the date of Executive’s “separation from service” from the Company, Executive is not a “specified employee” (within the meaning of Section 409A), then each installment of the severance payments and benefits shall be made on the dates and terms set forth in this Agreement.
(3) If, as of the date of Executive’s “separation from service” from the Company, Executive is a “specified employee” (within the meaning of Section 409A), then:
(A) Each installment of the severance payments and benefits due under this Agreement that, in accordance with the dates and terms set forth herein, will in all circumstances, regardless of when the separation from service occurs, be paid within the short-term deferral period (as defined under Section 409A) shall be treated as a short-term deferral within the meaning of Treasury Regulation Section 1.409A-1(b)(4) to the maximum extent permissible under Section 409A and such payments and benefits shall be paid or provided on the dates and terms set forth in this Agreement; and
(B) Each installment of the severance payments and benefits due this Agreement that is not described in Section 4(b)(iii)(3)(A) above and that would, absent this subsection, be paid within the six-month period following Executive’s “separation from service” from the Company shall not be paid until the date that is six months and one day after such separation from service (or, if earlier, Executive’s death), with any such installments that are
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required to be delayed being accumulated during the six-month period and paid in a lump sum on the date that is six months and one day following Executive’s separation from service and any subsequent installments, if any, being paid in accordance with the dates and terms set forth herein; provided, however, that the preceding provisions of this sentence shall not apply to any installment of severance payments and benefits if and to the maximum extent that such installment is deemed to be paid under a separation pay plan that does not provide for a deferral of compensation by reason of the application of Treasury Regulation 1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation from service). Any installments that qualify for the exception under Treasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of Executive’s second taxable year following the taxable year in which the separation from service occurs.
(4) The determination of whether and when Executive’s separation from service from the Company has occurred shall be made in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of this Section 4(b)(iii), “Company” shall include all persons with whom the Company would be considered a single employer under Section 414(b) and 414(c) of the Code.
(5) All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Sections 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A, including, where applicable, the requirements that (i) any reimbursement is for expenses incurred during Executive’s lifetime (or during a shorter period of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred and (iv) the right to reimbursement is not subject to set off or liquidation or exchange for any other benefit.
(6) Notwithstanding anything herein to the contrary, the Company shall have no liability to Executive or to any other person if the payments and benefits provided hereunder that are intended to be exempt from or compliant with Section 409A are not so exempt or compliant.
(c) In the event that Executive’s employment hereunder is terminated (i) by Executive for other than a Good Reason, or (ii) by the Company for Cause, or (iii) as a result of Executive’s death or Disability, then the Company will pay to Executive the Accrued Obligations. The Company shall have no obligation to pay Executive (or Executive’s estate) any other compensation following such termination except as provided in Section 4(a).
(d) Modified Section 280G Cutback.
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(i) Notwithstanding any other provision of this Agreement, except as set forth in Section 4(d)(ii), in the event that the Company undergoes a “Change in Ownership or Control” (as defined below), the Company shall not be obligated to provide to Executive a portion of any “Contingent Compensation Payments” (as defined below) that Executive would otherwise be entitled to receive to the extent necessary to eliminate any “excess parachute payments” (as defined in Section 280G(b)(1) of the Code) for Executive. For purposes of this Section 4(d), the Contingent Compensation Payments so eliminated shall be referred to as the “Eliminated Payments” and the aggregate amount (determined in accordance with Treasury Regulation Section 1.280G-1, Q/A-30 or any successor provision) of the Contingent Compensation Payments so eliminated shall be referred to as the “Eliminated Amount.”
(ii) Notwithstanding the provisions of Section 4(d)(i), no such reduction in Contingent Compensation Payments shall be made if (1) the Eliminated Amount (computed without regard to this sentence) exceeds (2) 100% of the aggregate present value (determined in accordance with Treasury Regulation Section 1.280G-1, Q/A-31 and Q/A-32 or any successor provisions) of the amount of any additional taxes that would be incurred by Executive if the Eliminated Payments (determined without regard to this sentence) were paid to him/her (including, state and federal income taxes on the Eliminated Payments, the excise tax imposed by Section 4999 of the Code payable with respect to all of the Contingent Compensation Payments in excess of Executive’s “base amount” (as defined in Section 280G(b)(3) of the Code), and any withholding taxes). The override of such reduction in Contingent Compensation Payments pursuant to this Section 4(d)(ii) shall be referred to as a “Section 4(d)(ii) Override.” For purpose of this paragraph, if any federal or state income taxes would be attributable to the receipt of any Eliminated Payment, the amount of such taxes shall be computed by multiplying the amount of the Eliminated Payment by the maximum combined federal and state income tax rate provided by law.
(iii) For purposes of this Section 4(d) the following terms shall have the following respective meanings:
(1) “Change in Ownership or Control” shall mean a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 280G(b)(2) of the Code.
(2) “Contingent Compensation Payment” shall mean any payment (or benefit) in the nature of compensation that is made or made available (under this Agreement or otherwise) to a “disqualified individual” (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the Company.
(iv) Any payments or other benefits otherwise due to Executive following a Change in Ownership or Control that could reasonably be characterized (as determined by the Company) as Contingent Compensation Payments (the “Potential
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Payments”) shall not be made until the dates provided for in this Section 4(d)(iv). Within 30 days after each date on which Executive first becomes entitled to receive (whether or not then due) a Contingent Compensation Payment relating to such Change in Ownership or Control, the Company shall determine and notify Executive (with reasonable detail regarding the basis for its determinations) (1) which Potential Payments constitute Contingent Compensation Payments, (2) the Eliminated Amount and (3) whether the Section 4(d)(ii) Override is applicable. Within 30 days after delivery of such notice to Executive, Executive shall deliver a response to the Company (the “Executive Response”) stating either (A) that s/he agrees with the Company’s determination pursuant to the preceding sentence or (B) that s/he disagrees with such determination, in which case s/he shall set forth (x) which Potential Payments should be characterized as Contingent Compensation Payments, (y) the Eliminated Amount, and (z) whether the Section 4(d)(ii) Override is applicable. In the event that Executive fails to deliver an Executive Response on or before the required date, the Company’s initial determination shall be final. If Executive states in the Executive Response that s/he agrees with the Company’s determination, the Company shall make the Potential Payments to Executive within three business days following delivery to the Company of the Executive Response (except for any Potential Payments which are not due to be made until after such date, which Potential Payments shall be made on the date on which they are due). If Executive states in the Executive Response that s/he disagrees with the Company’s determination, then, for a period of 60 days following delivery of the Executive Response, Executive and the Company shall use good faith efforts to resolve such dispute. If such dispute is not resolved within such 60-day period, such dispute shall be settled exclusively by arbitration in South Plainfield, New Jersey, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. The Company shall, within three business days following delivery to the Company of the Executive Response, make to Executive those Potential Payments as to which there is no dispute between the Company and Executive regarding whether they should be made (except for any such Potential Payments which are not due to be made until after such date, which Potential Payments shall be made on the date on which they are due). The balance of the Potential Payments shall be made within three business days following the resolution of such dispute.
(v) The Contingent Compensation Payments to be treated as Eliminated Payments shall be determined by the Company by determining the “Contingent Compensation Payment Ratio” (as defined below) for each Contingent Compensation Payment and then reducing the Contingent Compensation Payments in order beginning with the Contingent Compensation Payment with the highest Contingent Compensation Payment Ratio. For Contingent Compensation Payments with the same Contingent Compensation Payment Ratio, such Contingent Compensation Payment shall be reduced based on the time of payment of such Contingent Compensation Payments with amounts having later payment dates being reduced first. For Contingent Compensation Payments with the same Contingent Compensation Payment Ratio and the same time of payment, such Contingent Compensation Payments shall be reduced on a pro rata basis (but not below zero) prior to reducing Contingent Compensation Payment with a lower Contingent Compensation Payment Ratio. The term “Contingent Compensation Payment Ratio” shall mean a fraction the numerator of which is the value
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of the applicable Contingent Compensation Payment that must be taken into account by Executive for purposes of Section 4999(a) of the Code, and the denominator of which is the actual amount to be received by Executive in respect of the applicable Contingent Compensation Payment. For example, in the case of an equity grant that is treated as contingent on the Change in Ownership or Control because the time at which the payment is made or the payment vests is accelerated, the denominator shall be determined by reference to the fair market value of the equity at the acceleration date, and not in accordance with the methodology for determining the value of accelerated payments set forth in Treasury Regulation Section 1.280G-1Q/A-24(b) or (c)).
(vi) The provisions of this Section 4(d) are intended to apply to any and all payments or benefits available to Executive under this Agreement or any other agreement or plan of the Company under which Executive receives Contingent Compensation Payments.
(vii) Notwithstanding Sections 4(d)(i)-(vi) hereof, until the closing of the first underwritten public offering of common stock of the Company, in the event that it shall be determined that any payment or benefit (including any accelerated vesting of options or other equity awards) made or provided, or to be made or provided, by the Company (or any successor thereto or affiliate thereof) to or for the benefit of Executive, whether pursuant to the terms of this Agreement, any other agreement, plan, program or arrangement of or with the Company (or any successor thereto or affiliate thereof) or otherwise, may be subject to the excise tax imposed by Section 4999 of the Code or any comparable tax imposed by any replacement or successor provision of United States tax law, then upon the request of Executive, the Company shall use reasonable efforts to procure a shareholder vote in satisfaction of the shareholder approval requirements described in Treas. Reg. Section 1.280G-1, Q&A-7.
5. Executive Covenants.
(a) Confidential Information. Executive recognizes and acknowledges the competitive and proprietary aspects of the business of the Company, and that as a result of Executive’s employment, Executive recognizes and acknowledges that s/he has had and will continue to have access to, and has been and will continue to be involved in the development of, Confidential Information (as defined below) of the Company. As used herein, “Confidential Information” shall mean and include trade secrets, knowledge and other confidential information of the Company, which Executive has acquired, no matter from whom or on what matter such knowledge or information may have been acquired, heretofore or hereafter, concerning the content and details of the business of the Company, and which is not known to the general public, including but not limited to: (a) new products, product betterments and other inventions, formulas, processes, methods, materials, material combinations, manner of preparations, technical production procedures and information, alarm and security codes and procedures, sources of technology, and sources of supply of raw and finished materials and other products; (b) financial and accounting records; (c) the identity of employees, consultants, independent contractors, customers, business development partners, licensees, suppliers, creditors or other parties with which the Company has business dealings, the nature of the relationship with such persons, or any other information relating to such persons or the Company’s dealings with such
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persons; and (d) computer software used by the Company or provided to the customers of the Company unless publicly available.
(i) For as long as Executive is employed and at all times thereafter, Executive shall not, directly or indirectly, communicate, disclose or divulge to any person or entity, or use for Executive’s own benefit or the benefit of any person (other than the Company), any Confidential Information, except as permitted in subparagraph (iii) below. Upon termination of Executive’s employment, or at any other time at the request of the Company, Executive agrees to deliver promptly to the Company all Confidential Information, including, but not limited to, customer and supplier lists, files and records, in Executive’s possession or under Executive’s control. Executive further agrees that s/he will not make or retain any copies of any of the foregoing and will so represent to the Company upon termination of Executive’s employment.
(ii) Executive shall disclose immediately to the Company any trade secrets or other Confidential Information conceived or developed by Executive at any time during Executive’s employment. Executive hereby assigns and agrees to assign to the Company Executive’s entire right, title and interest in and to all Confidential Information. Such assignment shall include, without limitation, the rights to obtain patent or copyright protection, thereon in the United States and foreign countries. Executive agrees to provide all reasonable assistance to enable the Company to prepare and prosecute any application before any governmental agency for patent or copyright protection or any similar application with respect to any Confidential Information. Executive further agrees to execute all documents and assignments and to make all oaths necessary to vest ownership of such intellectual property rights in the Company, as the Company may request. These obligations shall apply whether or not the subject thereof was conceived or developed at the suggestion of the Company, and whether or not developed during regular hours of work or while on the premises of the Company.
(iii) Executive shall at all times, both during and after termination of this Agreement by either Executive or the Company, maintain in confidence and shall not, without prior written consent of the Company, use, except in the course of performance of Executive’s duties for the Company or as required by legal process (provided that Executive will promptly notify the Company of such legal process except with respect to any confidential government investigation), disclose or give to others any Confidential Information. In the event Executive is questioned by anyone not employed by the Company or by an employee of or a consultant to the Company not authorized to receive such information, in regard to any such information or any other secret or confidential work of the Company, or concerning any fact or circumstance relating thereto, Executive will promptly notify the Company.
(b) Non-Competition and Non-Solicitation. Executive recognizes that the Company is engaged in a competitive business and that the Company has a legitimate interest in protecting its trade secrets, confidential business information, and customer, business development partner, licensee, supplier, and credit and/or financial relationships. Accordingly, in exchange for valuable consideration, including without limitation Executive’s access to
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confidential business information and continued at-will employment, Executive agrees that, during the Term hereof and for a period of nine (9) months thereafter, Executive shall not:
(i) directly or indirectly, whether for himself or for any other person or entity, and whether as a proprietor, principal, shareholder, partner, agent, employee, consultant, independent contractor, or in any other capacity whatsoever, undertake or have any interest in (other than the passive ownership of publicly registered securities representing an ownership interest of less than 1%), engage in or assume any role involving directly or indirectly the Company’s Field of Interest (or any portion thereof) or any other business in which the Company is engaged and for which the employee has rendered services while employed by the Company, or enter into any agreement to do any of the foregoing; or
(ii) initiate contact with (including without limitation phone calls, press releases and the sending or delivering of announcements), or in any manner solicit, directly or indirectly, any customers, business development partners, licensors, licensees, or creditors (including institutional lenders, bonding companies and trade creditors) of the Company in an attempt to induce or motivate them either to discontinue or modify their then prevailing or future relationship with the Company or to transfer any of their business with the Company to any person or entity other than the Company; or
(iii) initiate contact with, or in any manner solicit, directly or indirectly, any supplier of goods, services or materials to the Company in an attempt to induce or motivate them either to discontinue or modify their then prevailing or future relationship with the Company or to supply the same or similar inventory, goods, services or materials (except generally available inventory, goods, services or materials) to any person or entity other than the Company; or
(iv) directly or indirectly recruit, solicit or otherwise induce or influence any employee or independent contractor of the Company to discontinue or modify his or her employment or engagement with the Company, or employ or contract with any such employee or contractor for the provision of services.
(c) Definition of “Field of Interest”. The term Company’s “Field of Interest” shall mean the research, development and commercialization of products and strategies relating to: (i) therapies for genetic disorders or diseases that include cystic fibrosis, Duchenne muscular dystrophy, other diseases caused in whole or part by nonsense (or stop) codons, and other genetic diseases as to which the Company engages in the research, development or commercialization of drugs; anti-angiogenic therapies that target VEGF protein production for cancer; and antiviral therapies for the Hepatitis C virus (HCV); and (ii) other therapeutic targets, mechanisms of action and/or therapies in which the Company has a research, development or commercialization program.
(d) Definition of “Customer”. The term “customer” or “customers” shall include any person or entity (a) that is a current customer of the Company, (b) that was a customer of the Company at any time during the preceding twenty-four (24) months or (c) to which the Company made a written presentation for the solicitation of business at any time during the preceding twenty-four (24) months.
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(e) Reasonableness of Restrictions. Executive further recognizes and acknowledges that (i) the types of employment which are prohibited by this Section 5 are narrow and reasonable in relation to the skills which represent Executive’s principal salable asset both to the Company and to Executive’s other prospective employers, and (ii) the broad geographical scope of the provisions of this Section 5 is reasonable, legitimate and fair to Executive in light of the global nature of the Company’s business, particularly pharmaceutical research and development, and in light of the limited restrictions on the type of employment prohibited herein compared to the types of employment for which Executive is qualified to earn Executive’s livelihood.
(f) Remedies. Executive acknowledges that a breach of this Section 5 will cause great and irreparable injury and damage, which cannot be reasonably or adequately compensated by money damages. Accordingly, Executive acknowledges that the remedies of injunction and specific performance shall be available in the event of such a breach, in addition to money damages, costs and attorneys’ fees, and other legal or equitable remedies, and that the Company shall be entitled as a matter of course to an injunction pending trial, without the posting of bond or other security. Any period of restriction set forth in this Section 5 shall be extended for a period of time equal to the duration of any breach or violation hereof.
(g) Notification. Any person employing Executive or evidencing any intention to employ Executive may be notified as to the existence and provisions of this Agreement.
(h) Modification of Covenants; Enforceability. In the event that any provision of this Section 5 is held to be in any respect an unreasonable restriction, then the court so holding may modify the terms thereof, including the period of time during which it operates or the geographic area to which it applies, or effect any other change to the extent necessary to render this section enforceable, it being acknowledged by the parties that the representations and covenants set forth herein are of the essence of this Agreement.
(i) Subsidiaries. For purposes of Sections 5 and 6 of this Agreement, “Company” shall include all direct and indirect subsidiaries of the Company. An entity shall be deemed to be a subsidiary of the Company if the Company directly or indirectly owns or controls 50% or more of the equity interest in such entity.
6. Ownership of Ideas, Copyrights and Patents.
(a) Property of the Company. Executive agrees that all ideas, discoveries, creations, manuscripts and properties, innovations, improvements, know‑how, inventions, designs, developments, apparatus, techniques, methods, biological processes, cell lines, laboratory notebooks and formulae, whether patentable, copyrightable or not, which Executive may conceive, reduce to practice or develop, alone or in conjunction with another, or others, whether during or out of regular business hours, and whether at the request or upon the suggestion of the Company, or otherwise, in the course of performing services for the Company in any capacity, whether heretofore or hereafter, (collectively, “the Inventions”) are and shall be the sole and exclusive property of the Company, and that Executive shall not publish any of the Inventions without the prior written consent of the Company. Executive hereby assigns to the Company all of Executive’s right, title and interest in and to all of the foregoing. Executive
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further represents and agrees that to the best of Executive’s knowledge and belief none of the Inventions will violate or infringe upon any right, patent, copyright, trademark or right of privacy, or constitute libel or slander against or violate any other rights of any person, firm or corporation and that Executive will use his/her best efforts to prevent any such violation.
(b) Cooperation. At any time during or after the Term, Executive agrees that s/he will fully cooperate with the Company, its attorneys and agents in the preparation and filing of all papers and other documents as may be required to perfect the Company’s rights in and to any of such Inventions, including, but not limited to, executing any lawful document (including, but not limited to, applications, assignments, oaths, declarations and affidavits) and joining in any proceeding to obtain letters patent, copyrights, trademarks or other legal rights of the United States and of any and all other countries on such Inventions, provided that any patent or other legal right so issued to Executive, personally, shall be assigned by Executive to the Company without charge by Executive. Executive further designates the Company as his/her agent for, and grants to the Company a power of attorney with full power of substitution, which power of attorney shall be deemed coupled with an interest, for the purpose of effecting the foregoing assignments from Executive to the Company. Company will bear the reasonable expenses which it causes to be incurred in Executive’s assisting and cooperating hereunder. Executive waives all claims to moral rights in any Inventions.
7. Disclosure to Future Employers. The Company may provide in its discretion, a copy of the covenants contained in Sections 5 and 6 of this Agreement to any business or enterprise which Executive may directly, or indirectly, own, manage, operate, finance, join, control or in which Executive participates in the ownership, management, operation, financing, or control, or with which Executive may be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise.
8. Records. Upon termination of Executive’s relationship with the Company, Executive shall deliver to the Company any property of the Company which may be in Executive’s possession including products, materials, memoranda, notes, records, reports, or other documents or photocopies of the same.
9. Insurance. The Company, in its sole discretion, may apply for and procure in its own name (whether or not for its own benefit) policies of insurance insuring Executive’s life. Executive agrees to submit to reasonable medical or other examinations and to execute and deliver any applications or other instruments in writing that are reasonably necessary to effectuate such insurance. No adverse employment actions may be based upon the results of any such exam or the failure by the Company to obtain such insurance.
10. No Conflicting Agreements. Executive hereby represents and warrants that Executive has no commitments or obligations inconsistent with this Agreement.
11. “Market Stand-Off” Agreement. Executive agrees, if requested by the Company and an underwriter of common stock (or other securities) of the Company, not to sell or otherwise transfer or dispose of any common stock (or other securities) of the Company held by Executive during a period not to exceed one hundred and eighty (180) days following the effective date of the first underwritten public offering of common stock of the Company, offered on a firm commitment basis pursuant to a registration statement filed with the Securities and
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Exchange Commission (or any successor agency of the Federal government administrating the Securities Act of 1933, as amend, and the Securities Exchange Act of 1934, as amended) under the Securities Act of 1933, as amended, on Form S-1 or its then equivalent, and to enter into an agreement to such effect. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of said period.
12. General.
(a) Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be addressed to the receiving party’s address as follows:
If to the Company: PTC Therapeutics Inc.
100 Corporate Court
South Plainfield, NJ 07080
USA
Attention: Legal Department
Telephone: (908) 222-7000
100 Corporate Court
South Plainfield, NJ 07080
USA
Attention: Legal Department
Telephone: (908) 222-7000
With an email copy to: legal@ptcbio.com
If to Executive: Emily Hill
230 Hamilton Road
Ridgewood, NJ 07450
or to such other address as a party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) sent by overnight courier, or (iii) sent by registered or certified mail, return receipt requested, postage prepaid. All notices, requests, consents and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (ii) if sent by overnight courier, on the next business day following the day such notice is delivered to the courier service, or (iii) if sent by registered or certified mail, on the fifth (5th) business day following the day such mailing is made.
(b) Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof, except with respect to the equity and fringe benefit arrangements referred to in Subsections 3(c) and (e) above. No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement.
(c) Modifications and Amendments. The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the parties hereto.
(d) Waivers and Consents. The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by
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the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.
(e) Assignment. The Company shall assign its rights and obligations hereunder to any person or entity that succeeds to all or substantially all of the Company’s business or that aspect of the Company’s business in which Executive is principally involved. Executive may not assign Executive’s rights and obligations under this Agreement without the prior written consent of the Company.
(f) Benefit. All statements, representations, warranties, covenants and agreements in this Agreement shall be binding on the parties hereto and shall inure to the benefit of the respective successors and permitted assigns of each party hereto. Nothing in this Agreement shall be construed to create any rights or obligations except among the parties hereto, and no person or entity shall be regarded as a third‑party beneficiary of this Agreement.
(g) Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of The State of New Jersey, without giving effect to the conflict of law principles thereof.
(h) Jurisdiction and Service of Process. Any legal action or proceeding with respect to this Agreement shall be brought in the courts of The State of New Jersey or of the United States of America for the District of New Jersey. By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each of the parties hereto irrevocably consents to the service of process of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by certified mail, postage prepaid, to the party at its address set forth in Section 12(a) hereof.
(i) Severability. The parties intend this Agreement to be enforced as written. However, (i) if any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a duly authorized court having jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law; and (ii) if any provision, or part thereof, is held to be unenforceable because of the duration of such provision or the geographic area covered thereby or otherwise, the Company and Executive agrees that the court making such determination shall have the power to reduce the duration and/or geographic area of such provision, and/or to delete specific words and phrases (“blue-penciling”), and in its reduced or blue-penciled form such provision shall then be enforceable and shall be enforced.
(j) Headings and Captions; Interpretation. The headings and captions of the various subdivisions of this Agreement are for convenience of reference only and shall in no way modify, or affect the meaning or construction of any of the terms or provisions hereof. The provisions of the following Sections of this Agreement are in addition to, and do not limit, each
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other: Sections 6 and 5(a); Sections 7 and 5(g); Sections 12(k) and 12(f); and Sections 12(l) and 12(d).
(k) Injunctive Relief. Executive hereby expressly acknowledges that any breach or threatened breach of any of the terms and/or conditions set forth in Section 5 or 6 of this Agreement will result in substantial, continuing and irreparable injury to the Company. Therefore, Executive hereby agrees that, in addition to any other remedy that may be available to the Company, the Company shall be entitled to injunctive or other equitable relief by a court of appropriate jurisdiction.
(l) No Waiver of Rights, Powers and Remedies. No failure or delay by a party hereto in exercising any right, power or remedy under this Agreement, and no course of dealing between the parties hereto, shall operate as a waiver of any such right, power or remedy of the party. No single or partial exercise of any right, power or remedy under this Agreement by a party hereto, nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, shall preclude such party from any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The election of any remedy by a party hereto shall not constitute a waiver of the right of such party to pursue other available remedies. No notice to or demand on a party not expressly required under this Agreement shall entitle the party receiving such notice or demand to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the party giving such notice or demand to any other or further action in any circumstances without such notice or demand.
(m) Counterparts. This Agreement may be executed in one or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
(n) Survival. The provisions of Sections 4, 5, 6, 7, 8, 11 and 12 shall survive the termination of this Agreement and Executive’s employment hereunder in accordance with their terms.
(o) WAIVER OF TRIAL BY JURY. THE PARTIES IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY REGARDING ANY DISPUTE, CLAIM OR CAUSE OF ACTION ARISING OUT OF, CONCERNING, OR RELATED TO EXECUTIVE’S EMPLOYMENT WITH THE COMPANY OR THIS AGREEMENT.
(p) Knowing and Voluntary Nature of Agreement. Executive acknowledges and agrees that Executive is executing this Agreement knowingly and voluntarily and without any duress or undue influence by PTC or anyone else. Executive further acknowledges and agrees that Executive has carefully read this Agreement and fully understands it, including that Executive is waiving the right to a jury trial. Executive further agrees that Executive has been provided an opportunity to seek the advice of an attorney of Executive’s choice before signing this Agreement.
IN WITNESS THEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
PTC Therapeutics, Inc.
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/s/ Mark E. Boulding
Name: Mark E. Boulding
Title: EVP, Chief Legal Officer
Agreed and Accepted
/s/ Emily Hill
Name: Emily Hill
EXHIBIT A
Sample Separation and Release Agreement
[Insert Date]
[Insert Employee Name]
[Insert Employee Address]
Dear [Insert Employee Name]:
In connection with the termination of your employment with PTC Therapeutics, Inc. (the “Company”) on [Termination Date], you are eligible to receive the Severance Compensation as described in Section 4 of the Employment Agreement executed between you and the Company on [Insert Date] (the “Employment Agreement”) if you sign and return this letter agreement to me by [Return Date – e.g., 21 days from date of receipt of this letter agreement] and it becomes binding between you and the Company. By signing and returning this letter agreement and not revoking your acceptance, you will be agreeing to the terms and conditions set forth in the numbered paragraphs below, including the release of claims set forth in paragraph 3. Therefore, you are advised to consult with an attorney before signing this letter agreement and you may take up to twenty-one (21) days to do so. If you sign this letter agreement, you may change your mind and revoke your agreement during the seven (7) day period after you have signed it by notifying me in writing. If you do not so revoke, this letter agreement will become a binding agreement between you and the Company upon the expiration of the seven (7) day period.
If you choose not to sign and return this letter agreement by [Return Date-Same as Above], or if you timely revoke your acceptance in writing, you shall not receive any Severance Compensation from the Company. You will, however, receive payment for your final wages and any unused vacation time accrued through the Termination Date, as defined below, on the Company’s regular payroll date immediately following the Termination Date. Also, regardless of signing this letter agreement, you may elect to continue receiving group medical insurance pursuant to the federal “COBRA” law, 29 U.S.C. § 1161 et seq. If you so elect, you shall pay all premium costs on a monthly basis for as long as, and to the extent that, you remain eligible for COBRA continuation. You should consult the COBRA materials to be provided by the Company for details regarding these benefits. All other benefits will cease upon your Termination Date in accordance with the plan documents.
The following numbered paragraphs set forth the terms and conditions that will apply if you timely sign and return this letter agreement and do not revoke it in writing within the seven (7) day period.
1. | Termination Date – Your effective date of termination from the Company is [Insert Date] (the “Termination Date”). |
2. | Release – In consideration of the payment of the Severance Compensation, which you acknowledge you would not otherwise be entitled to receive, you hereby fully, forever, |
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irrevocably and unconditionally release, remise and discharge the Company, its affiliates, subsidiaries, parent companies, predecessors, and successors, and all of their respective past and present officers, directors, stockholders, partners, members, employees, agents, representatives, plan administrators, attorneys, insurers and fiduciaries (each in their individual and corporate capacities) (collectively, the “Released Parties”) from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including attorneys’ fees and costs), of every kind and nature that you ever had or now have against any or all of the Released Parties, including, but not limited to, any and all claims arising out of or relating to your employment with and/or separation from the Company, including, but not limited to, all claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., the Americans With Disabilities Act of 1990, 42 U.S.C. § 12101 et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Genetic Information Nondiscrimination Act of 2008, 42 U.S.C. § 2000ff et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., the Worker Adjustment and Retraining Notification Act (“WARN”), 29 U.S.C. § 2101 et seq., the Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq., Executive Order 11246, Executive Order 11141, the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., and the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq., all as amended; all claims arising out of the New Jersey Law Against Discrimination, N.J. Stat. Ann. § 10:5-1 et seq., the New Jersey Family Leave Act, N.J. Stat. Ann. § 34:11B-1 et seq., the New Jersey Conscientious Employee Protection Act, N.J. Stat. Ann. § 34:19-1 et seq., and the N.J. Stat. Ann. § 34:11-56.1 et seq. (New Jersey equal pay law), all as amended; all common law claims including, but not limited to, actions in defamation, intentional infliction of emotional distress, misrepresentation, fraud, wrongful discharge, and breach of contract, including without limitation, all claims arising from the Employment Agreement; all state and federal whistleblower claims to the maximum extent permitted by law; all claims to any non-vested ownership interest in the Company, contractual or otherwise; and any claim or damage arising out of your employment with and/or separation from the Company (including a claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above; provided, however, that nothing in this letter agreement shall (i) prevent you from filing a charge with, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission or a state fair employment practices agency (except that you acknowledge that you may not recover any monetary benefits in connection with any such claim, charge or proceeding) or (ii) deprive you of any rights you may have to be indemnified by the Company as provided in any agreement between the Company and you or pursuant to the Company’s Certificate of Incorporation or by-laws.
3. | Non-Disclosure, Non-Competition and Non-Solicitation – You acknowledge and reaffirm your obligation to keep confidential and not disclose all non-public information concerning the Company and its clients that you acquired during the course of your employment with the Company, as stated more fully in Section 5 of the Employment Agreement, which remains in full force and effect. |
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4. | Return of Company Property – You confirm that you have returned to the Company all keys, files, records (and copies thereof), equipment (including, but not limited to, computer hardware, software and printers, wireless handheld devices, cellular phones, smartphones, tablets, etc.), Company identification, and any other Company-owned property in your possession or control and have left intact all electronic Company documents, including but not limited to those which you developed or helped to develop during your employment. You further confirm that you have cancelled all accounts for your benefit, if any, in the Company's name, including but not limited to, credit cards, telephone charge cards, cellular phone and/or wireless data accounts and computer accounts. |
5. | Business Expenses and Final Compensation – You acknowledge that you have been reimbursed by the Company for all business expenses incurred in conjunction with the performance of your employment and that no other reimbursements are owed to you. You further acknowledge that you have received payment in full for all services rendered in conjunction with your employment by the Company, including payment for all wages, bonuses and accrued, unused vacation time, and that no other compensation is owed to you except as provided herein. |
6. | Non-Disparagement – To the extent permitted by law, you understand and agree that as a condition for payment to you of the Severance Compensation herein described, for a period of five years following the date hereof you shall not make any false, disparaging or derogatory statements to any person or entity, including any media outlet, regarding the Company or any of its directors, officers, employees, agents or representatives or about the Company’s business affairs and financial condition. Further, for a period of five years following the date hereof, neither the Company, nor any of its executive officers or members of its Board will directly or indirectly make, or cause to be made, any false statement, observation or opinion, disparaging your reputation. |
7. | Continued Assistance - You agree that after the Termination Date you will provide all reasonable cooperation to the Company, including but not limited to, assisting the Company transition your job duties, assisting the Company in defending against and/or prosecuting any litigation or threatened litigation, and performing any other tasks as reasonably requested by the Company. |
8. | Cooperation – To the extent permitted by law, you agree to cooperate fully with the Company in the defense or prosecution of any claims or actions which already have been brought, are currently pending, or which may be brought in the future against or on behalf of the Company, whether before a state or federal court, any state or federal government agency, or a mediator or arbitrator. Your full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare its claims or defenses, to prepare for trial or discovery or an administrative hearing or a mediation or arbitration and to act as a witness when requested by the Company at reasonable times designated by the Company. You agree that you will notify the Company promptly in the event that you are served with a subpoena or in the event that you are asked to provide a third party with information concerning any actual or potential complaint or claim against the Company. |
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9. | Amendment and Waiver – This letter agreement shall be binding upon the parties and may not be modified in any manner, except by an instrument in writing of concurrent or subsequent date signed by duly authorized representatives of the parties hereto. This letter agreement is binding upon and shall inure to the benefit of the parties and their respective agents, assigns, heirs, executors, successors and administrators. No delay or omission by the Company in exercising any right under this letter agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar to or waiver of any right on any other occasion. |
10. | Validity – Should any provision of this letter agreement be declared or be determined by any court of competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this letter agreement. |
11. | Confidentiality – To the extent permitted by law, you understand and agree that as a condition for payment to you of the Severance Compensation herein described, the terms and contents of this letter agreement, and the contents of the negotiations and discussions resulting in this letter agreement, shall be maintained as confidential by you and your agents and representatives and shall not be disclosed except to the extent required by federal or state law or as otherwise agreed to in writing by the Company. |
12. | Nature of Agreement – You understand and agree that this letter agreement is a severance agreement and does not constitute an admission of liability or wrongdoing on the part of the Company. |
13. | Acknowledgments – You acknowledge that you have been given at least twenty-one (21) days to consider this letter agreement, and that the Company advised you to consult with an attorney of your own choosing prior to signing this letter agreement. You understand that you may revoke this letter agreement for a period of seven (7) days after you sign this letter agreement by notifying me in writing, and the letter agreement shall not be effective or enforceable until the expiration of this seven (7) day revocation period. You understand and agree that by entering into this agreement, you are waiving any and all rights or claims you might have under the Age Discrimination in Employment Act, as amended by the Older Workers Benefits Protection Act, and that you have received consideration beyond that to which you were previously entitled. |
14. | Voluntary Assent – You affirm that no other promises or agreements of any kind have been made to or with you by any person or entity whatsoever to cause you to sign this letter agreement, and that you fully understand the meaning and intent of this letter agreement. You state and represent that you have had an opportunity to fully discuss and review the terms of this letter agreement with an attorney. You further state and represent that you have carefully read this letter agreement, understand the contents herein, freely and voluntarily assent to all of the terms and conditions hereof and sign your name of your own free act. |
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15. | Applicable Law – This letter agreement shall be interpreted and construed by the laws of the State of New Jersey, without regard to conflict of laws provisions. You hereby irrevocably submit to and acknowledge and recognize the jurisdiction of the courts of the State of New Jersey, or if appropriate, a federal court located in the State of New Jersey (which courts, for purposes of this letter agreement, are the only courts of competent jurisdiction), over any suit, action or other proceeding arising out of, under or in connection with this letter agreement or the subject matter hereof. |
16. | Entire Agreement – This letter agreement contains and constitutes the entire understanding and agreement between the parties hereto with respect to your Severance Compensation and the settlement of claims against the Company and cancels all previous oral and written negotiations, agreements and commitments in connection therewith. Nothing in this paragraph, however, shall modify, cancel or supersede your obligations set forth in paragraph 3 herein. |
17. | Tax Acknowledgement – In connection with the payments and consideration provided to you pursuant to this letter agreement, the Company shall withhold and remit to the tax authorities the amounts required under applicable law, and you shall be responsible for all applicable taxes with respect to such payments and consideration under applicable law. You acknowledge that you are not relying upon the advice or representation of the Company with respect to the tax treatment of any of the Severance Compensation set forth in Section 4 of the Employment Agreement. |
If you have any questions about the matters covered in this letter agreement, please call me at [Insert Phone Number].
Very truly yours,
By: __________________________________
[Name]
[Title]
I hereby agree to the terms and conditions set forth above. I have been given at least twenty-one (21) days to consider this letter agreement and I have chosen to execute this on the date below. I intend that this letter agreement will become a binding agreement between me and the Company if I do not revoke my acceptance in seven (7) days.
_____________________________ [Insert Employee Name] | _________________________ Date |
To be returned to me by [Return Date – e.g., 21 days from date of receipt of this letter].
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment (the “Amendment”) is made by and between Emily Hill (“Executive”) and PTC Therapeutics, Inc. (the “Company”) (collectively, “the Parties”).
WHEREAS, Executive is employed by PTC pursuant to an Employment Agreement between Executive and PTC dated December 11, 2017 (the “Employment Agreement”); and
WHEREAS, on January 1, 2019 (the “Amendment Effective Date”), in connection with Executive’s promotion, the Company is authorized to enter in to an amendment to Executive’s Employment Agreement to reflect the title of Senior Vice President, with conforming changes to the Employment Agreement with respect to title, severance compensation, and annual bonus target;
NOW, THEREFORE, for good and valuable consideration, the sufficiency of which is acknowledged hereby, and in consideration of the mutual covenants and undertakings set forth herein, the Parties agree that the following sections of the Employment Agreement are amended and restated as follows as of the Amendment Effective Date:
Section 1(a), Capacity: “Executive shall serve the Company as Senior Vice President, Head of Investor Relations reporting to Stu Peltz or such other senior executive as the Company shall specify. Executive shall have the responsibilities, duties and authority commensurate with the position of Senior Vice President, Head of Investor Relations. In addition to Executive’s primary duties, Executive shall perform such other services for the Company that are consistent with her position as Senior Vice President, Head of Investor Relations as may be reasonably assigned to Executive from time to time by the individual to whom she reports or the Board of Directors of the Company (the “Board”) or their respective designees. The principal location at which Executive shall perform such services shall be the Company’s corporate headquarters currently located at 100 Corporate Court, Middlesex Business Center, South Plainfield, NJ 07080, subject to relocation and Section 2(c)(i) of this Agreement.”
Section 2(c), Definition of “Good Reason”, clause (ii): “A material adverse change by the Company in Executive’s duties, authority or responsibilities as Senior Vice President, Head of Investor Relations of the Company which causes Executive’s position with the Company to become of materially less responsibility or authority than Executive’s position immediately following the Effective Date. For purposes of this definition of “Good Reason,” a “material adverse change” following a Corporate Change shall not include any diminution in authority, duties or responsibilities that is solely attributable to the change in the Company’s ownership structure but does not otherwise change Executive’s authority, duties or responsibilities (except in a positive manner) otherwise with respect to the Company’s business.”
Section 3(b), Bonus: In addition to the Base Salary, the Company may pay Executive an annual bonus (the “Bonus”) as determined by the Board, solely in its discretion (it being understood that Executive’s target annual bonus shall be at 40% of Base Salary, but may be higher or lower in any year in the Board’s discretion). The Board’s decision to issue a Bonus to Executive in any particular year shall have no effect on the absolute discretion of the Board to grant or not to grant a Bonus in subsequent years. Any Bonus for a particular year shall be paid or provided to Executive in a lump sum no later than March 15th of the calendar year following the calendar year in which the Bonus was earned.”
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Section 4, Severance Compensation, subsection (b): “In the event that Executive’s employment hereunder is terminated (i) by Executive for a Good Reason or (ii) by the Company without Cause, the Company shall pay to Executive the Accrued Obligations. In addition, the Company shall pay to Executive the severance benefits set forth below for twelve (12) months following Executive’s termination of employment (the “Severance Period”). The receipt of any severance benefits provided in this Section shall be dependent upon Executive’s execution and nonrevocation of a standard separation agreement and general release of claims, substantially in the form attached hereto as Exhibit A (the “Release”). The Company will also consider in good faith (but without any binding commitment) requests from Executive that the Company include in the Release a release of Executive by the Company from matters specifically disclosed to the Company by Executive in writing in advance of execution of the Release and not involving any illegality, fraud, concealment, criminal acts or acts outside the scope of Executive's employment. The distribution of severance benefits in this Section 4 is subject to section (iii) of this Section 4(b).
(i) If Executive’s employment is terminated (A) by Executive for a Good Reason or (B) by the Company without Cause, in either case before or after the Protected Period, the Company shall pay Executive her Base Salary, less any amounts required to be withheld under applicable law, for the Severance Period in substantially equal installments in accordance with the Company’s payroll practices as in effect from time to time, commencing 30 days following the effective date of such termination. If Executive’s employment is terminated (A) by Executive for a Good Reason or (B) by the Company without Cause, in either case during the Protected Period, the Company shall pay Executive her Base Salary for the Severance Period, which total amount shall be payable in a lump sum commencing no later than sixty (60) days following Executive’s termination of employment. In each case, payments shall commence or be paid provided that the Release has been executed and any applicable revocation period has expired as of the 60th day following Executive’s termination.
(ii) Only if Executive’s employment is terminated (A) by Executive for a Good Reason or (B) by the Company without Cause, in either case during the Protected Period, the Company shall pay Executive his target annual bonus, described in section 3(b) hereof, for the year in which the termination of employment occurs, which total amount shall be payable in a lump sum commencing no later than sixty (60) days following Executive’s termination of employment, provided that the Release has been executed and any applicable revocation period has expired as of such date.
(iii) The Company shall continue to provide Executive and her then-enrolled eligible dependents with group health insurance and shall continue to pay the amount of the premium as in effect on the date of such termination for the Severance Period commencing on the effective date of such termination, subject to applicable law and the terms of the respective policies; provided that the Company’s obligation to provide the benefits contemplated herein shall terminate upon Executive’s becoming eligible for coverage under the medical benefits program of a subsequent employer. The foregoing shall not be construed to extend any period of continuation coverage (e.g., COBRA) required by Federal law. ”;
With the following subsections of subsection (4)(b) to be renumbered and referenced consistent with the insertion of the new subsection (4)(b)(ii) set forth above and the renumbering of the prior subsection 4(b)(ii) as subsection 4(b)(iii).
No Other Changes. Except as explicitly provided above, the Parties agree that there are no other changes or amendments to the Employment Agreement and that the Employment Agreement, as amended by this Amendment, remains in full force and effect.
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AGREED AND ACCEPTED PTC Therapeutics, Inc. By: _/s/ Mark E. Boulding _____ Name: _Mark E. Boulding______ Title: _CLO and EVP___________ Date: _______________________ | AGREED AND ACCEPTED: Emily Hill By: _/s/ Emily Hill_____________ Date: _______________________ |
May 31, 2019
Emily Hill
125 Glenwood Road
Ridgewood, NJ 07450
Dear Emily,
Congratulations on your promotion to Chief Financial Officer. Your success at PTC has been impressive and we look forward to your continued contributions to PTC’s success. The effective date of your promotion is May 31, 2019. In this new role you will continue to report to CEO Stu Peltz.
Outlined below are details of your promotion:
• | Your new annual base salary is $415,000 annually, subject to deductions for taxes and other withholdings as required by law. |
• | Your bonus target will continue to be 40.00% of your annual salaried earnings paid in accordance with the terms of conditions of PTC’s annual incentive compensation plan. |
• | You will receive a one-time promotion grant of 50,000 stock options to purchase shares of common stock of PTC, with 25% of options vesting after one year, and then 6.25% vesting quarterly thereafter. This promotion grant is subject to formal approval of the Compensation Committee of the Board of Directors. |
On behalf of PTC, let me again congratulate you on your promotion. We look forward to this next step in your career. Please feel free to contact me if you have any questions concerning your promotion.
Sincerely, Accepted by:
/s/ Martin Rexroad /s/ Emily Hill
Martin Rexroad
SVP, Human Resources
Cc: Stu Peltz
Exhibit 10.7
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the “Agreement”) is made as of August 16, 2014 (the “Effective Date”), by and between PTC Therapeutics, Inc., a Delaware corporation (the “Company”) and Christine Utter (“Executive”). In consideration of the mutual covenants contained in this Agreement, the Company and Executive agree as follows:
1.Employment. The Company agrees to continue to employ Executive and Executive agrees to continue to be employed by the Company on the terms and conditions set forth in this Agreement.
(a) Capacity. Executive shall serve the Company as Vice President, Finance reporting to Shane Kovacs, CFO, or such other senior executive as the Company shall specify. Executive shall have the responsibilities, duties and authority commensurate with the position of Vice President, Finance. In addition to Executive’s primary duties, Executive shall perform such other services for the Company that are consistent with his/her position as Vice President, Finance as may be reasonably assigned to Executive from time to time by the individual to whom s/he reports or the Board of Directors of the Company (the “Board”) or their respective designees. The principal location at which Executive shall perform such services shall be the Company’s corporate headquarters currently located at 100 Corporate Court, Middlesex Business Center, South Plainfield, NJ 07080, subject to relocation and Section 2(c)(i) of this Agreement.
(b) Devotion of Duties; Representations. During the Term (as defined below) of Executive’s employment with the Company, Executive shall devote his/her best efforts and full business time and energies to the business and affairs of the Company, and shall endeavor to perform the duties and services contemplated hereunder to the reasonable satisfaction of the individual to whom s/he reports and the Board. During the Term of Executive’s employment with the Company, Executive shall not, without the prior written approval of the Company (by action of the Board), undertake any other employment from any person or entity or serve as a director of any other company; provided, however, that (i) the Company will entertain requests as to such other employment or directorships in good faith and (ii) Executive will be eligible to participate in any policy relating to outside activities that is applicable to the senior executives of the Company and approved by the Board after the date hereof.
2. Term of Employment.
(a) Executive’s employment hereunder shall continue on the Effective Date. Executive’s employment hereunder shall be terminated upon the first to occur of the following:
(i)Immediately upon Executive’s death;
(ii) By the Company:
(A) By written notice to Executive effective the date of such notice, following the Disability of Executive. “Disability” means that Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than
1
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12 months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company. Such incapacity shall be determined by a physician chosen by the Company and reasonably satisfactory to Executive (or Executive’s legal representative) upon examination requested by the Company (to which Executive hereby agrees to submit). Notwithstanding the foregoing, such Disability must result in Executive becoming “Disabled” within the meaning of Section 409A(a)(2)(C) of the Internal Revenue Code of 1986, as amended (the “Code”) and the guidance issued thereunder. (In this Agreement we refer to Section 409A of the Code and any guidance issued thereunder as “Section 409A”).
(B) By written notice to Executive, effective the date of such notice, for Cause (as defined below); or
(C) By written notice to Executive, effective ninety (90) days after the date of such notice and subject to Section 4 hereof, without Cause; or
(iii) By Executive:
(A) At any time by written notice to the Company, effective forty-five (45) days after the date of such notice; or
(B) By written notice to the Company for Good Reason (as defined below), effective on the date specified in such notice.
The term of Executive’s employment by the Company under this Agreement is referred to herein as the “Term.”
(b) Definition of “Cause”. For purposes of this Agreement, “Cause” shall, pursuant to the reasonable good faith determination by a majority of the Board (excluding Executive) as documented in writing, include: (i) the willful and continued failure by Executive to substantially perform Executive’s material duties or responsibilities under this Agreement (other than such a failure as a result of Disability); (ii) any action or omission by Executive involving willful misconduct or gross negligence with regard to the Company, which has a detrimental effect on the Company; (iii) Executive’s conviction of a felony, either in connection with the performance of Executive’s obligations to the Company or which otherwise shall adversely affect Executive’s ability to perform such obligations or shall materially adversely affect the business activities, reputation, goodwill or image of the Company; (iv) the material breach of a fiduciary duty to the Company; or (v) the material breach by Executive of any of the provisions of this Agreement, provided that any breach of Executive’s obligations with respect to Sections 5 or 6 of this Agreement, subject to the cure provision in the next sentence, shall be deemed “material.” In respect of the events described in clauses (i) and (v) above, the Company shall give Executive notice of the failure of performance or breach, reasonable as to time, place and manner in the circumstances, and a 30-day opportunity to cure, provided that such failure of performance or breach is reasonably amenable to cure as determined by the Board in its sole discretion.
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(c) Definition of “Good Reason”. For purposes of this Agreement, a “Good Reason” shall mean any of the following, unless (i) the basis for such Good Reason is cured within a reasonable period of time (determined in the light of the cure appropriate to the basis of such Good Reason, but in no event less than thirty (30) nor more than ninety (90) days) after the Company receives written notice (which must be received from Executive within ninety (90) days of the initial existence of the condition giving rise to such Good Reason) specifying the basis for such Good Reason or (ii) Executive has consented to the condition that would otherwise be a basis for Good Reason:
(i) A change in the principal location at which Executive provides services to the Company to a location more than fifty (50) miles from such principal location and/or to a location in New York City (either of which change, the Company has reasonably determined as of the date hereof, would constitute a material change in the geographic location at which Executive provides services to the Company), provided that such a relocation shall not be deemed to occur under circumstances where Executive’s responsibilities require him/her to work at a location other than the corporate headquarters for a reasonable period of time;
(ii) A material adverse change by the Company in Executive’s duties, authority or responsibilities as Vice President, Finance of the Company which causes Executive’s position with the Company to become of materially less responsibility or authority than Executive’s position immediately following the Effective Date. For purposes of this definition of “Good Reason,” a “material adverse change” following a Corporate Change shall not include any diminution in authority, duties or responsibilities that is solely attributable to the change in the Company’s ownership structure but does not otherwise change Executive’s authority, duties or responsibilities (except in a positive manner) otherwise with respect to the Company’s business.
(iii) A material reduction in Executive’s base compensation (including Base Salary) except if the reduction is in connection with a general reduction of not more than 20% in compensation of senior executives of the Company generally that occurs prior to the effective date of any Corporate Change;
(iv) A material breach of this Agreement by the Company which has not been cured within thirty (30) days after written notice thereof by Executive; or
(v) Failure to obtain the assumption (assignment) of this Agreement by any successor to the Company.
(d) Definition of “Corporate Change”. For purposes of this Agreement, “Corporate Change” shall mean any circumstance in which (i) the Company is not the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary or affiliate of an entity other than a previously wholly-owned subsidiary of the Company); (ii) the Company sells, leases or exchanges or agrees to sell, lease or exchange all or substantially all of its assets to any other person or entity (other than a wholly-owned subsidiary of the Company); (iii) any person or entity, including a “group” as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934 (excluding, for this purpose, the Company or any Subsidiary, or any employee benefit plan of the Company or any Subsidiary, or any “group” in which all or
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substantially all of its members or its members’ affiliates are individuals or entities who are or were beneficial owners of the Company’s outstanding shares prior to the initial public offering, if any, of the Company’s stock), acquires or gains ownership or control (including, without limitations, powers to vote) of more than 50% of the outstanding shares of the Company’s voting stock (based upon voting power); or (iv) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election shall cease to constitute a majority of the Board of Directors of the Company. Notwithstanding the foregoing, a “Corporate Change” shall not occur as a result of an initial public offering of the Company’s common stock, or as a result of a merger, consolidation, reorganization or restructuring after which either (1) a majority of the Board of Directors of the controlling entity consists of persons who were directors of the Company prior to the merger, consolidation, reorganization or restructuring or (2) Executive forms part of an executive management team that consists of substantially the same group of individuals and Executive is performing in a similar role, with similar authority and responsibility (other than changes solely attributable to the change in ownership structure), to that which existed prior to the reorganization or restructuring. Notwithstanding the foregoing, for any payments or benefits hereunder that are subject to Section 409A, the Corporate Change must constitute a “change in control event” within the meaning of Treasury Regulation Section 1.409A-3(i)(5)(i).
3. Compensation.
(a) Base Salary. Executive’s minimum base salary during the Term shall be at the rate of $220,000 per year (the “Base Salary”). Base Salary shall be payable in substantially equal installments in accordance with the Company’s payroll practices as in effect from time to time, less any amounts required to be withheld under applicable law. The Base Salary will be subject to adjustment from time to time in the sole discretion of the Board; provided that, the Company covenants that it shall not reduce the Base Salary below $220,000 or the Base Salary then in effect immediately prior to the reduction unless (i) Executive consents to such reduction, or (ii) the reduction is in connection with a general reduction of not more than 20% in compensation of senior executives of the Company generally that occurs prior to the effective date of any Corporate Change.
(b) Bonus. In addition to the Base Salary, the Company may pay Executive an annual bonus (the “Bonus”) as determined by the Board, solely in its discretion (it being understood that Executive’s target annual bonus shall be at 30% of Base Salary, but may be higher or lower in any year in the Board’s discretion). The Board’s decision to issue a Bonus to Executive in any particular year shall have no effect on the absolute discretion of the Board to grant or not to grant a Bonus in subsequent years. Any Bonus for a particular year shall be paid or provided to Executive in a lump sum no later than March 15th of the calendar year following the calendar year in which the Bonus was earned.
(c) Equity Compensation. Except as explicitly set forth below, Executive’s rights with respect to equity (including stock options) shall be covered in PTC’s equity and long term incentive plan(s) and separate stock option certificates or agreements for each grant.
(i) Accelerated Vesting.
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(A) For the avoidance of doubt, in the event that Executive’s employment hereunder is terminated by the Company without Cause or by Executive for Good Reason, no unvested equity awards granted under the Company’s equity and long-term incentive plan(s) following the date hereof shall be subject to any accelerated vesting except as otherwise provided for in the applicable award agreement or in Section 3(c)(i)(B) below.
(B) Except as otherwise provided in the applicable award, in the event that Executive’s employment hereunder is terminated by the Company without Cause or by Executive for Good Reason within the period of three (3) months prior to (but only if negotiations relating to the particular Corporate Change that occurs are ongoing at the date of the notice of termination) or twelve (12) months after a Corporate Change that occurs during the Term (such fifteen-month period, the “Protected Period”), one hundred percent (100%) of all of Executive’s outstanding unvested equity awards granted under the Company’s equity and long-term incentive plan(s) following the date hereof shall vest immediately.
(d) Vacation. Executive is eligible for time off programs outlined in the Company’s Time Off Policy. Executive shall accrue over the calendar year 160 hours of paid vacation. Executive may accrue up to 200 hours of vacation. Once Executive has reached the maximum accrual, no further vacation time will be accrued unless and until the Executive uses vacation time. Upon termination of employment, the value of Executive’s current balance of accrued but unused vacation shall be paid out in cash based on his/her Base Salary that was in effect immediately prior to his/her termination of employment.
(e) Fringe Benefits. Executive shall be entitled to participate in any employee benefit plans that the Company makes available to its senior executives (including, without limitation, group life, disability, medical, dental and other insurance, retirement, pension, profit-sharing and similar plans) (collectively, the “Fringe Benefits”), provided that the Fringe Benefits shall not include any stock option or similar plans relating to the grant of equity securities of the Company. These benefits may be modified or changed from time to time at the sole discretion of the Company. Where a particular benefit is subject to a formal plan (for example, medical or life insurance), eligibility to participate in and receive any particular benefit is governed solely by the applicable plan document, and eligibility to participate in such plan(s) may be dependent upon, among other things, a physical examination.
(f) Reimbursement of Expenses. Executive shall be entitled to reimbursement for all ordinary and reasonable out-of-pocket business expenses that are reasonably incurred by him/her in furtherance of the Company’s business in accordance with reasonable policies adopted from time to time by the Company for senior executives.
(g) Taxes and Withholdings. The Company shall deduct and withhold from all compensation and benefits under this Agreement all social security and other federal, state and local taxes and charges which currently are or which hereafter may be required by law to be so deducted and withheld.
4. Severance Compensation.
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(a) In the event of any termination of Executive’s employment for any reason the Company shall pay Executive (or Executive’s estate) such portions of Executive’s Base Salary as have accrued prior to such termination and have not yet been paid, together with (i) amounts for accrued unused vacation days (as provided above), (ii) any amounts for expense reimbursement which have been properly incurred or the Company has become obligated to pay prior to termination and have not been paid as of the date of such termination and (iii) the amount of any Bonus previously granted to Executive by the Board but not yet paid, which amount shall not include any pro rata portion of any Bonus which would have been earned if such termination had not occurred (the “Accrued Obligations”). Such amounts shall be paid as soon as possible after termination.
(b) In the event that Executive’s employment hereunder is terminated (i) by Executive for a Good Reason or (ii) by the Company without Cause, the Company shall pay to Executive the Accrued Obligations. In addition, the Company shall pay to Executive the severance benefits set forth below for six (6) months following Executive’s termination of employment (the “Severance Period”). The receipt of any severance benefits provided in this Section shall be dependent upon Executive’s execution (and, as applicable, non-revocation) of a standard separation agreement and general release of claims, substantially in the form attached hereto as Exhibit A (the “Release”). The Company will also consider in good faith (but without any binding commitment) requests from Executive that the Company include in the Release a release of Executive by the Company from matters specifically disclosed to the Company by Executive in writing in advance of execution of the Release and not involving any illegality, fraud, concealment, criminal acts or acts outside the scope of Executive's employment. The distribution of severance benefits in this Section 4 is subject to section (iii) of this Section 4(b).
(i) If Executive’s employment is terminated (A) by Executive for a Good Reason or (B) by the Company without Cause, in either case before or after the Protected Period, the Company shall pay Executive his/her Base Salary, less any amounts required to be withheld under applicable law, for the Severance Period in substantially equal installments in accordance with the Company’s payroll practices as in effect from time to time, commencing no later than sixty (60) days following the effective date of such termination. If Executive’s employment is terminated (A) by Executive for a Good Reason or (B) by the Company without Cause, in either case during the Protected Period, the Company shall pay Executive his/her Base Salary for the Severance Period, which total amount shall be payable in a lump sum no later than sixty (60) days following Executive’s termination of employment. In each case, payments shall commence or be paid provided that the Release has been executed and any applicable revocation period has expired as of the 60th day following Executive’s termination.
(ii) The Company shall continue to provide Executive and his/her then-enrolled eligible dependents with group health insurance and shall continue to pay the amount of the premium as in effect on the date of such termination for the Severance Period commencing on the effective date of such termination, subject to applicable law and the terms of the respective policies; provided that the Company’s obligation to provide the benefits contemplated herein shall terminate upon Executive’s becoming eligible for coverage under the medical benefits program of a subsequent employer. The
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foregoing shall not be construed to extend any period of continuation coverage (e.g., COBRA) required by Federal law.
(iii) Compliance with Section 409A. Subject to the provisions in this Section 4(b)(iii), any severance payments or benefits under this Agreement shall begin only upon the date of Executive’s “separation from service” (determined as set forth below) which occurs on or after the date of termination of Executive’s employment. The following rules shall apply with respect to the distribution of the severance payments and benefits, if any, to be provided to Executive under this Agreement:
(1) It is intended that each installment of the severance payments and benefits provided under this Agreement shall be treated as a separate “payment” for purposes of Section 409A. Neither the Company nor Executive shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.
(2) If, as of the date of Executive’s “separation from service” from the Company, Executive is not a “specified employee” (within the meaning of Section 409A), then each installment of the severance payments and benefits shall be made on the dates and terms set forth in this Agreement.
(3) If, as of the date of Executive’s “separation from service” from the Company, Executive is a “specified employee” (within the meaning of Section 409A), then:
(A) Each installment of the severance payments and benefits due under this Agreement that, in accordance with the dates and terms set forth herein, will in all circumstances, regardless of when the separation from service occurs, be paid within the short-term deferral period (as defined under Section 409A) shall be treated as a short-term deferral within the meaning of Treasury Regulation Section 1.409A-1(b)(4) to the maximum extent permissible under Section 409A and such payments and benefits shall be paid or provided on the dates and terms set forth in this Agreement; and
(B) Each installment of the severance payments and benefits due this Agreement that is not described in Section 4(b)(iii)(3)(A) above and that would, absent this subsection, be paid within the six-month period following Executive’s “separation from service” from the Company shall not be paid until the date that is six months and one day after such separation from service (or, if earlier, Executive’s death), with any such installments that are required to be delayed being accumulated during the six-month period and paid in a lump sum on the date that is six months and one day following Executive’s separation from service and any subsequent installments, if any, being paid in accordance with the dates and terms set forth herein; provided, however, that the preceding provisions of this sentence shall not apply to any installment of severance payments and benefits if and to the maximum extent that such installment is deemed to be paid under a separation pay plan that does not provide
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for a deferral of compensation by reason of the application of Treasury Regulation 1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation from service). Any installments that qualify for the exception under Treasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of Executive’s second taxable year following the taxable year in which the separation from service occurs.
(4) The determination of whether and when Executive’s separation from service from the Company has occurred shall be made in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of this Section 4(b)(iii), “Company” shall include all persons with whom the Company would be considered a single employer under Section 414(b) and 414(c) of the Code.
(5) All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Sections 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A, including, where applicable, the requirements that (i) any reimbursement is for expenses incurred during Executive’s lifetime (or during a shorter period of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred and (iv) the right to reimbursement is not subject to set off or liquidation or exchange for any other benefit.
(6) Notwithstanding anything herein to the contrary, the Company shall have no liability to Executive or to any other person if the payments and benefits provided hereunder that are intended to be exempt from or compliant with Section 409A are not so exempt or compliant.
(c) In the event that Executive’s employment hereunder is terminated (i) by Executive for other than a Good Reason, or (ii) by the Company for Cause, or (iii) as a result of Executive’s death or Disability, then the Company will pay to Executive the Accrued Obligations. The Company shall have no obligation to pay Executive (or Executive’s estate) any other compensation following such termination except as provided in Section 4(a).
(d) Modified Section 280G Cutback.
(i) Notwithstanding any other provision of this Agreement, except as set forth in Section 4(d)(ii), in the event that the Company undergoes a “Change in Ownership or Control” (as defined below), the Company shall not be obligated to provide to Executive a portion of any “Contingent Compensation Payments” (as defined below) that Executive would otherwise be entitled to receive to the extent necessary to eliminate any “excess parachute payments” (as defined in Section 280G(b)(1) of the Code) for Executive. For purposes of this Section 4(d), the Contingent Compensation Payments so eliminated shall be referred to as the “Eliminated Payments” and the aggregate amount
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(determined in accordance with Treasury Regulation Section 1.280G-1, Q/A-30 or any successor provision) of the Contingent Compensation Payments so eliminated shall be referred to as the “Eliminated Amount.”
(ii) Notwithstanding the provisions of Section 4(d)(i), no such reduction in Contingent Compensation Payments shall be made if (1) the Eliminated Amount (computed without regard to this sentence) exceeds (2) 100% of the aggregate present value (determined in accordance with Treasury Regulation Section 1.280G-1, Q/A-31 and Q/A-32 or any successor provisions) of the amount of any additional taxes that would be incurred by Executive if the Eliminated Payments (determined without regard to this sentence) were paid to him/her (including, state and federal income taxes on the Eliminated Payments, the excise tax imposed by Section 4999 of the Code payable with respect to all of the Contingent Compensation Payments in excess of Executive’s “base amount” (as defined in Section 280G(b)(3) of the Code), and any withholding taxes). The override of such reduction in Contingent Compensation Payments pursuant to this Section 4(d)(ii) shall be referred to as a “Section 4(d)(ii) Override.” For purpose of this paragraph, if any federal or state income taxes would be attributable to the receipt of any Eliminated Payment, the amount of such taxes shall be computed by multiplying the amount of the Eliminated Payment by the maximum combined federal and state income tax rate provided by law.
(iii) For purposes of this Section 4(d) the following terms shall have the following respective meanings:
(1) “Change in Ownership or Control” shall mean a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 280G(b)(2) of the Code.
(2) “Contingent Compensation Payment” shall mean any payment (or benefit) in the nature of compensation that is made or made available (under this Agreement or otherwise) to a “disqualified individual” (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the Company.
(iv) Any payments or other benefits otherwise due to Executive following a Change in Ownership or Control that could reasonably be characterized (as determined by the Company) as Contingent Compensation Payments (the “Potential Payments”) shall not be made until the dates provided for in this Section 4(d)(iv). Within 30 days after each date on which Executive first becomes entitled to receive (whether or not then due) a Contingent Compensation Payment relating to such Change in Ownership or Control, the Company shall determine and notify Executive (with reasonable detail regarding the basis for its determinations) (1) which Potential Payments constitute Contingent Compensation Payments, (2) the Eliminated Amount and (3) whether the Section 4(d)(ii) Override is applicable. Within 30 days after delivery of such notice to Executive, Executive shall deliver a response to the Company (the “Executive
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Response”) stating either (A) that s/he agrees with the Company’s determination pursuant to the preceding sentence or (B) that s/he disagrees with such determination, in which case s/he shall set forth (x) which Potential Payments should be characterized as Contingent Compensation Payments, (y) the Eliminated Amount, and (z) whether the Section 4(d)(ii) Override is applicable. In the event that Executive fails to deliver an Executive Response on or before the required date, the Company’s initial determination shall be final. If Executive states in the Executive Response that s/he agrees with the Company’s determination, the Company shall make the Potential Payments to Executive within three business days following delivery to the Company of the Executive Response (except for any Potential Payments which are not due to be made until after such date, which Potential Payments shall be made on the date on which they are due). If Executive states in the Executive Response that s/he disagrees with the Company’s determination, then, for a period of 60 days following delivery of the Executive Response, Executive and the Company shall use good faith efforts to resolve such dispute. If such dispute is not resolved within such 60-day period, such dispute shall be settled exclusively by arbitration in South Plainfield, New Jersey, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. The Company shall, within three business days following delivery to the Company of the Executive Response, make to Executive those Potential Payments as to which there is no dispute between the Company and Executive regarding whether they should be made (except for any such Potential Payments which are not due to be made until after such date, which Potential Payments shall be made on the date on which they are due). The balance of the Potential Payments shall be made within three business days following the resolution of such dispute.
(v) The Contingent Compensation Payments to be treated as Eliminated Payments shall be determined by the Company by determining the “Contingent Compensation Payment Ratio” (as defined below) for each Contingent Compensation Payment and then reducing the Contingent Compensation Payments in order beginning with the Contingent Compensation Payment with the highest Contingent Compensation Payment Ratio. For Contingent Compensation Payments with the same Contingent Compensation Payment Ratio, such Contingent Compensation Payment shall be reduced based on the time of payment of such Contingent Compensation Payments with amounts having later payment dates being reduced first. For Contingent Compensation Payments with the same Contingent Compensation Payment Ratio and the same time of payment, such Contingent Compensation Payments shall be reduced on a pro rata basis (but not below zero) prior to reducing Contingent Compensation Payment with a lower Contingent Compensation Payment Ratio. The term “Contingent Compensation Payment Ratio” shall mean a fraction the numerator of which is the value of the applicable Contingent Compensation Payment that must be taken into account by Executive for purposes of Section 4999(a) of the Code, and the denominator of which is the actual amount to be received by Executive in respect of the applicable Contingent Compensation Payment. For example, in the case of an equity grant that is treated as contingent on the Change in Ownership or Control because the time at which the payment is made or the payment vests is accelerated, the denominator shall be determined by reference to the fair market value of the equity at the acceleration date, and
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not in accordance with the methodology for determining the value of accelerated payments set forth in Treasury Regulation Section 1.280G-1Q/A-24(b) or (c)).
(vi) The provisions of this Section 4(d) are intended to apply to any and all payments or benefits available to Executive under this Agreement or any other agreement or plan of the Company under which Executive receives Contingent Compensation Payments.
(vii) Notwithstanding Sections 4(d)(i)-(vi) hereof, until the closing of the first underwritten public offering of common stock of the Company, in the event that it shall be determined that any payment or benefit (including any accelerated vesting of options or other equity awards) made or provided, or to be made or provided, by the Company (or any successor thereto or affiliate thereof) to or for the benefit of Executive, whether pursuant to the terms of this Agreement, any other agreement, plan, program or arrangement of or with the Company (or any successor thereto or affiliate thereof) or otherwise, may be subject to the excise tax imposed by Section 4999 of the Code or any comparable tax imposed by any replacement or successor provision of United States tax law, then upon the request of Executive, the Company shall use reasonable efforts to procure a shareholder vote in satisfaction of the shareholder approval requirements described in Treas. Reg. Section 1.280G-1, Q&A-7.
5. Executive Covenants.
(a) Confidential Information. Executive recognizes and acknowledges the competitive and proprietary aspects of the business of the Company, and that as a result of Executive’s employment, Executive recognizes and acknowledges that s/he has had and will continue to have access to, and has been and will continue to be involved in the development of, Confidential Information (as defined below) of the Company. As used herein, “Confidential Information” shall mean and include trade secrets, knowledge and other confidential information of the Company, which Executive has acquired, no matter from whom or on what matter such knowledge or information may have been acquired, heretofore or hereafter, concerning the content and details of the business of the Company, and which is not known to the general public, including but not limited to: (a) new products, product betterments and other inventions, formulas, processes, methods, materials, material combinations, manner of preparations, technical production procedures and information, alarm and security codes and procedures, sources of technology, and sources of supply of raw and finished materials and other products; (b) financial and accounting records; (c) the identity of employees, consultants, independent contractors, customers, business development partners, licensees, suppliers, creditors or other parties with which the Company has business dealings, the nature of the relationship with such persons, or any other information relating to such persons or the Company’s dealings with such persons; and (d) computer software used by the Company or provided to the customers of the Company unless publicly available.
(i) For as long as Executive is employed and at all times thereafter, Executive shall not, directly or indirectly, communicate, disclose or divulge to any person or entity, or use for Executive’s own benefit or the benefit of any person (other than the Company), any Confidential Information, except as permitted in subparagraph (iii)
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below. Upon termination of Executive’s employment, or at any other time at the request of the Company, Executive agrees to deliver promptly to the Company all Confidential Information, including, but not limited to, customer and supplier lists, files and records, in Executive’s possession or under Executive’s control. Executive further agrees that s/he will not make or retain any copies of any of the foregoing and will so represent to the Company upon termination of Executive’s employment.
(ii) Executive shall disclose immediately to the Company any trade secrets or other Confidential Information conceived or developed by Executive at any time during Executive’s employment. Executive hereby assigns and agrees to assign to the Company Executive’s entire right, title and interest in and to all Confidential Information. Such assignment shall include, without limitation, the rights to obtain patent or copyright protection, thereon in the United States and foreign countries. Executive agrees to provide all reasonable assistance to enable the Company to prepare and prosecute any application before any governmental agency for patent or copyright protection or any similar application with respect to any Confidential Information. Executive further agrees to execute all documents and assignments and to make all oaths necessary to vest ownership of such intellectual property rights in the Company, as the Company may request. These obligations shall apply whether or not the subject thereof was conceived or developed at the suggestion of the Company, and whether or not developed during regular hours of work or while on the premises of the Company.
(iii) Executive shall at all times, both during and after termination of this Agreement by either Executive or the Company, maintain in confidence and shall not, without prior written consent of the Company, use, except in the course of performance of Executive’s duties for the Company or as required by legal process (provided that Executive will promptly notify the Company of such legal process except with respect to any confidential government investigation), disclose or give to others any Confidential Information. In the event Executive is questioned by anyone not employed by the Company or by an employee of or a consultant to the Company not authorized to receive such information, in regard to any such information or any other secret or confidential work of the Company, or concerning any fact or circumstance relating thereto, Executive will promptly notify the Company.
(b) Non-Competition and Non-Solicitation. Executive recognizes that the Company is engaged in a competitive business and that the Company has a legitimate interest in protecting its trade secrets, confidential business information, and customer, business development partner, licensee, supplier, and credit and/or financial relationships. Accordingly, in exchange for valuable consideration, including without limitation Executive’s access to confidential business information and continued at-will employment, Executive agrees that, during the Term hereof and for a period of eighteen (18) months thereafter, Executive shall not:
(i) directly or indirectly, whether for himself or for any other person or entity, and whether as a proprietor, principal, shareholder, partner, agent, employee, consultant, independent contractor, or in any other capacity whatsoever, undertake or have any interest in (other than the passive ownership of publicly registered securities representing an ownership interest of less than 1%), engage in or assume any role
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involving directly or indirectly the Company’s Field of Interest (or any portion thereof) or any other business in which the Company is engaged and for which the employee has rendered services while employed by the Company, or enter into any agreement to do any of the foregoing; or
(ii) initiate contact with (including without limitation phone calls, press releases and the sending or delivering of announcements), or in any manner solicit, directly or indirectly, any customers, business development partners, licensors, licensees, or creditors (including institutional lenders, bonding companies and trade creditors) of the Company in an attempt to induce or motivate them either to discontinue or modify their then prevailing or future relationship with the Company or to transfer any of their business with the Company to any person or entity other than the Company; or
(iii) initiate contact with, or in any manner solicit, directly or indirectly, any supplier of goods, services or materials to the Company in an attempt to induce or motivate them either to discontinue or modify their then prevailing or future relationship with the Company or to supply the same or similar inventory, goods, services or materials (except generally available inventory, goods, services or materials) to any person or entity other than the Company; or
(iv) directly or indirectly recruit, solicit or otherwise induce or influence any employee or independent contractor of the Company to discontinue or modify his or her employment or engagement with the Company, or employ or contract with any such employee or contractor for the provision of services.
(c) Definition of “Field of Interest”. The term Company’s “Field of Interest” shall mean the research, development and commercialization of products and strategies relating to: (i) therapies for genetic disorders or diseases that include cystic fibrosis, Duchenne muscular dystrophy, other diseases caused in whole or part by nonsense (or stop) codons, and other genetic diseases as to which the Company engages in the research, development or commercialization of drugs; anti-angiogenic therapies that target VEGF protein production for cancer; and antiviral therapies for the Hepatitis C virus (HCV); and (ii) other therapeutic targets, mechanisms of action and/or therapies in which the Company has a research, development or commercialization program.
(d) Definition of “Customer”. The term “customer” or “customers” shall include any person or entity (a) that is a current customer of the Company, (b) that was a customer of the Company at any time during the preceding twenty-four (24) months or (c) to which the Company made a written presentation for the solicitation of business at any time during the preceding twenty-four (24) months.
(e) Reasonableness of Restrictions. Executive further recognizes and acknowledges that (i) the types of employment which are prohibited by this Section 5 are narrow and reasonable in relation to the skills which represent Executive’s principal salable asset both to the Company and to Executive’s other prospective employers, and (ii) the broad geographical scope of the provisions of this Section 5 is reasonable, legitimate and fair to Executive in light of the global nature of the Company’s business, particularly pharmaceutical research and development, and in light of the limited restrictions on the type of employment prohibited herein
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compared to the types of employment for which Executive is qualified to earn Executive’s livelihood.
(f) Remedies. Executive acknowledges that a breach of this Section 5 will cause great and irreparable injury and damage, which cannot be reasonably or adequately compensated by money damages. Accordingly, Executive acknowledges that the remedies of injunction and specific performance shall be available in the event of such a breach, in addition to money damages, costs and attorneys’ fees, and other legal or equitable remedies, and that the Company shall be entitled as a matter of course to an injunction pending trial, without the posting of bond or other security. Any period of restriction set forth in this Section 5 shall be extended for a period of time equal to the duration of any breach or violation hereof.
(g) Notification. Any person employing Executive or evidencing any intention to employ Executive may be notified as to the existence and provisions of this Agreement.
(h) Modification of Covenants; Enforceability. In the event that any provision of this Section 5 is held to be in any respect an unreasonable restriction, then the court so holding may modify the terms thereof, including the period of time during which it operates or the geographic area to which it applies, or effect any other change to the extent necessary to render this section enforceable, it being acknowledged by the parties that the representations and covenants set forth herein are of the essence of this Agreement.
(i) Subsidiaries. For purposes of Sections 5 and 6 of this Agreement, “Company” shall include all direct and indirect subsidiaries of the Company. An entity shall be deemed to be a subsidiary of the Company if the Company directly or indirectly owns or controls 50% or more of the equity interest in such entity.
6. Ownership of Ideas, Copyrights and Patents.
(a) Property of the Company. Executive agrees that all ideas, discoveries, creations, manuscripts and properties, innovations, improvements, know‑how, inventions, designs, developments, apparatus, techniques, methods, biological processes, cell lines, laboratory notebooks and formulae, whether patentable, copyrightable or not, which Executive may conceive, reduce to practice or develop, alone or in conjunction with another, or others, whether during or out of regular business hours, and whether at the request or upon the suggestion of the Company, or otherwise, in the course of performing services for the Company in any capacity, whether heretofore or hereafter, (collectively, “the Inventions”) are and shall be the sole and exclusive property of the Company, and that Executive shall not publish any of the Inventions without the prior written consent of the Company. Executive hereby assigns to the Company all of Executive’s right, title and interest in and to all of the foregoing. Executive further represents and agrees that to the best of Executive’s knowledge and belief none of the Inventions will violate or infringe upon any right, patent, copyright, trademark or right of privacy, or constitute libel or slander against or violate any other rights of any person, firm or corporation and that Executive will use his/her best efforts to prevent any such violation.
(b) Cooperation. At any time during or after the Term, Executive agrees that s/he will fully cooperate with the Company, its attorneys and agents in the preparation and filing
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of all papers and other documents as may be required to perfect the Company’s rights in and to any of such Inventions, including, but not limited to, executing any lawful document (including, but not limited to, applications, assignments, oaths, declarations and affidavits) and joining in any proceeding to obtain letters patent, copyrights, trademarks or other legal rights of the United States and of any and all other countries on such Inventions, provided that any patent or other legal right so issued to Executive, personally, shall be assigned by Executive to the Company without charge by Executive. Executive further designates the Company as his/her agent for, and grants to the Company a power of attorney with full power of substitution, which power of attorney shall be deemed coupled with an interest, for the purpose of effecting the foregoing assignments from Executive to the Company. Company will bear the reasonable expenses which it causes to be incurred in Executive’s assisting and cooperating hereunder. Executive waives all claims to moral rights in any Inventions.
7. Disclosure to Future Employers. The Company may provide in its discretion, a copy of the covenants contained in Sections 5 and 6 of this Agreement to any business or enterprise which Executive may directly, or indirectly, own, manage, operate, finance, join, control or in which Executive participates in the ownership, management, operation, financing, or control, or with which Executive may be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise.
8. Records. Upon termination of Executive’s relationship with the Company, Executive shall deliver to the Company any property of the Company which may be in Executive’s possession including products, materials, memoranda, notes, records, reports, or other documents or photocopies of the same.
9. Insurance. The Company, in its sole discretion, may apply for and procure in its own name (whether or not for its own benefit) policies of insurance insuring Executive’s life. Executive agrees to submit to reasonable medical or other examinations and to execute and deliver any applications or other instruments in writing that are reasonably necessary to effectuate such insurance. No adverse employment actions may be based upon the results of any such exam or the failure by the Company to obtain such insurance.
10. No Conflicting Agreements. Executive hereby represents and warrants that Executive has no commitments or obligations inconsistent with this Agreement.
11. “Market Stand-Off” Agreement. Executive agrees, if requested by the Company and an underwriter of common stock (or other securities) of the Company, not to sell or otherwise transfer or dispose of any common stock (or other securities) of the Company held by Executive during a period not to exceed one hundred and eighty (180) days following the effective date of the first underwritten public offering of common stock of the Company, offered on a firm commitment basis pursuant to a registration statement filed with the Securities and Exchange Commission (or any successor agency of the Federal government administrating the Securities Act of 1933, as amend, and the Securities Exchange Act of 1934, as amended) under the Securities Act of 1933, as amended, on Form S-1 or its then equivalent, and to enter into an agreement to such effect. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of said period.
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12. General.
(a) Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be addressed to the receiving party’s address as follows:
If to the Company: PTC Therapeutics Inc.
100 Corporate Court
South Plainfield, NJ 07080
USA
Attention: Legal Department
Telephone: (908) 222-7000
100 Corporate Court
South Plainfield, NJ 07080
USA
Attention: Legal Department
Telephone: (908) 222-7000
With an email copy to: legal@ptcbio.com
If to Executive: Christine Utter
3 Pembroke Court
Marlboro, NJ 07746
or to such other address as a party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) sent by overnight courier, or (iii) sent by registered or certified mail, return receipt requested, postage prepaid. All notices, requests, consents and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (ii) if sent by overnight courier, on the next business day following the day such notice is delivered to the courier service, or (iii) if sent by registered or certified mail, on the fifth (5th) business day following the day such mailing is made.
(b) Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof, except with respect to the equity and fringe benefit arrangements referred to in Subsections 3(c) and (e) above. No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement.
(c) Modifications and Amendments. The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the parties hereto.
(d) Waivers and Consents. The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.
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(e) Assignment. The Company shall assign its rights and obligations hereunder to any person or entity that succeeds to all or substantially all of the Company’s business or that aspect of the Company’s business in which Executive is principally involved. Executive may not assign Executive’s rights and obligations under this Agreement without the prior written consent of the Company.
(f) Benefit. All statements, representations, warranties, covenants and agreements in this Agreement shall be binding on the parties hereto and shall inure to the benefit of the respective successors and permitted assigns of each party hereto. Nothing in this Agreement shall be construed to create any rights or obligations except among the parties hereto, and no person or entity shall be regarded as a third‑party beneficiary of this Agreement.
(g) Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of The State of New Jersey, without giving effect to the conflict of law principles thereof.
(h) Jurisdiction and Service of Process. Any legal action or proceeding with respect to this Agreement shall be brought in the courts of The State of New Jersey or of the United States of America for the District of New Jersey. By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each of the parties hereto irrevocably consents to the service of process of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by certified mail, postage prepaid, to the party at its address set forth in Section 12(a) hereof.
(i) Severability. The parties intend this Agreement to be enforced as written. However, (i) if any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a duly authorized court having jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law; and (ii) if any provision, or part thereof, is held to be unenforceable because of the duration of such provision or the geographic area covered thereby or otherwise, the Company and Executive agrees that the court making such determination shall have the power to reduce the duration and/or geographic area of such provision, and/or to delete specific words and phrases (“blue-penciling”), and in its reduced or blue-penciled form such provision shall then be enforceable and shall be enforced.
(j) Headings and Captions; Interpretation. The headings and captions of the various subdivisions of this Agreement are for convenience of reference only and shall in no way modify, or affect the meaning or construction of any of the terms or provisions hereof. The provisions of the following Sections of this Agreement are in addition to, and do not limit, each other: Sections 6 and 5(a); Sections 7 and 5(g); Sections 12(k) and 12(f); and Sections 12(l) and 12(d).
(k) Injunctive Relief. Executive hereby expressly acknowledges that any breach or threatened breach of any of the terms and/or conditions set forth in Section 5 or 6 of this Agreement will result in substantial, continuing and irreparable injury to the Company.
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Therefore, Executive hereby agrees that, in addition to any other remedy that may be available to the Company, the Company shall be entitled to injunctive or other equitable relief by a court of appropriate jurisdiction.
(l) No Waiver of Rights, Powers and Remedies. No failure or delay by a party hereto in exercising any right, power or remedy under this Agreement, and no course of dealing between the parties hereto, shall operate as a waiver of any such right, power or remedy of the party. No single or partial exercise of any right, power or remedy under this Agreement by a party hereto, nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, shall preclude such party from any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The election of any remedy by a party hereto shall not constitute a waiver of the right of such party to pursue other available remedies. No notice to or demand on a party not expressly required under this Agreement shall entitle the party receiving such notice or demand to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the party giving such notice or demand to any other or further action in any circumstances without such notice or demand.
(m) Counterparts. This Agreement may be executed in one or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
(n) Survival. The provisions of Sections 4, 5, 6, 7, 8, 11 and 12 shall survive the termination of this Agreement and Executive’s employment hereunder in accordance with their terms.
(o) WAIVER OF TRIAL BY JURY. THE PARTIES IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY REGARDING ANY DISPUTE, CLAIM OR CAUSE OF ACTION ARISING OUT OF, CONCERNING, OR RELATED TO EXECUTIVE’S EMPLOYMENT WITH THE COMPANY OR THIS AGREEMENT.
(p) Knowing and Voluntary Nature of Agreement. Executive acknowledges and agrees that Executive is executing this Agreement knowingly and voluntarily and without any duress or undue influence by PTC or anyone else. Executive further acknowledges and agrees that Executive has carefully read this Agreement and fully understands it, including that Executive is waiving the right to a jury trial. Executive further agrees that Executive has been provided an opportunity to seek the advice of an attorney of Executive’s choice before signing this Agreement.
IN WITNESS THEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
PTC Therapeutics, Inc.
/s/ Mark Boulding
Name: Mark Boulding
Title: Executive Vice President & Chief Legal Officer
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Agreed and Accepted
/s/ Christine Utter
Name: Christine Utter
EXHIBIT A
Sample Separation and Release Agreement
[Insert Date]
[Insert Employee Name]
[Insert Employee Address]
Dear [Insert Employee Name]:
In connection with the termination of your employment with PTC Therapeutics, Inc. (the “Company”) on [Termination Date], you are eligible to receive the Severance Compensation as described in Section 4 of the Employment Agreement executed between you and the Company on [Insert Date] (the “Employment Agreement”) if you sign and return this letter agreement to me by [Return Date – e.g., 21 days from date of receipt of this letter agreement] and it becomes binding between you and the Company. By signing and returning this letter agreement [and not revoking your acceptance], you will be agreeing to the terms and conditions set forth in the numbered paragraphs below, including the release of claims set forth in paragraph 3. Therefore, you are advised to consult with an attorney before signing this letter agreement and you may take up to [twenty-one (21) days] to do so. [If you sign this letter agreement, you may change your mind and revoke your agreement during the seven (7) day period after you have signed it by notifying me in writing. If you do not so revoke, this letter agreement will become a binding agreement between you and the Company upon the expiration of the seven (7) day period.]
If you choose not to sign and return this letter agreement by [Return Date-Same as Above][, or if you timely revoke your acceptance in writing], you shall not receive any Severance Compensation from the Company. You will, however, receive payment for your final wages and any unused vacation time accrued through the Termination Date, as defined below, on the Company’s regular payroll date immediately following the Termination Date. Also, regardless of signing this letter agreement, you may elect to continue receiving group medical insurance pursuant to the federal “COBRA” law, 29 U.S.C. § 1161 et seq. If you so elect, you shall pay all premium costs on a monthly basis for as long as, and to the extent that, you remain eligible for COBRA continuation. You should consult the COBRA materials to be provided by the Company for details regarding these benefits. All other benefits will cease upon your Termination Date in accordance with the plan documents.
The following numbered paragraphs set forth the terms and conditions that will apply if you timely sign and return this letter agreement and do not revoke it in writing within the seven (7) day period.
1. | Termination Date – Your effective date of termination from the Company is [Insert Date] (the “Termination Date”). |
2. | Release – In consideration of the payment of the Severance Compensation, which you acknowledge you would not otherwise be entitled to receive, you hereby fully, forever, |
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irrevocably and unconditionally release, remise and discharge the Company, its affiliates, subsidiaries, parent companies, predecessors, and successors, and all of their respective past and present officers, directors, stockholders, partners, members, employees, agents, representatives, plan administrators, attorneys, insurers and fiduciaries (each in their individual and corporate capacities) (collectively, the “Released Parties”) from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including attorneys’ fees and costs), of every kind and nature that you ever had or now have against any or all of the Released Parties, including, but not limited to, any and all claims arising out of or relating to your employment with and/or separation from the Company, including, but not limited to, all claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., the Americans With Disabilities Act of 1990, 42 U.S.C. § 12101 et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Genetic Information Nondiscrimination Act of 2008, 42 U.S.C. § 2000ff et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., the Worker Adjustment and Retraining Notification Act (“WARN”), 29 U.S.C. § 2101 et seq., the Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq., Executive Order 11246, Executive Order 11141, the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., and the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq., all as amended; all claims arising out of the New Jersey Law Against Discrimination, N.J. Stat. Ann. § 10:5-1 et seq., the New Jersey Family Leave Act, N.J. Stat. Ann. § 34:11B-1 et seq., the New Jersey Conscientious Employee Protection Act, N.J. Stat. Ann. § 34:19-1 et seq., and the N.J. Stat. Ann. § 34:11-56.1 et seq. (New Jersey equal pay law), all as amended; all common law claims including, but not limited to, actions in defamation, intentional infliction of emotional distress, misrepresentation, fraud, wrongful discharge, and breach of contract, including without limitation, all claims arising from the Employment Agreement; all state and federal whistleblower claims to the maximum extent permitted by law; all claims to any non-vested ownership interest in the Company, contractual or otherwise; and any claim or damage arising out of your employment with and/or separation from the Company (including a claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above; provided, however, that nothing in this letter agreement shall (i) prevent you from filing a charge with, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission or a state fair employment practices agency (except that you acknowledge that you may not recover any monetary benefits in connection with any such claim, charge or proceeding) or (ii) deprive you of any rights you may have to be indemnified by the Company as provided in any agreement between the Company and you or pursuant to the Company’s Certificate of Incorporation or by-laws.
3. | Non-Disclosure, Non-Competition and Non-Solicitation – You acknowledge and reaffirm your obligation to keep confidential and not disclose all non-public information concerning the Company and its clients that you acquired during the course of your employment with the Company, as stated more fully in Section 5 of the Employment Agreement, which remains in full force and effect. |
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4. | Return of Company Property – You confirm that you have returned to the Company all keys, files, records (and copies thereof), equipment (including, but not limited to, computer hardware, software and printers, wireless handheld devices, cellular phones, smartphones, tablets, etc.), Company identification, and any other Company-owned property in your possession or control and have left intact all electronic Company documents, including but not limited to those which you developed or helped to develop during your employment. You further confirm that you have cancelled all accounts for your benefit, if any, in the Company's name, including but not limited to, credit cards, telephone charge cards, cellular phone and/or wireless data accounts and computer accounts. |
5. | Business Expenses and Final Compensation – You acknowledge that you have been reimbursed by the Company for all business expenses incurred in conjunction with the performance of your employment and that no other reimbursements are owed to you. You further acknowledge that you have received payment in full for all services rendered in conjunction with your employment by the Company, including payment for all wages, bonuses and accrued, unused vacation time, and that no other compensation is owed to you except as provided herein. |
6. | Non-Disparagement – To the extent permitted by law, you understand and agree that as a condition for payment to you of the Severance Compensation herein described, for a period of five years following the date hereof you shall not make any false, disparaging or derogatory statements to any person or entity, including any media outlet, regarding the Company or any of its directors, officers, employees, agents or representatives or about the Company’s business affairs and financial condition. Further, for a period of five years following the date hereof, neither the Company, nor any of its executive officers or members of its Board will directly or indirectly make, or cause to be made, any false statement, observation or opinion, disparaging your reputation. |
7. | Continued Assistance - You agree that after the Termination Date you will provide all reasonable cooperation to the Company, including but not limited to, assisting the Company transition your job duties, assisting the Company in defending against and/or prosecuting any litigation or threatened litigation, and performing any other tasks as reasonably requested by the Company. |
8. | Cooperation – To the extent permitted by law, you agree to cooperate fully with the Company in the defense or prosecution of any claims or actions which already have been brought, are currently pending, or which may be brought in the future against or on behalf of the Company, whether before a state or federal court, any state or federal government agency, or a mediator or arbitrator. Your full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare its claims or defenses, to prepare for trial or discovery or an administrative hearing or a mediation or arbitration and to act as a witness when requested by the Company at reasonable times designated by the Company. You agree that you will notify the Company promptly in the event that you are served with a subpoena or in the event that you are asked to provide a third party with information concerning any actual or potential complaint or claim against the Company. |
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9. | Amendment and Waiver – This letter agreement shall be binding upon the parties and may not be modified in any manner, except by an instrument in writing of concurrent or subsequent date signed by duly authorized representatives of the parties hereto. This letter agreement is binding upon and shall inure to the benefit of the parties and their respective agents, assigns, heirs, executors, successors and administrators. No delay or omission by the Company in exercising any right under this letter agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar to or waiver of any right on any other occasion. |
10. | Validity – Should any provision of this letter agreement be declared or be determined by any court of competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this letter agreement. |
11. | Confidentiality – To the extent permitted by law, you understand and agree that as a condition for payment to you of the Severance Compensation herein described, the terms and contents of this letter agreement, and the contents of the negotiations and discussions resulting in this letter agreement, shall be maintained as confidential by you and your agents and representatives and shall not be disclosed except to the extent required by federal or state law or as otherwise agreed to in writing by the Company. |
12. | Nature of Agreement – You understand and agree that this letter agreement is a severance agreement and does not constitute an admission of liability or wrongdoing on the part of the Company. |
13. | Acknowledgments – You acknowledge that you have been given at least [twenty-one (21) days] to consider this letter agreement, and that the Company advised you to consult with an attorney of your own choosing prior to signing this letter agreement. [You understand that you may revoke this letter agreement for a period of seven (7) days after you sign this letter agreement by notifying me in writing, and the letter agreement shall not be effective or enforceable until the expiration of this seven (7) day revocation period.] You understand and agree that by entering into this agreement, you are waiving any and all rights or claims you might have under the Age Discrimination in Employment Act, as amended by the Older Workers Benefits Protection Act, and that you have received consideration beyond that to which you were previously entitled. |
14. | Voluntary Assent – You affirm that no other promises or agreements of any kind have been made to or with you by any person or entity whatsoever to cause you to sign this letter agreement, and that you fully understand the meaning and intent of this letter agreement. You state and represent that you have had an opportunity to fully discuss and review the terms of this letter agreement with an attorney. You further state and represent that you have carefully read this letter agreement, understand the contents herein, freely and voluntarily assent to all of the terms and conditions hereof and sign your name of your own free act. |
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15. | Applicable Law – This letter agreement shall be interpreted and construed by the laws of the State of New Jersey, without regard to conflict of laws provisions. You hereby irrevocably submit to and acknowledge and recognize the jurisdiction of the courts of the State of New Jersey, or if appropriate, a federal court located in the State of New Jersey (which courts, for purposes of this letter agreement, are the only courts of competent jurisdiction), over any suit, action or other proceeding arising out of, under or in connection with this letter agreement or the subject matter hereof. |
16. | Entire Agreement – This letter agreement contains and constitutes the entire understanding and agreement between the parties hereto with respect to your Severance Compensation and the settlement of claims against the Company and cancels all previous oral and written negotiations, agreements and commitments in connection therewith. Nothing in this paragraph, however, shall modify, cancel or supersede your obligations set forth in paragraph 3 herein. |
17. | Tax Acknowledgement – In connection with the payments and consideration provided to you pursuant to this letter agreement, the Company shall withhold and remit to the tax authorities the amounts required under applicable law, and you shall be responsible for all applicable taxes with respect to such payments and consideration under applicable law. You acknowledge that you are not relying upon the advice or representation of the Company with respect to the tax treatment of any of the Severance Compensation set forth in Section 4 of the Employment Agreement. |
If you have any questions about the matters covered in this letter agreement, please call me at [Insert Phone Number].
Very truly yours,
By: __________________________________
[Name]
[Title]
I hereby agree to the terms and conditions set forth above. I have been given at least [twenty-one (21) days] to consider this letter agreement and I have chosen to execute this on the date below. I intend that this letter agreement will become a binding agreement between me and the Company [if I do not revoke my acceptance in seven (7) days].
_____________________________ [Insert Employee Name] | _________________________ Date |
To be returned to me by [Return Date – e.g., 21 days from date of receipt of this letter].
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment (the “Amendment”) is made by and between Christine Utter (“Executive”) and PTC Therapeutics, Inc. (the “Company”) (collectively, “the Parties”).
WHEREAS, Executive is employed by PTC pursuant to an Employment Agreement between Executive and PTC dated August 16, 2014 (the “Employment Agreement”); and
WHEREAS, on January 1, 2017 (the “Amendment Effective Date”), in connection with Executive’s promotion, the Company is authorized to enter in to an amendment to Executive’s Employment Agreement to reflect the title of Senior Vice President, with conforming changes to the Employment Agreement with respect to title, severance compensation, and annual bonus target;
NOW, THEREFORE, for good and valuable consideration, the sufficiency of which is acknowledged hereby, and in consideration of the mutual covenants and undertakings set forth herein, the Parties agree that the following sections of the Employment Agreement are amended and restated as follows as of the Amendment Effective Date:
Section 1(a), Capacity: “Executive shall serve the Company as Senior Vice President, Finance reporting to Shane Kovacs or such other senior executive as the Company shall specify. Executive shall have the responsibilities, duties and authority commensurate with the position of Senior Vice President, Finance. In addition to Executive’s primary duties, Executive shall perform such other services for the Company that are consistent with his position as Senior Vice President, Finance as may be reasonably assigned to Executive from time to time by the individual to whom he reports or the Board of Directors of the Company (the “Board”) or their respective designees. The principal location at which Executive shall perform such services shall be the Company’s corporate headquarters currently located at 100 Corporate Court, Middlesex Business Center, South Plainfield, NJ 07080, subject to relocation and Section 2(c)(i) of this Agreement.”
Section 2(c), Definition of “Good Reason”, clause (ii): “A material adverse change by the Company in Executive’s duties, authority or responsibilities as Senior Vice President, Finance of the Company which causes Executive’s position with the Company to become of materially less responsibility or authority than Executive’s position immediately following the Effective Date. For purposes of this definition of “Good Reason,” a “material adverse change” following a Corporate Change shall not include any diminution in authority, duties or responsibilities that is solely attributable to the change in the Company’s ownership structure but does not otherwise change Executive’s authority, duties or responsibilities (except in a positive manner) otherwise with respect to the Company’s business.”
Section 3(b), Bonus: In addition to the Base Salary, the Company may pay Executive an annual bonus (the “Bonus”) as determined by the Board, solely in its discretion (it being understood that Executive’s target annual bonus shall be at 40% of Base Salary, but may be higher or lower in any year in the Board’s discretion). The Board’s decision to issue a Bonus to Executive in any particular year shall have no effect on the absolute discretion of the Board to grant or not to grant a Bonus in subsequent years. Any Bonus for a particular year shall be paid or provided to Executive in a lump sum no later than March 15th of the calendar year following the calendar year in which the Bonus was earned.”
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Amendment to Employment Agreement for SVP Promotion
Section 4, Severance Compensation, subsection (b): “In the event that Executive’s employment hereunder is terminated (i) by Executive for a Good Reason or (ii) by the Company without Cause, the Company shall pay to Executive the Accrued Obligations. In addition, the Company shall pay to Executive the severance benefits set forth below for twelve (12) months following Executive’s termination of employment (the “Severance Period”). The receipt of any severance benefits provided in this Section shall be dependent upon Executive’s execution and nonrevocation of a standard separation agreement and general release of claims, substantially in the form attached hereto as Exhibit A (the “Release”). The Company will also consider in good faith (but without any binding commitment) requests from Executive that the Company include in the Release a release of Executive by the Company from matters specifically disclosed to the Company by Executive in writing in advance of execution of the Release and not involving any illegality, fraud, concealment, criminal acts or acts outside the scope of Executive's employment. The distribution of severance benefits in this Section 4 is subject to section (iii) of this Section 4(b).
(i) If Executive’s employment is terminated (A) by Executive for a Good Reason or (B) by the Company without Cause, in either case before or after the Protected Period, the Company shall pay Executive his Base Salary, less any amounts required to be withheld under applicable law, for the Severance Period in substantially equal installments in accordance with the Company’s payroll practices as in effect from time to time, commencing 30 days following the effective date of such termination. If Executive’s employment is terminated (A) by Executive for a Good Reason or (B) by the Company without Cause, in either case during the Protected Period, the Company shall pay Executive his Base Salary for the Severance Period, which total amount shall be payable in a lump sum commencing no later than sixty (60) days following Executive’s termination of employment. In each case, payments shall commence or be paid provided that the Release has been executed and any applicable revocation period has expired as of the 60th day following Executive’s termination.
(ii) Only if Executive’s employment is terminated (A) by Executive for a Good Reason or (B) by the Company without Cause, in either case during the Protected Period, the Company shall pay Executive his target annual bonus, described in section 3(b) hereof, for the year in which the termination of employment occurs, which total amount shall be payable in a lump sum commencing no later than sixty (60) days following Executive’s termination of employment, provided that the Release has been executed and any applicable revocation period has expired as of such date.
(iii) The Company shall continue to provide Executive and his then-enrolled eligible dependents with group health insurance and shall continue to pay the amount of the premium as in effect on the date of such termination for the Severance Period commencing on the effective date of such termination, subject to applicable law and the terms of the respective policies; provided that the Company’s obligation to provide the benefits contemplated herein shall terminate upon Executive’s becoming eligible for coverage under the medical benefits program of a subsequent employer. The foregoing shall not be construed to extend any period of continuation coverage (e.g., COBRA) required by Federal law.”;
With the following subsections of subsection (4)(b) to be renumbered and referenced consistent with the insertion of the new subsection (4)(b)(ii) set forth above and the renumbering of the prior subsection 4(b)(ii) as subsection 4(b)(iii).
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Amendment to Employment Agreement for SVP Promotion
No Other Changes. Except as explicitly provided above, the Parties agree that there are no other changes or amendments to the Employment Agreement and that the Employment Agreement, as amended by this Amendment, remains in full force and effect.
AGREED AND ACCEPTED PTC Therapeutics, Inc. By: _/s/ Mark E. Boulding_______ Name: Mark E. Boulding Title: EVP, Chief Legal Officer Date: January 17, 2017 | AGREED AND ACCEPTED: Christine Utter By: _/s/ Christine Utter_________ Date: __January 30, 2017_______ |
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June 1, 2017
Christine Utter
3 Pembroke Court
Marlboro, NJ 07746
Dear Christine,
Congratulations on your offer of promotion to Principal Financial Officer of PTC Therapeutics, Inc. Your success with PTC has been impressive and we look forward to your continued contributions to PTC’s success. The effective date of your appointment is the date of your signature below. In this new role you will report to CEO and Founder, Stu Peltz.
Outlined below are details of your compensation following the promotion, subject to your acceptance of this offer:
• | Your annual base salary will be increased to $330,000 annually, subject to deductions for taxes and other withholdings as required by law. This represents an increase of 10% over your current base salary. |
• | Your bonus target will continue to be 40.00% of your annual salaried earnings paid in accordance with the terms of conditions of PTC’s annual incentive compensation plan. |
• | You will receive a one-time grant of 25,000 stock options to purchase shares of common stock of PTC, following a 2 year vesting scheme (50% vesting after one year, and in equal amounts each quarter thereafter). |
• | You are eligible to receive a one-time appointment bonus of $25,000, payable with acceptance of this letter. Payment will be made as soon as practical taking into account the announcement of the appointment and payroll cycle. |
On behalf of PTC, let me again congratulate you on your offer of promotion. We look forward to this next step in your career. Please feel free to contact me if you have any questions concerning your offer of promotion and appointment.
Sincerely, Accepted by:
/s/ Stuart Peltz /s/ Christine Utter_ Date: 6/2/17_
Stuart Peltz, CEO Christine Utter
cc: Martin Rexroad, SVP, Human Resources
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment (the “Amendment”) is made by and between Christine Utter (“Executive”) and PTC Therapeutics, Inc. (the “Company”) (collectively, “the Parties”).
WHEREAS, Executive is employed by PTC pursuant to an Employment Agreement between Executive and PTC dated August 16, 2014, as amended on January 1, 2017 (the “Employment Agreement”); and
WHEREAS, on May 31, 2019 (the “Amendment Effective Date”), the Company is authorized to enter into an amendment to Executive’s Employment Agreement;
NOW, THEREFORE, for good and valuable consideration, the sufficiency of which is acknowledged hereby, and in consideration of the mutual covenants and undertakings set forth herein, the Parties agree that the following sections of the Employment Agreement are amended and restated as follows as of the Amendment Effective Date:
Section 1(a), Capacity: “Executive shall serve the Company as Senior Vice President, Finance & Chief Accounting Officer reporting to Emily Hill or such other senior executive as the Company shall specify. Executive shall have the responsibilities, duties and authority commensurate with the position of Senior Vice President, Finance & Chief Accounting Officer. In addition to Executive’s primary duties, Executive shall perform such other services for the Company that are consistent with his position as Senior Vice President, Finance & Chief Accounting Officer as may be reasonably assigned to Executive from time to time by the individual to whom she reports or the Board of Directors of the Company (the “Board”) or their respective designees. The principal location at which Executive shall perform such services shall be the Company’s corporate headquarters currently located at 100 Corporate Court, Middlesex Business Center, South Plainfield, NJ 07080, subject to relocation and Section 2(c)(i) of this Agreement.”
No Other Changes. Except as explicitly provided above, the Parties agree that there are no other changes or amendments to the Employment Agreement and that the Employment Agreement, as amended by this Amendment, remains in full force and effect.
AGREED AND ACCEPTED PTC Therapeutics, Inc. By: __/s/ Mark E. Boulding ______ Name: Mark E. Boulding Title: EVP, Chief Legal Officer Date: May 31, 2019 | AGREED AND ACCEPTED: Christine Utter By: _/s/ Christine Utter _________ Date: May 31, 2019 |
Exhibit 31.1
CERTIFICATIONS
I, Stuart W. Peltz, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of PTC Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 6, 2019 | By: | /s/ STUART W. PELTZ |
Stuart W. Peltz | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
Exhibit 31.2
CERTIFICATIONS
I, Emily Hill, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of PTC Therapeutics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 6, 2019 | By: | /s/ EMILY HILL |
Emily Hill | ||
Chief Financial Officer | ||
(Principal Financial Officer) | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of PTC Therapeutics, Inc. (the “Company”) for the period ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Stuart W. Peltz, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 6, 2019 | By: | /s/ STUART W. PELTZ |
Stuart W. Peltz | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of PTC Therapeutics, Inc. (the “Company”) for the period ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Emily Hill, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 6, 2019 | By: | /s/ EMILY HILL |
Emily Hill | ||
Chief Financial Officer | ||
(Principal Financial Officer) | ||