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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
 
(Mark One)
 
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2020
 
or
 
         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from            to            
 
Commission file number: 001-35969
 
PTC Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
04-3416587
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
100 Corporate Court
 
 
South Plainfield,
NJ
 
07080
(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
Common Stock, $0.001 par value per share
PTCT
Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes 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.
 
        
Large accelerated filer
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 April 28, 2020, there were 62,875,395 shares of Common Stock, $0.001 par value per share, outstanding.
 




i


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:
expectations with respect to our gene therapy platform, including any potential regulatory submissions and potential approvals, including those related to our gene therapy for the treatment of Aromatic L-Amino Acid Decarboxylase, or AADC deficiency, or PTC-AADC, our manufacturing capabilities and the potential financial impact and benefits of our leased biologics manufacturing facility and the potential achievement of development, regulatory and sales milestones and contingent payments that we may be obligated to make;
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 our products or product candidates that we commercialize or may commercialize in the future;
our ability to maintain our marketing authorization of Translarna for the treatment of nonsense mutation Duchenne muscular dystrophy, or nmDMD, in the European Economic Area, or 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 EMA’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 Orphan Drug Act, the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act;
our ability to complete any dystrophin study necessary in order to resolve the matters set forth in the United States Food and Drug Administration's, or the FDA, 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 commercialization of our products and product candidates;
our expectations with respect to the COVID-19 pandemic and related response measures and their effects on our business, operations, clinical trials, potential regulatory submissions and approvals, our collaborators, contract research organizations, suppliers and manufacturers;
our ability to obtain additional and maintain existing reimbursed named patient and cohort early access programs, or EAP programs, for our products on adequate terms, or at all;
our expectations with respect to the development, regulatory and commercial 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;
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 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;
our estimates regarding the potential market opportunity for our products or product candidates, including the size of eligible patient populations and our ability to identify such patients;

1


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 in our gene therapy, splicing, Bio-e and oncology programs as well as studies in our products for maintaining authorizations, label extensions and additional indications, including the timing of initiation, enrollment and completion of the trials and the period during which the results of the trials will become available;
our ability to realize the anticipated benefits of our acquisitions or other strategic transactions, including the possibility that the expected impact of benefits from the acquisitions or strategic transactions will not be realized or will not be realized within the expected time period, significant transaction costs, the integration of operations and employees into our business, our ability to obtain marketing approval of our product candidates we acquired from the acquisitions or other strategic transactions and unknown liabilities;
the rate and degree of market acceptance and clinical utility of any of our products or product candidates;
the ability and willingness of patients and healthcare professionals to access our product and product candidates through alternative means if pricing and reimbursement negotiations in the applicable territory do not have a positive outcome;
our ability to complete the FDA post-marketing requirements to the marketing authorization of Emflaza and any other post-marketing requirements for our products;
the timing of, and our ability to obtain additional marketing authorizations for our products and product candidates;
the ability of our products and our 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;
the potential receipt of revenues from future sales of our products or product candidates;
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 our products and product candidates 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 our products and product candidates that are sufficient to meet clinical trial and commercial launch requirements;
our ability to establish and grow our manufacturing capabilities for our gene therapy platform;
our expectations with respect to the potential financial impact and benefits of our leased biologics manufacturing 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 ability to satisfy our obligations under the indenture governing our 3.00% convertible senior notes due August 15, 2022 and under the indenture governing our 1.50% convertible senior notes due September 15, 2026;
our regulatory submissions, including with respect to timing and outcome of regulatory review;
our plans to advance our earlier stage programs and pursue research and development of other product candidates, including our splicing, gene therapy, Bio-e 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 our products and any product candidate;
our intellectual property position;

2


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; and
our competitive position.
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, 2019, 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, 2019 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.


3


PART I—FINANCIAL INFORMATION
 
Item 1. Financial Statements.

PTC Therapeutics, Inc.
Consolidated Balance Sheets (unaudited)
In thousands (except shares) 
 
 
March 31,
2020
 
December 31,
2019
Assets
 
 

 
 
Current assets:
 
 

 
 
Cash and cash equivalents
 
$
123,287

 
$
288,028

Marketable securities
 
472,572

 
398,535

Trade receivables, net
 
52,623

 
55,538

Inventory, net
 
19,133

 
19,285

Prepaid expenses and other current assets
 
24,307

 
17,898

Total current assets
 
691,922

 
779,284

Fixed assets, net
 
26,169

 
21,549

Intangible assets, net
 
705,294

 
710,500

Goodwill
 
82,341

 
82,341

Deposits and other assets
 
39,866

 
30,108

Total assets
 
$
1,545,592

 
$
1,623,782

Liabilities and stockholders’ equity
 
 

 
 
Current liabilities:
 
 

 
 
Accounts payable and accrued expenses
 
$
145,386

 
$
159,276

Current portion of long-term debt
 
20,000

 
20,000

Deferred revenue
 
8,638

 
8,242

Other current liabilities
 
3,644

 
8,339

Deferred consideration payable
 
40,000

 
40,000

Total current liabilities
 
217,668

 
235,857

Deferred revenue- long term
 
1,768

 
3,415

Long-term debt
 
294,574

 
293,859

Contingent consideration payable
 
357,200

 
356,300

Deferred tax liability
 
130,862

 
130,862

Other long-term liabilities
 
14,786

 
9,159

Total liabilities
 
1,016,858

 
1,029,452

Stockholders’ equity:
 
 

 
 
Common stock, $0.001 par value. Authorized 125,000,000 shares; issued and outstanding 62,758,520 shares at March 31, 2020. Authorized 125,000,000 shares; issued and outstanding 61,935,870 shares at December 31, 2019.
 
62

 
62

Additional paid-in capital
 
1,834,061

 
1,795,351

Accumulated other comprehensive income
 
(1,985
)
 
(10,584
)
Accumulated deficit
 
(1,303,404
)
 
(1,190,499
)
Total stockholders’ equity
 
528,734

 
594,330

Total liabilities and stockholders’ equity
 
$
1,545,592

 
$
1,623,782

 
See accompanying unaudited notes.

4


PTC Therapeutics, Inc.
Consolidated Statements of Operations (unaudited)
In thousands (except shares and per share data)

 
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Revenues:
 
 

 
 

Net product revenue
 
$
68,196

 
$
53,054

Collaboration and grant revenue
 
63

 
529

Total revenues
 
68,259

 
53,583

Operating expenses:
 
 

 
 

Cost of product sales, excluding amortization of acquired intangible assets
 
4,085

 
2,376

Amortization of acquired intangible assets
 
7,949

 
6,077

Research and development
 
90,107

 
52,566

Selling, general and administrative
 
58,209

 
40,544

Change in the fair value of deferred and contingent consideration
 
900

 
21,160

Total operating expenses
 
161,250

 
122,723

Loss from operations
 
(92,991
)
 
(69,140
)
Interest expense, net
 
(5,642
)
 
(2,288
)
Other expense, net
 
(13,832
)
 
(109
)
Loss before income tax expense
 
(112,465
)
 
(71,537
)
Income tax expense
 
(222
)
 
(576
)
Net loss attributable to common stockholders
 
$
(112,687
)
 
$
(72,113
)
 
 
 
 
 
Weighted-average shares outstanding:
 
 

 
 

Basic and diluted (in shares)
 
62,389,158

 
55,855,111

Net loss per share—basic and diluted (in dollars per share)
 
$
(1.81
)
 
$
(1.29
)
 
See accompanying unaudited notes.


5


PTC Therapeutics, Inc.
Consolidated Statements of Comprehensive Loss (unaudited)
In thousands
 
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Net loss
 
$
(112,687
)
 
$
(72,113
)
Other comprehensive (loss) income:
 
 

 
 

Unrealized (loss) gain on marketable securities, net of tax
 
(63
)
 
59

Foreign currency translation gain (loss), net of tax
 
8,662

 
(716
)
Comprehensive loss
 
$
(104,088
)
 
$
(72,770
)
 
See accompanying unaudited notes.


6


PTC Therapeutics, Inc.
Consolidated Statements of Stockholders' Equity (unaudited)
In thousands (except shares)
 Three months ended March 31, 2020
Common stock
 
Additional
paid-in
capital
 
Accumulated
other
comprehensive (loss) income
 
Accumulated
deficit
 
Total
stockholders’
equity
 
Shares
 
Amount
 
 
 
 
Balance, December 31, 2019
61,935,870

 
$
62

 
$
1,795,351

 
$
(10,584
)
 
$
(1,190,499
)
 
$
594,330

Issuance of common stock related to equity offerings
262,205

 

 
13,503

 

 

 
13,503

Exercise of options
379,684

 

 
9,987

 

 

 
9,987

Restricted stock vesting and issuance, net
180,761

 

 

 

 

 

Share-based compensation expense

 

 
15,220

 

 

 
15,220

Other

 

 

 

 
(218
)
 
(218
)
Net loss

 

 

 

 
(112,687
)
 
(112,687
)
Comprehensive income

 

 

 
8,599

 

 
8,599

Balance, March 31, 2020
62,758,520

 
$
62

 
$
1,834,061

 
$
(1,985
)
 
$
(1,303,404
)
 
$
528,734

 Three months ended March 31, 2019
Common stock
 
Additional
paid-in
capital
 
Accumulated
other
comprehensive
income (loss)
 
Accumulated
deficit
 
Total
stockholders’
equity
 
Shares
 
Amount
 
 
 
 
Balance, December 31, 2018
50,606,147

 
$
51

 
$
1,288,137

 
$
1,462

 
$
(938,923
)
 
$
350,727

Issuance of common stock related to equity offerings
7,563,725

 
7

 
224,434

 

 

 
224,441

Exercise of options
80,826

 

 
1,281

 

 

 
1,281

Restricted stock vesting and issuance
168,092

 

 

 

 

 

Share-based compensation expense

 

 
9,263

 

 

 
9,263

Net loss

 

 

 

 
(72,113
)
 
(72,113
)
Comprehensive loss

 

 

 
(657
)
 

 
(657
)
Balance, March 31, 2019
58,418,790

 
$
58

 
$
1,523,115

 
$
805

 
$
(1,011,036
)
 
$
512,942

See accompanying unaudited notes.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




















7


PTC Therapeutics, Inc.
Consolidated Statements of Cash Flows (unaudited) In thousands

 
 
 
 
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Cash flows from operating activities
 
 

 
 

Net loss
 
$
(112,687
)
 
$
(72,113
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 

 
 

Depreciation and amortization
 
9,235

 
7,059

Non-cash lease expense
 
1,330

 

Change in valuation of deferred and contingent consideration
 
900

 
21,160

Unrealized loss on equity investment in Clearpoint
 
1,574

 

Unrealized loss on Clearpoint convertible debt security

 
2,799

 

Non-cash interest expense
 
5,459

 
1,982

Amortization of discounts on investments, net
 
(333
)
 
(257
)
Amortization of debt issuance costs
 
256

 
139

Share-based compensation expense
 
15,220

 
9,263

Unrealized foreign currency transaction losses, net
 
8,675

 
865

Changes in operating assets and liabilities:
 
 

 
 

Inventory
 
102

 
(334
)
Prepaid expenses and other current assets
 
(6,675
)
 
(191
)
Trade receivables, net
 
2,346

 
20,786

Deposits and other assets
 
(5,819
)
 
(10,754
)
Accounts payable and accrued expenses
 
(4,000
)
 
(28,653
)
Other liabilities
 
1,264

 
8,065

Deferred revenue
 
(1,200
)
 
574

Net cash used in operating activities
 
(81,554
)
 
(42,409
)
Cash flows from investing activities
 
 

 
 

Purchases of fixed assets
 
(6,023
)
 
(2,865
)
Purchase of convertible debt security
 
(10,000
)
 

Purchases of marketable securities
 
(298,814
)
 
(165,723
)
Sale and redemption of marketable securities
 
224,997

 
18,090

Acquisition of product rights and licenses

 
(11,434
)
 

Net cash used in investing activities
 
(101,274
)
 
(150,498
)
Cash flows from financing activities
 
 

 
 

Proceeds from exercise of options
 
9,987

 
1,281

Net proceeds from public offerings
 
13,503

 
224,441

Repayment of senior secured term loan
 
(5,000
)
 

Net cash provided by financing activities
 
18,490

 
225,722

Effect of exchange rate changes on cash
 
(403
)
 
(1,169
)
Net increase in cash and cash equivalents
 
(164,741
)
 
31,646

Cash and cash equivalents, and restricted cash beginning of period
 
295,528

 
169,498

Cash and cash equivalents, and restricted cash end of period
 
$
130,787

 
$
201,144

Supplemental disclosure of cash information
 
 

 
 

Cash paid for interest
 
$
4,878

 
$
3,111

Cash paid for income taxes
 
$
507

 
$
537

Supplemental disclosure of non-cash investing and financing activity
 
 
 
 
Unrealized (loss) gain on marketable securities, net of tax
 
$
(63
)
 
$
59

Right-of-use assets obtained in exchange for lease obligations
 
$
22,642

 
$
11,314

Acquisition of product rights and licenses
 
$
2,775

 
$

See accompanying unaudited notes.

8


PTC Therapeutics, Inc.
Notes to Consolidated Financial Statements (unaudited)
March 31, 2020
In thousands (except per share data unless otherwise noted)

1.
The Company
PTC Therapeutics, Inc. (the “Company” or “PTC”) is a science-driven global biopharmaceutical company focused on the discovery, development and commercialization of clinically-differentiated medicines that provide benefits to patients with rare disorders. The Company’s ability to globally commercialize products is the foundation that drives its continued investment in a robust diversified 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’s strategy is to bring best-in-class therapies with differentiated clinical benefit to patients affected by rare disorders and to leverage its global commercial infrastructure to maximize value for its patients and other stakeholders.

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 has marketing authorization in the European Economic Area (the “EEA”) for the treatment of nonsense mutation Duchenne muscular dystrophy, or nmDMD, in ambulatory patients aged 2 years and older and in Brazil for the treatment of nmDMD in ambulatory patients aged 5 years and older, subject to annual renewal and other conditions. 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 for rare monogenic diseases that affect the central nervous system (“CNS”) including PTC-AADC for the treatment of Aromatic L-Amino Acid Decarboxylase, or AADC deficiency, a rare CNS disorder arising from reductions in the enzyme AADC that results from mutations in the dopa decarboxylase gene. 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 United States Food and Drug Administration, or FDA, in the second half of 2020. In January 2020, the Company submitted a marketing authorization application, or MAA, to the European Medicines Agency (“EMA”) for PTC-AADC for the treatment of AADC deficiency in the EEA, and the Company expects an opinion from the Committee for Medicinal Products for Human Use by the end of 2020.
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 pursuant to the Company’s Collaboration and License Agreement with Akcea Therapeutics, Inc. (“Akcea”). Tegsedi has received marketing authorization in the United States, the European Union (the “EU”) and Brazil for the treatment of stage 1 or stage 2 polyneuropathy in adult patients with hereditary transthyretin amyloidosis, or hATTR amyloidosis. Waylivra has received marketing authorization in the EU for the treatment of familial chylomicronemia syndrome, or FCS. The Company anticipates filing for marketing authorization for Waylivra with ANVISA, the Brazilian health regulatory authority, in the second half of 2020.
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. The lead compound in the SMA program is risdiplam (RG7916, RO7034067). Roche submitted an NDA for risdiplam to the FDA in the fourth quarter of 2019. In April 2020, the FDA extended the Prescription Drug User Fee Act ("PDUFA") date for a decision from May 24, 2020 to August 24, 2020 as a result of additional data that Roche submitted, including comprehensive data from the Sunfish part 2 study. Risdiplam is expected to be indicated in the United States for SMA type 1, 2 and 3 patients, if approved. Roche anticipates submitting an MAA for risdiplam in the EEA in mid-year 2020.

On October 25, 2019, the Company completed the acquisition of substantially all of the assets of BioElectron Technology Corporation (“BioElectron”), a Delaware corporation, including certain compounds that the Company has begun to develop as part of its Bio-e platform, (the “Asset Acquisition”) pursuant to an Asset Purchase Agreement by and between the Company and BioElectron, dated October 1, 2019 (the “Asset Acquisition Agreement”). The transaction was accounted for as an asset acquisition. In 2020, the Company plans to initiate three trials in this platform with two unique compounds that regulate inflammation and oxidative stress.

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

9


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 February 2020, the Company submitted a marketing authorization renewal request to the EMA.

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 the Company'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 data for Study 045 will be available in the third quarter of 2020 followed by a potential re-submission of an NDA thereafter. 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.

On April 20, 2017, the Company completed its acquisition of all rights to Emflaza, or the Transaction. 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 upon the passing of the second anniversary of the closing of the Merger, regardless of whether the applicable milestones have been achieved.
Upon the closing of the Asset Acquisition, the Company paid to BioElectron total upfront consideration of $10.0 million, funded with cash on hand, less (i) transaction expenses incurred by BioElectron, (ii) the amount of outstanding indebtedness of BioElectron

10


including a $4.0 million loan advance to BioElectron plus accrued and unpaid interest thereon and (iii) $1.5 million held in an escrow account to secure potential indemnification obligations owed to the Company. Subject to the terms and conditions of the Asset Acquisition Agreement, BioElectron may become entitled to receive contingent milestone payments of up to $200.0 million (in cash or in shares of the Company’s common stock, as determined by the Company) from the Company based on the achievement of certain regulatory and net sales milestones. Subject to the terms and conditions of the Asset Acquisition Agreement, BioElectron may also become entitled to receive contingent payments based on a percentage of net sales of certain products.
As of March 31, 2020, the Company had an accumulated deficit of approximately $1,303.4 million. The Company has financed its operations to date primarily through the private offerings in September 2019 of 1.50% convertible senior notes due 2026 and in August 2015 of 3.00% convertible senior notes due 2022 (see Note 10), public offerings of common stock in February 2014, October 2014, April 2018, January 2019, and September 2019, "at the market offerings" of its common stock, its initial public offering of common stock in June 2013, private placements of its convertible preferred stock, collaborations, bank debt, 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 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, 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 2, 2020 (the "2019 Form 10-K"). Additional significant accounting policies adopted during the three month period ended March 31, 2020 are discussed in further detail below.
Basis of presentation
The accompanying financial information as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 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, 2019 and notes thereto included in the 2019 Form 10-K.
In the opinion of management, the unaudited financial information as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 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 month period ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ended December 31, 2020 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, valuation procedures for convertible notes, 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.
Restricted cash
Restricted cash included in deposits and other assets on the consolidated balance sheet relates to an unconditional, irrevocable and transferable letter of credit that was entered into during the twelve-month period ended December 31, 2019 in connection with obligations under a facility lease for our leased biologics manufacturing facility in Hopewell Township, New Jersey. The amount of the letter of credit is $7.5 million, is to be maintained for a term of not less than five years and has the potential to be reduced to $3.8 million if after five years the Company is not in default of its lease. The amount is classified within deposits and other assets on the consolidated balance sheet due to the long-term nature of the letter of credit.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same amounts shown in the statement of cash flows:

11


 
 
Beginning of period- December 31, 2019
 
End of period- March 31, 2020
Cash and cash equivalents
 
$
288,028

 
$
123,287

Restricted cash included in deposits and other assets
 
7,500

 
7,500

Total Cash, cash equivalents and restricted cash per statement of cash flows

 
$
295,528

 
$
130,787


Marketable securities
The Company considers securities with original maturities of greater than 90 days to be available for sale securities. Securities under this classification are recorded at fair value and unrealized gains and losses within accumulated other comprehensive income. The estimated fair value of the available for sale securities is determined based on quoted market prices or rates for similar instruments. In addition, the cost of debt securities in this category is adjusted for amortization of premium and accretion of discount to maturity. For available for sale debt securities in an unrealized loss position, the Company assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value. If the criteria are not met, the Company evaluates whether the decline in fair value has resulted from a credit loss or other factors. In making this assessment, management considers, among other factors, the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized costs basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. For the three-month period ended March 31, 2020, no allowance was recorded for credit losses.
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. Products 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. Amounts related to clinical development programs and marketing efforts are immaterial.
The following table summarizes the components of the Company’s inventory for the periods indicated:
 
 
March 31, 2020
 
December 31, 2019
Raw materials
 
$
871

 
$
874

Work in progress
 
9,482

 
9,652

Finished goods
 
8,780

 
8,759

Total inventory
 
$
19,133

 
$
19,285


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. For the three month period ended March 31, 2020, the Company recorded a $0.2 million inventory write-down, primarily related to product approaching expiration. No write downs were recorded for the three month period ended March 31, 2019. 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 month periods ended March 31, 2020 and 2019, these amounts were immaterial.
Cost of product sales

12


Cost of product sales consists of the cost of inventory sold, manufacturing and supply chain costs, storage costs, amortization of the acquired intangible asset and royalty payments associated with net product sales. Production costs are expensed as cost of product sales when the related products are sold.
Revenue recognition
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 products 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 the product, 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 product sales. 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 related to Medicaid and other government pricing programs, 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. The identified variable consideration is recorded as a reduction of revenue at the time revenues from product sales are recognized. These estimates for variable consideration are adjusted to reflect known changes in factors and may impact such estimates in the quarter those changes are known. Revenue recognized does not include amounts of variable consideration that are constrained. For the three months ended March 31, 2020 and 2019, net product sales outside of the United States were $40.7 million and $35.3 million respectively, and net product sales in the United States were $27.5 million and $17.8 million respectively.
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. 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.
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

13


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
The Company maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. The Company estimates uncollectible amounts based upon current customer receivable balances, the age of customer receivable balances, the customer’s financial condition and current economic trends. The allowance for doubtful accounts was $0.2 million as of March 31, 2020 and $0.3 million as of December 31, 2019. Bad debt expense was immaterial for the three-month periods ended March 31, 2020 and 2019. For the three-month period ended March 31, 2020, no allowance was recorded for credit losses.
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 and license agreement assets acquired in business combinations are capitalized. Several methods may be used to determine the estimated fair value of the IPR&D and license agreement asset 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. Intangible assets with indefinite lives, including IPR&D, are tested for impairment if impairment indicators arise and, at a minimum, annually. However, an entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying amount. Otherwise, no further impairment testing is required. The indefinite-lived intangible asset impairment test consists of a one-step analysis that compares the fair value of the intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company considers many factors in evaluating whether the value of its intangible assets with indefinite lives may not be recoverable, including, but not limited to, expected growth rates, the cost of equity and debt capital, general economic conditions, the Company's outlook and market performance of the Company's industry and recent and forecasted financial performance.
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 at a reporting unit level on an annual basis or when a triggering event occurs that may indicate the carrying value of the goodwill is impaired. The Company reassess its reporting units as part of its annual segment review. An entity is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount.
Income Taxes
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act, referred to herein as the CARES Act, as a response to the economic uncertainty resulting from a strain of novel coronavirus, COVID-19. The CARES Act includes modifications for net operating loss carryovers and carrybacks, limitations of business interest expense for tax, immediate refund of alternative minimum tax (AMT) credit carryovers as well as a technical correction to the 2017 Tax Cuts and Jobs Act ("the 2017 Tax Act"), referred to herein as the U.S. Tax Act, for qualified improvement property. As of March 31, 2020, the Company expects that these provisions will not have a material impact. Tax provisions of the Act also include the deferral of certain payroll taxes, relief for retaining employees, and other provisions. The Company is evaluating the impact of the Act and currently expects to benefit from the deferral of certain payroll taxes and retention credit through the end of calendar year 2020. The ultimate impact of the CARES Act may differ from this estimate due to changes in interpretations and guidance that may be issued and actions the Company may take in response to the CARES Act. The Company will continue to assess the impact that various provisions will have on its business.


14


On December 22, 2017, the U.S. government enacted 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 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 March 31, 2020.

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
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. 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.
A lessee is required 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 Note 3 Leases for additional information.
Impact of recently adopted accounting pronouncements
In December 2019, the FASB issued ASU 2019-12,"Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principals in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. For public business entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. For all other entities, it is effective for annual periods beginning after December 15, 2021 and interim periods in annual periods beginning after December 15, 2022. Early adoption is permitted, including adoption in any interim period. The Company early adopted this guidance January 1, 2020. The adoption of the guidance did not have a material impact on the consolidated financial statements and accompanying notes.

15


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 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. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, which expands the scope of the practical expedient that allows entities to exclude the accrued interest component of amortized cost from various disclosures required by ASC 326 to also include certain disclosures required by ASC 320. Entities that elect to apply the practical expedient must disclose the total amount of accrued interest that they exclude from their disclosures of amortized cost. The amendments have the same effective dates as ASU 2016-13 (Topic 326) for entities that have not yet adopted that standard. The Company adopted ASU 2016-13 and ASU 2019-11 effective January 1, 2020. The adoption of the guidance did not have a material impact on the consolidated financial statements. The Company has updated its accounting policy for marketable securities within this footnote as well as its fair value footnote (Note 4) with additional disclosures as required by the standard upon adoption.
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 adopted this guidance January 1, 2020. The adoption of the guidance did not have a material impact on the consolidated financial statements. The Company has updated its fair value footnote (Note 4) with additional and modified disclosures as required by the standard upon adoption.
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 adopted this guidance January 1, 2020. The adoption of the guidance did not have a material impact on the 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 adopted this guidance January 1, 2020. The adoption of the guidance did not have a material impact on the consolidated financial statements and accompanying notes.
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 0.1 years to 7.2 years and certain of the leases include renewal options to extend the lease for up to 10 years. Rent expense was approximately $2.4 million and $1.0 million for the three month periods ended March 31, 2020 and 2019.
The components of lease expense were as follows:
 
Three Months Ended March 31, 2020
Three Months Ended March 31, 2019
Operating Lease Cost
 
 
Fixed lease cost
$
2,118

$
812

Variable lease cost
228

143

Short-term lease cost
77

53

Total operating lease cost
$
2,423

$
1,008


16



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:
 
March 31, 2020
December 31, 2019
 
 
 
Operating lease ROU asset
$
17,671

$
13,693

 
 
 
Operating lease liabilities- current
$
3,589

$
5,153

Operating lease liabilities- noncurrent
14,645

9,018

Total operating lease liability
$
18,234

$
14,171



Operating lease ROU asset is a component of deposits and other assets on the consolidated balance sheets. The current portion of operating lease liability is a component of other current liabilities on the consolidated balance sheets. The long term portion of operating lease liabilities is a component of other long term liabilities on the consolidated balance sheets.
Supplemental lease term and discount rate information related to leases was as follows as of March 31, 2020 and 2019:
 
March 31, 2020
March 31, 2019
 
 
 
Weighted-average remaining lease terms - operating leases (years)
5.35

4.71

Weighted-average discount rate - operating leases
7.34
%
7.02
%

Supplemental cash flow information related to leases was as follows as of March 31, 2020 and 2019:
 
Three Months Ended March 31, 2020
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating leases
$
1,971

$
732

Right-of-use assets obtained in exchange for lease obligations:
 
 
Operating leases
$
22,642

$
11,314



Future minimum lease payments under non-cancelable leases as of March 31, 2020 were as follows:
 
Operating Leases

2020 (excludes the three-months ended March 31, 2020)
$
3,543

2021
4,372

2022
3,846

2023
3,435

2024 and thereafter
6,900

Total lease payments
22,096

Less: Imputed Interest
3,862

Total
$
18,234



In conjunction with the Asset Acquisition, the Company acquired BioElectron’s lease in Mountainview, California. As substantially all of the fair value of the gross assets acquired was related to PTC743, the relative fair value allocated to the right of use asset and corresponding lease liability for the Mountainview lease was determined to be immaterial, and accordingly is not included in the tables above. The future minimum lease payments for the Mountainview lease as of March 31, 2020 are $1.3 million, $1.8 million, and $1.4 million for 2020, 2021 and 2022, respectively.
As of March 31, 2020, the Company had two operating leases that had not yet commenced, and accordingly, are not reflected in the tables above. On March 20, 2020, the Company entered into a lease agreement with COE Bridgewater LLC relating to the

17


lease of office and laboratory space located in Bridgewater, New Jersey. This lease will replace the Company's existing lease on the property beginning on May 1, 2020 and will include additional rental property of approximately 59,000 square feet. Additional obligations stem from the occupancy of the additional space which has not yet commenced as of March 31, 2020.
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, manufacturing and laboratory space at a facility located in Hopewell Township, New Jersey (the “Campus”). On March 25, 2020, the Company entered into an amendment increasing the rented space to approximately 220,500 square feet. The term of occupancy has not yet commenced as of March 31, 2020.
The rental term of the Lease is 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 five year renewal periods, each at the Company’s option.
The aggregate rent for the Initial Term will be approximately $111.5 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. The Lease contains customary events of default, representations, warranties and covenants.
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. Rent terms for the New Building would be determined based on the land value, construction and project costs subject to whether the Landlord or Company constructs the New Building.
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 marketable securities 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. The carrying amounts for borrowings under the credit and security agreement with MidCap Financial approximate fair value based on market activity for other debt instruments with similar characteristics and comparable risk.
In May 2019, the Company purchased $4.0 million of shares of ClearPoint Neuro, Inc.'s ("ClearPoint"), formerly known as MRI Interventions, Inc., common stock, at a purchase price of $3.10 per share, in connection with a securities purchase agreement that the Company entered into with ClearPoint, 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 month period ended March 31, 2020, the Company recorded an unrealized loss of $1.6 million, which is a component of other expense, net within the consolidated statement of operations. The fair value of the equity investment was $4.6 million as of March 31, 2020. The Company classifies its equity investment in ClearPoint 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.

18


In January 2020, the Company purchased a $10.0 million convertible note from Clearpoint that the Company can convert into Clearpoint shares at a conversion rate of $6.00 per share at any point throughout the term of the loan, which matures five years from the purchase date. The Company determined that the convertible note represents an available for sale debt security and the Company has elected to record it at fair value under ASC 825. The Company classifies its Clearpoint convertible debt security as a Level 2 asset within the fair value hierarchy, as the value is based on inputs other than quoted prices that are observable. The fair value of the Clearpoint convertible debt security is determined at each reporting period by utilizing a Black-Scholes option pricing model, as well as a present value of expected cash flows from the debt security utilizing the risk free rate and the estimated credit spread as of the valuation date as the discount rate. During the three month period ended March 31, 2020, the Company recorded an unrealized loss of $2.8 million, which is a component of other expense, net within the consolidated statement of operations. The fair value of the convertible debt security was $7.2 million as of March 31, 2020. The convertible debt security is considered to be long term and is included as a component of deposits and other assets on the consolidated balance sheet. Other than the equity investment and the convertible debt security, no other items included in deposits and other assets on the consolidated balance sheets are fair valued.
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 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 March 31, 2020 and December 31, 2019:
 
 
March 31, 2020
 
 
Total
 
Quoted prices
in active
markets for
identical assets
(level 1)
 
Significant
other
observable
inputs
(level 2)
 
Significant
unobservable
inputs
(level 3)
Marketable securities
 
$
472,572

 
$

 
$
472,572

 
$

Equity investment in ClearPoint
 
$
4,619

 
$
4,619

 
$

 
$

ClearPoint convertible debt security
 
$
7,201

 
$

 
$
7,201

 
$

Deferred consideration payable
 
$
40,000

 
$

 
$
40,000

 
$

Contingent consideration payable- development and regulatory milestones
 
$
273,900


$


$


$
273,900

Contingent consideration payable- net sales milestones and royalties
 
$
83,300


$


$


$
83,300

 
 
December 31, 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
 
$
398,535


$


$
398,535


$

Equity investment in ClearPoint
 
$
6,194

 
$
6,194

 
$

 
$

Stock appreciation rights liability
 
$
3,186


$


$


$
3,186

Deferred consideration payable
 
$
40,000


$


$
40,000


$

Contingent consideration payable- development and regulatory milestones
 
$
290,500


$


$


$
290,500

Contingent consideration payable- net sales milestones and royalties
 
$
65,800


$


$


$
65,800


No transfers of assets between Level 1, Level 2, or Level 3 of the fair value measurement hierarchy occurred during the periods ended March 31, 2020 and December 31, 2019.
The following is a summary of marketable securities accounted for as available-for-sale securities at March 31, 2020 and December 31, 2019:

19


 
 
March 31, 2020
 
 
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
 
 
 
Gains
 
Losses
 
Commercial paper
 
$
76,324

 
$
149

 
$

 
$
76,473

Corporate debt securities
 
259,525

 
1,086

 
(649
)
 
259,962

Asset-backed securities
 
45,702

 
111

 
(114
)
 
45,699

Government obligations
 
90,412

 
28

 
(2
)
 
90,438

Total
 
$
471,963

 
$
1,374

 
$
(765
)
 
$
472,572

 
 
December 31, 2019
 
 
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
 
 
 
Gains
 
Losses
 
Commercial paper
 
$
157,936

 
$
162

 
$

 
$
158,098

Corporate debt securities
 
188,778

 
576

 
(20
)
 
189,334

Asset-backed securities
 
51,062

 
49

 
(8
)
 
51,103

Total
 
$
397,776

 
$
787

 
$
(28
)
 
$
398,535


For available for sale debt securities in an unrealized loss position, the Company assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value. For the three-month period ended March 31, 2020, no write downs occurred.  The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity. The Company also reviews its available for sale debt securities in an unrealized loss position and evaluates whether the decline in fair value has resulted from credit losses or other factors. This review is subjective, as it requires management to evaluate whether an event or change in circumstances has occurred in that period that may be related to credit issues. For the three-month period ended March 31, 2020, no allowance was recorded for credit losses. Unrealized gains and losses are reported as a component of accumulated other comprehensive (loss) income in stockholders’ equity.
As of March 31, 2020 and December 31, 2019, the Company had no realized gains/losses from the sale of marketable securities.
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 March 31, 2020 are as follows:
 
 
March 31, 2020
 
 
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
 
(649
)
 
168,871

 

 

 
(649
)
 
168,871

Asset-backed securities
 
(114
)
 
28,750

 

 

 
(114
)
 
28,750

Government obligations
 
(2
)
 
9,998

 

 

 
(2
)
 
9,998

Total
 
$
(765
)
 
$
207,619

 
$

 
$

 
$
(765
)
 
$
207,619

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, 2019 are as follows:
 
 
December 31, 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
Corporate debt securities
 
$
(20
)

$
71,779


$


$


$
(20
)

$
71,779

Asset-backed securities
 
(8
)
 
24,211

 

 

 
(8
)
 
24,211

Total
 
$
(28
)
 
$
95,990

 
$

 
$

 
$
(28
)
 
$
95,990



20


Marketable securities on the balance sheet at March 31, 2020 and December 31, 2019 mature as follows:
 
 
March 31, 2020
 
 
Less Than
12 Months
 
More Than
12 Months
Commercial paper
 
$
76,473

 
$

Corporate debt securities
 
196,826

 
63,136

Asset-backed securities
 
36,574

 
9,125

Government obligations
 
70,439

 
19,999

Total Marketable securities
 
$
380,312

 
$
92,260

 
 
December 31, 2019
 
 
Less Than
12 Months
 
More Than
12 Months
Commercial paper
 
$
158,098

 
$

Corporate debt securities
 
139,596