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Item 7. 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 Annual Report on Form 10-K. 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 I, Item 1A. Risk Factors, of this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements.

We are 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. Our ability to commercialize products is the foundation that drives our continued investment in a robust diversified 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 leverage our strong scientific expertise and global commercial infrastructure to maximize value for our patients and other stakeholders. We have a portfolio pipeline that includes several commercial products and product candidates in various stages of development, including clinical, pre-clinical and research and discovery stages, focused on the development of new treatments for multiple therapeutic areas, including rare diseases and oncology.

We have two products, TranslarnaTM (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, or EEA, for the treatment of nonsense mutation Duchenne muscular dystrophy, or nmDMD, in ambulatory patients aged two years and older and in Brazil for the treatment of nmDMD in ambulatory patients aged five years and older. In July 2020, the European Commission approved the removal of the statement “efficacy has not been demonstrated in non-ambulatory patients” from the indication statement for Translarna. During the year ended December 31, 2020, we recognized $191.9 million in sales of Translarna. 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 year ended December 31, 2020, Emflaza achieved net sales of $139.0 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 June 2020, the European Commission renewed our marketing authorization, making it effective, unless extended, through August 5, 2021. In February 2021, we submitted a marketing authorization renewal request to the EMA. 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.

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 early access programs, or EAP programs, both in countries in the EEA and other

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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 followed the FDA’s recommendation and collected, using newer technologies via procedures and methods that we designed, such dystrophin data in a new study, Study 045, and announced the results of Study 045 in February 2021. Although Study 045 did not meet its pre-specified primary endpoint, we plan to discuss the Study 045 dystrophin results and the totality of existing clinical and real-world data with the FDA to determine if there is a potential path to approval based on these results and data. There is substantial risk that the FDA will determine that the results from our clinical trials and existing real-world data are not sufficient to support a marketing approval for Translarna for the treatment of nmDMD in the United States. In that case, as we expect to have data for Study 041 in the third quarter of 2022, and subject to a positive outcome in that study, we would plan to re-submit the NDA at that time.

We hold the rights for the commercialization of TegsediTM (inotersen) and WaylivraTM (volanesorsen) for the treatment of rare diseases in countries in Latin America and the Caribbean pursuant to our Collaboration and License Agreement with Akcea Therapeutics, Inc., or Akcea. Tegsedi has received marketing authorization in the United States, 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 European Union, or EU, for the treatment of familial chylomicronemia syndrome, or FCS. We filed for marketing authorization for Waylivra for the treatment of FCS with ANVISA, the Brazilian health regulatory authority, in June 2020 and, subject to potential delays in the review process related to the COVID 19 pandemic, expect a regulatory decision on approval from ANVISA in the third quarter of 2021.

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. The SMA program has one approved product, EvrysdiTM (risdiplam), which was approved in August 2020 by the FDA for the treatment of SMA in adults and children two months and older. Evrysdi also received marketing authorization for the treatment of SMA in Brazil in October 2020. The European Medicines Agency, or EMA, accepted the marketing authorization application, or MAA, filed by Roche for Evrysdi for the treatment of SMA in August 2020 and an opinion from the Committee for Medical Products, or CHMP, is expected in the first quarter of 2021. Additionally, in October 2020, Chugai Pharmaceutical Co., Ltd., or Chugai, a subsidiary of Roche, filed an NDA in Japan for Evrysdi for the treatment of SMA and a regulatory decision on approval is expected in 2021. In addition to our SMA program, our splicing platform also includes PTC518, which is being developed for the treatment of Huntington’s disease, or HD. We expect results from our Phase 1 study of PTC518 in healthy volunteers in the first half of 2021.

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, and we anticipate submitting a BLA to the FDA in the second

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quarter of 2021. In January 2020, we submitted an MAA for PTC-AADC for the treatment of AADC deficiency in the EEA to the EMA and we expect an opinion from the CHMP in the second quarter of 2021.

Our Bio-e platform consists of small molecule compounds that target oxidoreductase enzymes that regulate oxidative stress and inflammatory pathways central to the pathology of a number of CNS diseases. The two most advanced molecules in our Bio-e platform are vatiquinone and PTC857. We initiated a registration-directed Phase 2/3 placebo-controlled trial of vatiquinone in children with mitochondrial disease and associated refractory epilepsy in the third quarter of 2020 and anticipate data from this trial to be available in the third quarter of 2022. We also initiated a registration-directed Phase 3 trial of vatiquinone in children and young adults with Friedreich ataxia in the fourth quarter of 2020 and anticipate data from this trial to be available in 2023. We expect to complete enrollment for both of these trials by the end of 2021. In the second quarter of 2020, we initiated a Phase 1 trial in healthy volunteers to evaluate the safety and pharmacology of PTC857. We expect to data from the Phase 1 trial to be available in the first half of 2021.

On May 29, 2020, we acquired Censa Pharmaceuticals, Inc., or Censa, a biopharmaceutical company focused on the development of PTC923 for orphan diseases. We expect to initiate a registration-directed Phase 3 trial for PTC923 for phenylketonuria, or PKU, in mid-2021.

In June 2020, we initiated a Phase 2/3 clinical trial evaluating the efficacy and safety of PTC299, a dihydroorotate dehydrogenase inhibitor that we have also been developing in oncological indications, in patients hospitalized with SARS-CoV 2 infection. We expect data to be available from this trial in the second half of 2021.

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.

COVID-19 Impact

The global pandemic caused by a strain of novel coronavirus, COVID-19, has impacted and is continuing to impact the timing of certain of our clinical trials and regulatory submissions as well as other aspects of our business operations. In particular, the following expectations have been revised as a result of the impact or expected impact of the COVID-19 pandemic:

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The COVID-19 pandemic and responsive measures thereto may result in further negative impacts, including additional delays in our clinical and regulatory activities and further fluctuations in our revenue. We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business and it has the potential to materially adversely affect our business, financial condition, results of operations, and prospects. For additional information, see “Item 1A. Risk Factors - We face risks related to health epidemics and other widespread outbreaks of contagious disease, which are, and may continue to, delay our ability to complete our ongoing clinical trials and initiate future clinical trials, disrupt regulatory activities and have other adverse effects on our business and operations, including the novel coronavirus (COVID-19) pandemic, which has disrupted, and may continue to disrupt, our operations and may significantly impact our operating results. In addition, the COVID-19 pandemic has caused substantial disruption in the financial markets and economies, which could result in adverse effects on our business and operations.”

Overview—Funding

The success of our products and any other product candidates we may develop, depends largely on obtaining and maintaining reimbursement from governments and third-party insurers. During 2020, our revenues were primarily generated from sales of Translarna for the treatment of nmDMD in countries where we were able to obtain acceptable commercial pricing and reimbursement terms and in select countries where we are permitted to distribute Translarna under our EAP programs, and from sales of Emflaza for the treatment of DMD in the United States.

See “Item 1. Business—Commercial Matters—Market Access Considerations” for additional information and “Item 1A. Risk Factors—Commercialization of Translarna has been in, and is expected to continue to take place in, countries that tend to impose strict price controls, which may adversely affect our revenues. Failure to obtain and maintain acceptable pricing and reimbursement terms for Translarna for the treatment of nmDMD in the EEA and other countries

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where Translarna is available would delay or prevent us from marketing our product in such regions, which would adversely affect our business, results of operations, and financial condition.”

We also recognized $42.6 million in revenue during 2020 associated with milestone payments from Roche pursuant to a license and collaboration agreement, or the SMA License Agreement, with Roche and the SMA Foundation.

On May 5, 2017, we entered into 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, that provided for a senior secured term loan facility of $60 million, of which $40 million was drawn by us on May 5, 2017. On July 1, 2020, we terminated the Credit Agreement with MidCap Financial.

In April 2018, we closed an underwritten public offering of our common stock. We issued and sold an aggregate of 4,600,000 shares of common stock at a public offering price of $27.04 per share, including 600,000 shares issued upon exercise by the underwriters of their option to purchase additional shares. We received net proceeds of approximately $117.9 million after deducting underwriting discounts and commissions and other offering expenses payable by us.

On August 23, 2018, we completed our acquisition of Agilis Biotherapeutics, Inc., or Agilis, for total upfront consideration comprised of $49.2 million in cash and 3,500,907 shares of our common stock, which was determined by dividing $150.0 million by the volume-weighted average price per share of our common stock on Nasdaq for the 10 consecutive trading-day period ending on the second trading-day immediately preceding the closing.

In January 2019, we closed an underwritten public offering of our common stock. We issued and sold an aggregate of 7,563,725 shares of common stock 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 $224.2 million after deducting underwriting discounts and commissions and other offering expenses payable by us.

In August 2019, we entered into an At the Market Offering Sales Agreement, or the Sales Agreement, with Cantor Fitzgerald and RBC Capital Markets, LLC, or together, the Sales Agents, pursuant to which, we may offer and sell shares of our common stock, having an aggregate offering price of up to $125.0 million from time to time through the Sales Agents by any method that is deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, or the Securities Act. During the year ended December 31, 2019, we issued and sold an aggregate of 63,926 shares of common stock pursuant to the Sales Agreement at a weighted average public offering price of $46.60 per share. We received net proceeds of $2.6 million after deducting agent discounts and commissions and other offering expenses payable by us. During the twelve month period ending December 31, 2020, we issued and sold an aggregate of 542,470 shares of common stock pursuant to the Sales Agreement at a weighted average public offering price of $53.37 per share. We received net proceeds of $28.1 million after deducting agent discounts and commissions and other offering expenses payable by us. The remaining shares of our common stock available to be issued and sold, under the Sales Agreement, have an aggregate offering price of up to $93.0 million as of December 31, 2020.

In September 2019, we closed an underwritten public offering of our common stock. We issued and sold an aggregate of 2,475,248 shares of common stock at a public offering price of $40.40 per share. The offering included an option to purchase up to an additional 371,287 shares for a period of 30 days following the offering. This option was not exercised by the underwriter. We received net proceeds of $97.0 million after deducting underwriting discounts and commissions and other offering expenses payable by us.

In September 2019, we issued $287.5 million aggregate principal amount of 1.50% convertible senior notes due September 15, 2026, or the 2026 Convertible Notes, which included an option to purchase up to an additional $37.5 million in aggregate principal amount of the 2026 Convertible Notes, which was exercised in full by the initial purchasers. We received net proceeds of $279.3 million after deducting the initial purchasers’ discounts and commissions and the offering expenses payable by us. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and capital resources—Sources of Liquidity” for additional information.

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On October 25, 2019, we completed our acquisition of substantially all of the assets of BioElectron Technology Corporation, or BioElectron, for total upfront consideration of $10.0 million in cash less (i) transaction expenses incurred by BioElectron, (ii) the amount of outstanding indebtedness of BioElectron 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 us.

On April 29, 2020, we entered into a Rights Exchange Agreement, or the Rights Exchange Agreement, pursuant to which we issued 2,821,176 shares of our common stock and paid $36.9 million, in the aggregate, to certain former equityholders of Agilis, or the Participating Rightholders, in exchange for the cancellation and forfeiture by the Participating Rightholders of their rights to receive certain milestone-based contingent payments under the Agreement and Plan of Merger, dated as of July 19, 2018 by and among us, Agility Merger Sub, Inc. and, solely in its capacity as the representative, agent and attorney-in-fact of the equityholders of Agilis Biotherapeutics, Inc., Shareholder Representative Services LLC, or the Agilis Merger Agreement.

On May 29, 2020, we acquired Censa for total upfront consideration composed of (i) cash consideration of $15.0 million, which consisted of an upfront payment of $10.4 million and an additional $4.6 million for the net assets on Censa's opening balance sheet as of the date of the acquisition, and (ii) 845,364 shares of our common stock, which were valued at $42.9 million based on the closing stock price on the acquisition date. The number of shares issued was determined using a 30-day VWAP pursuant to the Censa Merger Agreement.

In July 2020, we entered into a Royalty Purchase Agreement, or the Royalty Purchase Agreement, with RPI 2019 Intermediate Finance Trust, or RPI, pursuant to which we sold to RPI 42.933%, or the Assigned Royalty Payment, of our right to receive sales-based royalty payments, or the Royalty, on worldwide net sales of Evrysdi and any other product developed pursuant to the SMA License Agreement. In consideration for the sale of the Assigned Royalty Payments, RPI paid us $650.0 million in cash consideration. The Royalty Purchase Agreement will terminate 60 days following the earlier of the date on which Roche is no longer obligated to make any payments of the Royalty pursuant to the SMA License Agreement and the date on which RPI has received $1.3 billion in respect of the Assigned Royalty Payments.

To date, we have financed our operations primarily through our offering of 3.00% convertible senior notes due August 15, 2022, or the 2022 Convertible Notes offering, our offering of the 2026 Convertible Notes, and, together with the 2022 Convertible Notes, the Convertible Notes, our public offerings of common stock in February 2014, in October 2014, in April 2018, in January 2019, and in September 2019, the common stock issued in our “at the marketing offering”, our initial public offering of common stock in June 2013, proceeds from the Royalty Purchase Agreement, private placements of our preferred stock, collaborations, bank debt and 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 revenue generated from net sales of Translarna for the treatment of nmDMD in territories outside of the United States, and since May 2017, we have generated revenue from net sales of Emflaza for the treatment of DMD in the United States.

As of December 31, 2020, we had an accumulated deficit of $1,628.9 million. We had a net loss of $438.2 million and $251.6 million for the fiscal years ended December 31, 2020 and 2019, 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, including expanding our direct manufacturing capabilities at our new biologics manufacturing facility and administrative and employee-based expenses. In addition to the foregoing, we expect to continue to incur ongoing research and development expenses for our products and product candidates, including our splicing, gene therapy, Bio-e, metabolic and oncology programs and our studies of PTC299 for COVID-19 as well as studies in our products for maintaining authorizations, including Study 041, label extensions and additional indications. In addition, we may incur substantial costs in connection with our efforts to advance our regulatory submissions. We continue to seek marketing authorization for Translarna for the treatment of nmDMD in territories that we do not currently have marketing authorization in. We submitted an MAA to the EMA for the treatment of AADC deficiency with PTC-AADC in the EEA. We are also preparing a BLA for PTC-AADC for the treatment of AADC deficiency in the United States and we anticipate submitting a BLA to the FDA in the second quarter of 2021. We

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filed for marketing authorization for Waylivra with ANVISA in June 2020 and, subject to potential delays in the review process related to the COVID 19 pandemic, expect a regulatory decision on approval from ANVISA in the third quarter of 2021. These efforts may significantly impact the timing and extent of our commercialization expenses.

We may seek 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 2022 Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears, which require total funding of $4.5 million annually. With respect to our outstanding 2026 Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears, which will require total funding of $4.3 million annually. On April 29, 2020, pursuant to the Rights Exchange Agreement we paid $36.9 million as partial consideration to the Participating Rightholders in exchange for the cancellation and forfeiture by the Participating Rightholders of their rights to receive certain milestone-based contingent payments under the Agilis Merger Agreement. Upon the passing of the second anniversary of the closing of the Agilis acquisition, August 23, 2020, we paid an additional $2.4 million in development milestone payments as set forth in the Agilis Merger Agreement. In addition, Akcea is eligible to receive from us an additional milestone payment of $4.0 million upon receipt of regulatory approval for Waylivra from ANVISA, the determination for which we expect to potentially occur, subject to potential delays in the review process related to the COVID-19 pandemic, in the third quarter of 2021. Furthermore, since we are a public company, we have incurred and expect to continue to incur additional costs associated with operating as such including significant legal, accounting, investor relations and other expenses.

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 revenues 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 the SMA License Agreement 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. We are 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. As of December 31, 2020, we had recognized a total of $105.0 million in milestone payments and $4.8 million royalties on net sales pursuant to the SMA License Agreement. As of December 31, 2020, the remaining potential research and development event milestones that can be received is $30.0 million. The remaining potential sales milestones as of December 31, 2020 are $325.0 million upon achievement of certain sales events.

Pursuant to the Royalty Purchase Agreement, we sold to RPI the Assigned Royalty Payment, in consideration for $650.0 million. We have retained a 57.067% interest in the Royalty and all economic rights to receive the remaining potential regulatory and sales milestone payments under the License Agreement. The Royalty Purchase Agreement will terminate 60 days following the earlier of the date on which Roche is no longer obligated to make any payments of the Royalty pursuant to the SMA License Agreement and the date on which RPI has received $1.3 billion in respect of the Assigned Royalty Payments.

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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:

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 activities under our splicing, gene therapy, Bio-e, metabolic and oncology programs, and our studies of PTC299 for COVID-19 and performance of any post-marketing requirements imposed by regulatory agencies with respect to our products. 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 table provides research and development expense for our most advanced principal product development programs, for the years ended December 31, 2020, 2019, and 2018.

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

​ ​ (in thousands)

​

The successful development of our product and product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

● clinical trial results;

● the terms and timing of regulatory approvals; and

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A change in the outcome of any of these variables with respect to the development of any of our products or product candidates could mean a significant change in the costs and timing associated with the development of that product candidates. 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 any of our products or 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. In addition, the uncertainty with respect to the duration, nature and extent of negative impacts of the COVID-19 pandemic and responsive measures relating thereto on our ability to successfully enroll our current and future clinical trials, has caused us to experience delays, and may cause us to experience further delays, in our clinical trials and regulatory submissions.

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 our products, including increased payroll, expanded infrastructure, commercial operations, increased consulting, legal, accounting and investor relations expenses.

Interest expense, net

Interest expense, net consists of interest expense from the liability for the sale of future royalties related to the Royalty Purchase Agreement, the Convertible Notes outstanding, and from the Credit Agreement offset by interest income earned on investments.

Critical accounting policies

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.

Of our policies, the following are considered critical to an understanding of our consolidated financial statements as they require the application of the most subjective and complex judgment, involving critical accounting estimates and assumptions impacting our consolidated financial statements:

● Revenue recognition

● Liability for sale of future royalties

● Income taxes

● Business combinations and asset acquisitions

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● Indefinite-lived intangible assets

Revenue recognition

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. On January 1, 2018, we adopted ASC Topic 606 using the modified retrospective approach, a practical expedient permitted under Topic 606, and applied this approach only to contracts that were not completed as of January 1, 2018. We calculated a one-time transition adjustment of $3.3 million, which was recorded on January 1, 2018 to the opening balance of accumulated deficit, related to the product sales of Emflaza. The ASC 606 transition adjustment recorded for Emflaza resulted in sales being recognized earlier than under Topic 605, as the deferred revenue recognition model (sell-through) is not allowed under Topic 606. The one-time adjustment consisted of $3.9 million in deferred revenue offset by $0.6 million of variable consideration.

Net Product Revenue

Our net product revenue primarily consists of sales of Translarna in territories outside of the U.S. and sales of Emflaza in the U.S., both for the treatment of DMD. We recognize revenue when performance obligations with customers have been satisfied. Our 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 our customer obtains control of the product, 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 the product sale. 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 related to Medicaid and other government pricing programs, 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. 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 years ended December 31, 2020, 2019, and 2018, net product sales outside of the United States were $194.4 million, $190.3 million, and $171.0 million respectively, and net product sales in the United States were $139.0 million, $101.0 million, and $92.0 million respectively.

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:

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Shipping and handling costs associated with finished goods delivered to customers are recorded as a selling expense.

Collaboration and royalty 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 need to determine if the bundled performance 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 will need to 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 royalties from product sales at the later of when the related sales occur or when the performance obligation to which the royalty has been allocated has been satisfied. If it is probable that a significant revenue reversal will not occur, we will estimate the royalty payments using the most likely amount method.

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.

Liability for sale of future royalties

In July 2020, we entered into the Royalty Purchase Agreement with RPI, pursuant to which we sold to RPI the Assigned Royalty Payment. In consideration for the sale of the Assigned Royalty Payments, RPI paid us $650.0 million in cash consideration. The Royalty Purchase Agreement will terminate 60 days following the earlier of the date on which Roche is no longer obligated to make any payments of the Royalty pursuant to the SMA License Agreement and the date on which RPI has received $1.3 billion in respect of the Assigned Royalty Payments.

The cash consideration obtained pursuant to the Royalty Purchase Agreement is classified as debt and is recorded as “liability for sale of future royalties-current” and “liability for sale of future royalties-noncurrent” on our consolidated balance sheet based on the timing of the expected payments to be made to RPI. The fair value for the liability for sale of

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future royalties at the time of the transaction was based on our estimates of future royalties expected to be paid to RPI over the life of the arrangement, which was determined using forecasts from market data sources, which are considered Level 3 inputs. The liability will be amortized using the effective interest method over the life of the arrangement, in accordance with the respective guidance. We will utilize the prospective method to account for subsequent changes in the estimated future payments to be made to RPI.

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Income taxes

As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing temporary differences resulting from differing treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. At December 31, 2020 and 2019, we recorded a valuation allowance against our net deferred tax assets of $379.6 million and $267.1 million, respectively. The change in the valuation allowance during the years ended December 31, 2020 and 2019 was $112.5 million and $86.7 million, respectively. A valuation allowance has been recorded since, in the judgment of management, these assets are not more likely than not to be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences and carryforwards become deductible or are utilized. As of December 31, 2020, we have $80.9 million and $22.6 million of federal and state net operating loss carryforwards, respectively. As a result of the adoption of ASU 2016-09, we no longer exclude tax benefits that arose directly from equity compensation in excess of compensation recognized for financial reporting in its U.S. federal and U.S. state net operating loss carryforwards.

During 2018, we acquired in-process research and development, or IPR&D, as part of the acquisition of Agilis. This asset is currently considered an indefinite-lived intangible with no related book amortization and tested for impairment, annually. As the IPR&D has no tax basis and is an indefinite-lived intangible, the deferred tax liability created at the time of acquisition is not considered positive evidence of future income and is presented as a deferred tax liability in the balance sheet.

As of December 31, 2020, research and development credit carryforward for federal purposes is $15.7 million. In addition, the Orphan Drug Credit Carryover available as of December 31, 2020 is $107.7 million. As a result of U.S. tax reform legislation, federal net operating losses generated in 2018 carryforward indefinitely. Our federal credit carryforwards began to expire in 2019. State net operating loss carryforwards begin to expire in 2037. Sections 382 and 383 of the Internal Revenue Code of 1986 subject the future utilization of net operating losses and certain other tax attributes, such as research and development tax credits, to an annual limitation in the event of certain ownership changes, as defined. We have undergone an ownership change and have determined that a “change in ownership” as defined by IRC Section 382 of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, did occur in June of 2013. Accordingly, about $231.5 million of our NOL carryforwards are limited and we can only use $16.7 million for the first five years from the ownership change and $5.7 million per year going forward. Therefore, $169.2 million of the NOLs will be freed up over the next 20 years and $62.3 million are expected to expire unused which are not included in the deferred tax assets listed above. At December 31, 2020, we utilized $364.1 million NOLs of which $97.7 million is the Section 382 NOL. There is $9.5 million available for immediate use and an additional $5.7 million will free up in 2021.

Business combinations and asset acquisitions

We evaluate acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not we have acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business. If determined to be a business combination, we account for the transaction under the acquisition method of accounting as indicated in ASU 2017-01, “Business Combinations”, which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest in the acquiree and establishes the acquisition date as the fair value measurement point.

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Accordingly, we recognize assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, and non-controlling interest in the acquiree based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, we recognize and measure goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.

The consideration for our business acquisitions may include future payments that are contingent upon the occurrence of a particular event or events. The obligations for such contingent consideration payments are recorded at fair value on the acquisition date. The contingent consideration obligations are then evaluated each reporting period. Changes in the fair value of contingent consideration, other than changes due to payments, are recognized as a gain or loss and recorded within the change in the fair value of deferred and contingent consideration in the consolidated statements of operations.

If determined to be an asset acquisition, we account for the transaction under ASC 805-50, which requires the acquiring entity in an asset acquisition to recognize assets acquired and liabilities assumed based on the cost to the acquiring entity on a relative fair value basis, which includes transaction costs in addition to consideration given. No gain or loss is recognized as of the date of acquisition unless the fair value of noncash assets given as consideration differs from the assets’ carrying amounts on the acquiring entity’s books. Consideration transferred that is noncash will be measured based on either the cost (which shall be measured based on the fair value of the consideration given) or the fair value of the assets acquired and liabilities assumed, whichever is more reliably measurable. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values.

Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the consideration is paid or becomes payable (unless the contingent consideration meets the definition of a derivative, in which case the amount becomes part of the basis in the asset acquired). Upon recognition of the contingent consideration payment, the amount is included in the cost of the acquired asset or group of assets.

Indefinite-lived intangible assets

Indefinite-lived intangible assets consist of 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. We utilize the “income method”, and use 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. We consider 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, our outlook and market performance of our industry and recent and forecasted financial performance. We performed our annual test for its indefinite-lived intangible assets as of October 1, 2020 and concluded that no impairment exists as of December 31, 2020.

For a description of our significant accounting policies, see note 2 to our consolidated financial statements.

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Year ended December 31, 2020 compared to year ended December 31, 2019

The following table summarizes revenues and selected expense and other income data for the year ended December 31, 2020 and 2019:

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year ended ​ ​ ​

​ ​ December 31, ​ Change

Royalty revenue ​ ​ 4,786 ​ ​ — ​ $ 4,786

Settlement of deferred and contingent consideration ​ ​ 10,613 ​ ​ — ​ ​ 10,613

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Net product revenue. Net product revenue was $333.4 million for the year ended December 31, 2020, an increase of $42.1 million, or 14%, from net product revenue of $291.3 million for the year ended December 31, 2019. The increase in net product revenue was primarily due to the increase in net product sales of Emflaza, which was due to increased new patient prescriptions and higher compliance. Net product sales for Translarna also increased and were driven by broader uptake due to new patients in existing geographies, geographic expansion, and label updates. The remaining increase was due to an increase in net product sales of Tegsedi and the commercial launch of Waylivra in the twelve month period ended December 31, 2020.

Collaboration revenue. Collaboration revenue was $42.6 million for the year ended December 31, 2020, an increase of $26.9 million, over 100%, from collaboration revenue of $15.7 million for the year ended December 31, 2019. The increase is primarily related to three milestones that were triggered from Roche in the twelve months ended December 31, 2020. In August 2020, the FDA approved Evrysdi for the treatment of SMA in adults and children two months and older. The first commercial sale of Evrysdi in the United States was made in August 2020. This event triggered a $20.0 million milestone payment to us from Roche. In August 2020, the EMA accepted the MAA filed by Roche for Evrysdi for the treatment of SMA, which triggered a $15.0 million milestone payment to us from Roche. In October 2020, Chugai filed an NDA in Japan for Evrysdi for the treatment of SMA, which triggered a $7.5 million milestone payment to us from Roche. Comparatively, in the twelve month period ended December 31, 2019, a $15.0 million milestone was triggered upon the FDA’s acceptance of the filing of the NDA for risdiplam for the treatment of SMA.

Royalty revenue. Royalty revenue was $4.8 million for the twelve months ended December 31, 2020, an increase of $4.8 million, or 100%, from $0.0 million for the twelve months ended December 31, 2019. The increase in royalty revenue was due to the FDA approval of Evrysdi in August 2020. In accordance with the SMA License Agreement, we are entitled to royalties on worldwide annual net sales of the product.

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Cost of product sales, excluding amortization of acquired intangible asset. Cost of product sales, excluding amortization of acquired intangible asset, was $18.9 million for the year end December 31, 2020, an increase of $6.8 million, or 56%, from $12.1 million for the year ended December 31, 2019. Cost of product sales consist primarily of royalty payments associated with Emflaza and Translarna net product sales, excluding contingent payments to Marathon, costs associated with Emflaza and Translarna product sold during the period, and royalty expense related to royalty revenues and collaboration milestone revenues. The increase in cost of product sales, excluding amortization of acquired intangible asset, is primarily due to the increases in net product revenue, royalty revenues, and collaboration milestone revenue.

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Amortization of acquired intangible asset. Amortization of acquired intangible asset was $36.9 million for the year ended December 31, 2020, an increase of $9.2 million, or 33%, from $27.7 million for the year ended December 31, 2019. These amounts are related to the acquisition of all rights to Emflaza acquired in May 2017, Marathon contingent payments, and our Waylivra and Tegsedi intangible assets. 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 and Tegsedi assets are amortized on a straight-line basis over their estimated useful life of approximately ten years, respectively.

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Research and development expense. Research and development expense was $477.6 million for the year ended December 31, 2020, an increase of $220.2 million, or 86%, compared to $257.5 million for the year ended December 31, 2019. The increase in research and development expenses reflects costs associated with advancing the gene therapy and Bio-e platforms, increased investment in research programs, and advancement of the clinical pipeline. The increase also includes one-time charges of $53.6 million in acquisition related and other expenses from our acquisition of Censa pursuant to the Censa Merger Agreement and $41.4 million related to our commercial manufacturing service agreement with MassBiologics of the University of Massachusetts Medical School, or MassBio, related to dedicated manufacturing space for our lead gene therapy program, AADC deficiency.

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Selling, general and administrative expense. Selling, general and administrative expense was $245.2 million for the year ended December 31, 2020, an increase of $42.6 million, or 21%, from $202.5 million for the year ended December 31, 2019. The increase was primarily due to continued investment to support our commercial activities including our expanding commercial portfolio and rent and related expenses associated with entering into a long term lease for the Hopewell Facility that commenced on July 1, 2020.

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Change in the fair value of deferred and contingent consideration. Change in the fair value of deferred and contingent consideration was $23.3 million for the year ended December 31, 2020, a decrease of $25.1 million, or 52%, from $48.4 million for the year ended December 31, 2019. The change is related to the fair valuation of the potential future consideration to be paid to former equityholders 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.

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Settlement of deferred and contingent consideration. Settlement of deferred and contingent consideration was $10.6 million for year ended December 31, 2020. The settlement of deferred and contingent consideration is related to a loss upon the settlement of the deferred and contingent consideration liabilities as a result of the Rights Exchange Agreement with certain former equityholders of Agilis, whereby we exchanged their pro rata share of specific future cash milestone payments in the aggregate amount of $225.0 million for a combination of cash and equity. We paid $36.9 million in cash and issued 2,821,176 shares of common stock in exchange for the cancellation and forfeiture of the Participating Rightholders’ rights to receive (i) $174.0 million, in the aggregate, of potential milestone payments based on the achievement of certain regulatory milestones and (ii) $37.6 million, in the aggregate, of $40.0 million in development milestone payments that would have been due upon the passing of the second anniversary of the closing of the Agilis Merger, regardless of whether the milestones are achieved.

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Interest expense, net. Interest expense, net was $56.4 million for the year ended December 31, 2020, an increase of $43.9 million, over 100%, from interest expense, net of $12.5 million for the year ended December 31, 2019. The increase in interest expense, net was primarily due to interest expense recorded from the liability for the sale of future royalties related to the Royalty Purchase Agreement, interest expense recorded from the 2022 and 2026 Convertible Notes and the Credit Agreement, partially offset by interest income from our investments.

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Other income, net. Other income, net was $85.2 million for the year ended December 31, 2020, an increase of $71.5 million, over 100%, from other income, net of $13.7 million for the year ended December 31, 2019. The increase in other income, net resulted primarily from an unrealized foreign exchange gain of $54.6 million from the remeasurement of our intercompany loan and unrealized gains on our equity investment and convertible debt security in ClearPoint Neuro, Inc.

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(formerly MRI Interventions, Inc.), or ClearPoint, or our Equity Investment, of $14.3 million and $19.3 million, respectively. These gains were partially offset by Agilis Rights Exchange transaction fees of $2.0 million.

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Income tax expense. Income tax expense was $35.2 million for the year ended December 31, 2020, an increase of $23.6 million, over 100%, from income tax expense of $11.7 million for the year ended December 31, 2019. We recorded a state income tax provision in the twelve months ended December 31, 2020, which is attributable to the taxable income from the sale of our right to receive sales-based royalty payments on Roche’s worldwide net sales of Evrysdi. We also 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.

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Year ended December 31, 2019 compared to year ended December 31, 2018

The following table summarizes revenues and selected expense and other income data for the years ended December 31, 2019 and 2018:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year ended ​ ​ ​

​ ​ December 31, ​ Change

​

Net product revenue. Net product revenue was $291.3 million for the year ended December 31, 2019, an increase of $28.3 million, or 11%, from net product revenue of $263.0 million for the year ended December 31, 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 in net product sales of Emflaza.

Collaboration revenue. Collaboration revenue was $15.7 million for the year ended December 31, 2019, an increase of $13.9 million, over 100%, from collaboration revenue of $1.7 million for the year ended December 31, 2018. The increase in collaboration revenue was primarily due to the $15.0 million milestone achieved during the fourth quarter of 2019 from Roche, which was triggered in November 2019 upon the FDA’s acceptance of the filing of the NDA for risdiplam for the treatment of SMA.

Cost of product sales, excluding amortization of acquired intangible asset. Cost of product sales, excluding amortization of acquired intangible asset, was $12.1 million for the year end December 31, 2019, a decrease of $0.5 million, or 4%, from $12.7 million for the year ended December 31, 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 product sold during the period. The decrease year over year is primarily due to a $1.8 million inventory write down for the twelve month period ended December 31, 2018, primarily related to inventory labeling changes.

Amortization of acquired intangible asset. Amortization of acquired intangible asset was $27.7 million for the year ended December 31, 2019, an increase of $4.8 million, or 21%, from $22.9 million for the year ended December 31, 2018. These amounts are related to the acquisition of all rights to Emflaza acquired in May 2017, Marathon contingent payments, and our Waylivra and Tegsedi intangible assets. The increase is primarily related to additional Marathon contingent

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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 and Tegsedi assets are amortized on a straight-line basis over their estimated useful life of approximately ten years, respectively.

Research and development expense. Research and development expense was $257.5 million for the year ended December 31, 2019, an increase of $85.5 million, or 50%, compared to $172.0 million for the year ended December 31, 2018. The increase reflects costs associated with advancing the gene therapy platform and increased investment in research programs, such as our acquisition of vatiquinone from BioElectron, which represents $10.1 million of the increase, as well as advancement of the clinical pipeline.

Selling, general and administrative expense. Selling, general and administrative expense was $202.5 million for the year ended December 31, 2019, an increase of $49.0 million, or 32%, from $153.5 million for the year ended December 31, 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. Change in the fair value of deferred and contingent consideration was $48.4 million for the year ended December 31, 2019, an increase of $29.0 million, or 150%, from $19.3 million for the year ended December 31, 2018. 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 $12.5 million for the year ended December 31, 2019, a decrease of $0.1 million, or 1%, from interest expense, net of $12.6 million for the year ended December 31, 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 2022 and 2026 Convertible Notes and the Credit Agreement.

Other income, net. Other income, net was $13.7 million for the year ended December 31, 2019, an increase of $13.6 million, over 100%, from other income, net of $0.1 million for the year ended December 31, 2018. The increase in other income, net resulted primarily from a foreign exchange gain from the remeasurement of our intercompany loan and an unrealized gain on our equity investment in ClearPoint., or our Equity Investment, of $2.2 million, partially offset by exchange rate changes in the current period.

Income tax (expense) benefit. Income tax expense was $11.7 million for the year ended December 31, 2019, a change of $11.7 million, over 100%, from income tax benefit of $0.03 million for the year ended December 31, 2018. We incurred income tax expense in various ex-U.S. jurisdictions, and our ex-U.S. 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 our products 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 Brazil and in the EEA and secure market access through commercial programs following the conclusion of pricing and reimbursement terms at sustainable levels

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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, our “at the market offering” of our common stock, proceeds from the Royalty Purchase Agreement, 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. We expect to continue to incur significant expenses and operating losses for at least the next fiscal year. The net losses we incur may fluctuate significantly from quarter to quarter.

In August 2015, we closed a private offering of $150.0 million in aggregate principal amount of 2022 Convertible Notes, including the exercise by the initial purchasers of an option to purchase an additional $25.0 million in aggregate principal amount of the 2022 Convertible Notes. The 2022 Convertible Notes bear cash interest payable on February 15 and August 15 of each year, beginning on February 15, 2016. The 2022 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.

Holders may convert their 2022 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: (1) during any calendar quarter commencing on or after September 30, 2015 (and only during such calendar quarter), if the last reported sale price of our 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; (2) during the five business day period after any five consecutive trading day period, or the measurement period, in which the trading price (as defined in the 2022 Convertible Notes Indenture) per $1,000 principal amount of 2022 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) during any period after we have issued notice of redemption until the close of business on the scheduled trading day immediately preceding the relevant redemption date; or (4) 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 2022 Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, we will pay cash up to the aggregate principal amount of the 2022 Convertible Notes to be converted and deliver shares of our common stock in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of 2022 Convertible Notes being converted.

The conversion rate for the 2022 Convertible Notes was initially, and remains, 17.7487 shares of our common stock per $1,000 principal amount of the 2022 Convertible Notes, which is equivalent to an initial conversion price of approximately $56.34 per share of our common stock.

We were not permitted to redeem the 2022 Convertible Notes prior to August 20, 2018. As of August 20, 2018, we may redeem for cash all or any portion of the 2022 Convertible Notes, at our option, on or after August 20, 2018 if the last reported sale price of our 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 (whether or not consecutive) during, any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal amount of the 2022 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2022 Convertible Notes, which means that we are not required to redeem or retire the 2022 Convertible Notes periodically. There have been no redemptions to date.

If we undergo a “fundamental change” (as defined in the Indenture governing the 2022 Convertible Notes Indenture), subject to certain conditions, holders of the 2022 Convertible Notes may require us to repurchase for cash all or part of

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their 2022 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2022 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The 2022 Convertible Notes represent senior unsecured obligations and will rank senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the notes, equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated, effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) incurred by our subsidiaries. The 2022 Convertible Notes Indenture contains customary events of default with respect to the 2022 Convertible Notes, including that upon certain events of default (including our failure to make any payment of principal or interest on the 2022 Convertible Notes when due and payable) occurring and continuing, the 2022 Convertible Notes Trustee by notice to us, or the holders of at least 25% in principal amount of the outstanding 2022 Convertible Notes by notice to us and the 2022 Convertible Notes Trustee, may, and the 2022 Convertible Notes Trustee at the request of such holders (subject to the provisions of the 2022 Convertible Notes Indenture) shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2022 Convertible Notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving us or a significant subsidiary, 100% of the principal of and accrued and unpaid interest on the 2022 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.

On May 5, 2017, we entered into the Credit Agreement with MidCap Financial, which we terminated on July 1, 2020. In April 2018, we closed an underwritten public offering of 4,600,000 shares of our common stock and received net proceeds of approximately $117.9 million. In January 2019 and February 2019, we closed an underwritten public offering of 7,563,725 shares of our common stock and received net proceeds of approximately $224.2 million. In August 2019, we entered into the Sales Agreement, pursuant to which, we may offer and sell shares of our common stock, having an aggregate offering price of up to $125.0 million from time to time through the Sales Agents by any method that is deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act. In September 2019, we closed an underwritten public offering of 2,475,248 shares of our common stock and received net proceeds of $97.0 million. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Funding” for additional information regarding the transactions described in this paragraph.

In September 2019, we issued $287.5 million aggregate principal amount of 2026 Convertible Notes, which included an option to purchase up to an additional $37.5 million in aggregate principal amount of the 2026 Convertible Notes, which was exercised in full by the initial purchasers. The 2026 Convertible Notes bear cash interest at a rate of 1.50% per year, payable semi-annually on March 15 and September 15 of each year, beginning on March 15, 2020. The 2026 Convertible Notes will mature on September 15, 2026, unless earlier repurchased or converted. We received net proceeds of $279.3 million after deducting the initial purchasers’ discounts and commissions and the offering expenses payable by us.

Holders may convert their 2026 Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding March 15, 2026 only under the following circumstances: (1) during any calendar quarter commencing on or after December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our 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; (2) during the five business day period after any five consecutive trading day period, or the measurement period, in which the trading price (as defined in the 2026 Convertible Notes Indenture) per $1,000 principal amount of 2026 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) during any period after we have issued notice of redemption until the close of business on the scheduled trading day immediately preceding the relevant redemption date; or (4) upon the occurrence of specified corporate events. On or after March 15, 2026, until the close of business on the business day immediately preceding the maturity date, holders may convert their 2026 Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or any combination thereof at our election.

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The conversion rate for the 2026 Convertible Notes was initially, and remains, 19.0404 shares of our common stock per $1,000 principal amount of the 2026 Convertible Notes, which is equivalent to an initial conversion price of approximately $52.52 per share of our common stock. The conversion rate may be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

We are not permitted to redeem the 2026 Convertible Notes prior to September 20, 2023. We may redeem for cash all or any portion of the 2026 Convertible Notes, at our 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 (whether or not consecutive) during, any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal amount of the 2026 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2026 Convertible Notes, which means that we are not required to redeem or retire the 2026 Convertible Notes periodically.

If we undergo a “fundamental change” (as defined in the 2026 Convertible Notes Indenture), subject to certain conditions, holders of the 2026 Convertible Notes may require us to repurchase for cash all or part of their 2026 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2026 Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The 2026 Convertible Notes represent senior unsecured obligations and will rank senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the notes, equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated, effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) incurred by our subsidiaries. The 2026 Convertible Notes Indenture contains customary events of default with respect to the 2026 Convertible Notes, including that upon certain events of default (including our failure to make any payment of principal or interest on the 2026 Convertible Notes when due and payable) occurring and continuing, the 2026 Convertible Notes Trustee by notice to us, or the holders of at least 25% in principal amount of the outstanding 2026 Convertible Notes by notice to us and the Convertible Notes Trustee, may, and the 2026 Convertible Notes Trustee at the request of such holders (subject to the provisions of the 2026 Convertible Notes Indenture) shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2026 Convertible Notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving us or a significant subsidiary, 100% of the principal of and accrued and unpaid interest on the 2026 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.

In July 2020, we entered into the Royalty Purchase Agreement. Pursuant to the Royalty Purchase Agreement, we sold to RPI the Assigned Royalty Payment in consideration for $650.0 million. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Funding” for additional information.

Cash flows

As of December 31, 2020, we had cash and cash equivalents and marketable securities of $1.1 billion.

The following table provides information regarding our cash flows and our capital expenditures for the periods indicated.

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Years ended

​ ​ December 31,

Cash (used in) provided by: ​ ​ ​ ​

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Net cash used in operating activities was $194.1 million, $98.6 million, and $27.6 million for the years ended December 31, 2020, 2019, and 2018, respectively. The cash used in operating activities primarily related to supporting clinical development, including the manufacture of drug product, commercial activities for Emflaza and Translarna, and costs associated with the expansion of our international infrastructure for the years ended December 31, 2020, 2019, and 2018.

Net cash used in investing activities was $561.5 million, $387.2 million, and $42.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. The cash used in investing activities for the year ended December 31, 2020 was primarily related to purchases of marketable securities, the acquisition of product rights, purchases of fixed assets, and our purchase of convertible debt security, partially offset by net sales and redemptions of marketable securities. The cash used in investing activities for the year ended December 31, 2019 was primarily related to purchases of marketable securities, the acquisition of product rights, purchases of fixed assets, and our Equity Investment, partially offset by net sales and redemptions of marketable securities. The cash used in investing activities for the year ended December 31, 2018 was primarily related to the business acquisition of Agilis, purchases of fixed assets, and the acquisition of product rights partially offset by net sales and redemptions of marketable securities.

Net cash provided by financing activities was $668.7 million, $613.2 million, and $131.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. The cash provided by financing activities for the year ended December 31, 2020 is primarily attributable to proceeds from the Royalty Purchase Agreement, net proceeds received from our “at the market offering” of our common stock, the exercise of options, and issuance of stock under our Employee Stock Purchase Plan, or ESPP, partially offset by repayment on our senior secured term loan, payments on deferred consideration obligation, and payments of finance lease principal. Net cash provided by financing activities for the year ended December 31, 2019 is primarily attributable to net proceeds received from our public stock offerings, net proceeds received from our “at the market offering” of our common stock, net proceeds received from our convertible notes offering, the exercise of options, and issuance of stock under our ESPP, partially offset by repayment on our senior secured term loan. Net cash provided by financing activities for the year ended December 31, 2018 is primarily attributable to net proceeds received from our public stock offering, the exercise of options, and issuance of stock under the ESPP.

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 the research and development of our splicing, gene therapy, Bio-e, metabolic and oncology programs and our studies of PTC299 for COVID-19 as well as studies in our products for maintaining authorizations, including Study 041, label extensions and additional indications. In addition, we may incur substantial costs in connection with our efforts to advance our regulatory submissions. We continue to seek marketing authorization for Translarna for the treatment of nmDMD in territories that we do not currently have marketing authorization in. We submitted an MAA to the EMA for the treatment of AADC deficiency with PTC-AADC in the EEA. We are preparing a BLA for PTC-AADC for the treatment of AADC deficiency in the United States and we anticipate submitting a BLA to the FDA in the second quarter of 2021. We filed for marketing authorization for Waylivra with ANVISA in June 2020 and, subject to potential delays in the review process related to the COVID 19 pandemic, expect a regulatory decision on approval from ANVISA in the third quarter of 2021. These efforts may significantly impact the timing and extent of our commercialization expenses.

In addition, our expenses will increase if and as we:

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● seek to discover and develop additional product candidates;

● maintain, expand and protect our intellectual property portfolio; and

We believe that our cash flows from product sales, together with existing cash and cash equivalents, including our offerings of the Convertible Notes, public offerings of common stock, our “at the market offering” of our common stock, proceeds from the Royalty Purchase Agreement and marketable securities, 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:

● the costs, timing and outcome of Study 041;

● our ability to maintain orphan exclusivity in the United States for Emflaza;

● the timing and scope of growth in our employee base;

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With respect to our outstanding 2022 Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears, which require total funding of $4.5 million annually. With respect to our outstanding 2026 Convertible Notes, cash interest payments are payable on a semi-annual basis in arrears, which will require total funding of $4.3 million annually. Furthermore, since we are a public company, we have incurred and expect to continue to incur additional costs associated with operating as such, including significant legal, accounting, investor relations and other expenses.

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, debt or other 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.

Contractual obligations

The following table summarizes our significant contractual obligations and commercial commitments as of December 31, 2020.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Less than ​ ​ ​ ​ More than

(in thousands) ​ Total ​ 1 year ​ 1 - 3 years ​ 3 - 5 years ​ 5 years

​

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The preceding table excludes contingent contractual payments that we may become obligated to make. Under various agreements, we will be required to pay royalties and milestone payments upon the successful development and commercialization of products, including the following agreements with The Wellcome Trust Limited, or Wellcome Trust, and the SMA Foundation.

We have entered into funding agreements with Wellcome Trust for the research and development of small molecule compounds in connection with our oncology platform and antibacterial program. As we have discontinued development under our antibacterial program, we do not expect that milestone and royalty payments from us to Wellcome Trust will apply under that agreement. Under our oncology platform funding agreement, to the extent that we develop and commercialize program intellectual property on a for-profit basis ourselves or in collaboration with a partner (provided we retain overall control of worldwide commercialization), we may become obligated to pay to Wellcome Trust development and regulatory milestone payments and single-digit royalties on sales of any research program product. Our 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. We made the first development milestone payment of $0.8 million to Wellcome Trust under the oncology platform funding agreement during the second quarter of 2016. Additional development and regulatory milestone payments of up to an aggregate of $22.4 million may become payable by us under this agreement.

We have also entered into a sponsored research agreement with the SMA Foundation in connection with our spinal muscular atrophy program. We may become obligated to pay the SMA Foundation single-digit royalties on worldwide net product sales of any collaboration product that we successfully develop and subsequently commercialize or, with respect to collaboration products we outlicense, including Evrysdi, a specified percentage of certain payments we receive from our licensee. We are not obligated to make such payments unless and until annual sales of a collaboration product exceed a designated threshold. Our obligation to make such payments would end upon our payment to the SMA Foundation of an aggregate of $52.5 million.

We have 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.

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.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term securities. Our available for sale securities are subject to interest rate risk and will fall in value if market interest rates increase. At any time, sharp changes in interest rates can affect the fair value of the investment portfolio and its interest earnings. There were no investments classified as long-term at December 31, 2020. At December 31, 2020, we held $1.1 billion in cash and cash equivalents and short-term investments. After a review of our marketable investment securities, we believe that in the event of a hypothetical ten percent increase in interest rates, the resulting decrease in fair value of our marketable investment securities would be insignificant to the consolidated financial statements.

Currently, we do not hedge these interest rate exposures. We maintain an investment portfolio in accordance with our investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity and to meet operating needs. Although our investments are subject to credit risk, our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer or type of investment. Our investments are also subject to interest rate risk and will decrease in value if market interest rates increase. However, due to the conservative nature of our investments and relatively short duration, interest rate risk is mitigated. We do not own derivative financial instruments. Accordingly, we do not believe that there is any material market risk exposure with respect to derivative or other financial instruments.

As a result of our ex-U.S. operations, we face exposure to movements in foreign currency exchange rates, including the British Pound, Euro, Brazilian Real, and Swiss Franc against the U.S. dollar. The current exposures arise primarily from cash, accounts receivable, intercompany receivables and payables, intercompany loans and product sales denominated in foreign currencies. Both positive and negative impacts to our international product sales from movements in foreign currency exchange rates may be partially mitigated by the natural, opposite impact that foreign currency exchange rates have on our international operating expenses. For the year ended December 31, 2020, we recognized foreign currency transaction losses, net of $1.3 million, which is recorded within foreign currency translation loss on the consolidated statement of comprehensive loss, along with the remeasurement of our intercompany loan. A hypothetical ten percent increase or decrease in the exchange rate between the U.S. dollar and the British Pound, Euro, Brazilian Real, or Swiss Franc from the December 31, 2020 rate would not have a significant impact on our cash flows. We are not currently engaged in any foreign currency hedging activities. We will evaluate the use of derivative financial instruments to hedge our exposure as the needs and risks should arise.

In August 2015, we issued $150.0 million of 3.00% convertible senior notes due August 15, 2022, or the 2022 Convertible Notes. We do not have economic interest rate exposure on the 2022 Convertible Notes as they have a fixed annual interest rate of 3.00%. However, the fair value of the 2022 Convertible Notes is exposed to interest rate risk. We do not carry the 2022 Convertible Notes at fair value on our balance sheet but present the fair value of the principal amount for disclosure purposes. Generally, the fair value of the 2022 Convertible Notes will increase as interest rates fall and decrease as interest rates rise. The 2022 Convertible Notes are also affected by the price and volatility of our common stock and will generally increase or decrease as the market price of our common stock changes. The estimated fair value of the 2022 Convertible Notes was approximately $193.2 million as of December 31, 2020.

In September 2019, we issued $287.5 million of 1.50% convertible senior notes due September 15, 2026, or the 2026 Convertible Notes. We do not have economic interest rate exposure on the 2026 Convertible Notes as they have a fixed annual interest rate of 1.50%. However, the fair value of the 2026 Convertible Notes is exposed to interest rate risk. We do not carry the 2026 Convertible Notes at fair value on our balance sheet but present the fair value of the principal amount for disclosure purposes. Generally, the fair value of the 2026 Convertible Notes will increase as interest rates fall and decrease as interest rates rise. The 2026 Convertible Notes are also affected by the price and volatility of our common stock and will generally increase or decrease as the market price of our common stock changes. The estimated fair value of the Convertible Notes was approximately $394.9 million as of December 31, 2020.

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Item 8. Financial Statements and Supplementary Data

Index to consolidated financial statements

Report of Independent Registered Public Accounting Firm 166

Notes to Consolidated Financial Statements 175

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​

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of PTC Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of PTC Therapeutics, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

​

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2021 expressed an unqualified opinion thereon.

​

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

​

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

​ ​ Variable consideration in contracts with customers

​ ​ ​

​ ​ ​

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​ ​ Valuation of acquisition-related contingent consideration liability

​ ​ ​

​ ​ ​

​

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2010.

Iselin, New Jersey

February 25, 2021

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PTC Therapeutics, Inc.

Consolidated Balance Sheets

In thousands, except shares

​

​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

Assets ​ ​ ​ ​ ​ ​

Current assets: ​ ​ ​

Prepaid expenses and other current assets ​ 39,469 ​ 17,898

Liabilities and stockholders’ equity ​ ​

Current liabilities: ​ ​

Current portion of long-term debt ​ — ​ 20,000

Operating lease liabilities- current ​ ​ 7,465 ​ ​ 5,153

Finance lease liabilities- current ​ ​ 1,276 ​ ​ —

Liability for sale of future royalties- current ​ ​ 21,023 ​ ​ —

Deferred consideration payable ​ — ​ 40,000

Other current liabilities ​ ​ 1,250 ​ ​ 3,186

Deferred revenue- long term ​ — ​ 3,415

Operating lease liabilities- noncurrent ​ ​ 79,499 ​ ​ 9,018

Finance lease liabilities- noncurrent ​ ​ 23,053 ​ ​ —

Liability for sale of future royalties- noncurrent ​ ​ 658,739 ​ ​ —

Other long-term liabilities ​ 1,392 ​ 141

Stockholders’ equity: ​ ​

Accumulated other comprehensive income ​ (60,957) ​ (10,584)

​

See accompanying consolidated notes.

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PTC Therapeutics, Inc.

Consolidated Statements of Operations

In thousands, except shares and per share data

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Year ended December 31,

Revenues: ​ ​ ​ ​

Royalty revenue ​ ​ ​ 4,786 ​ ​ — ​ ​ —

Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Settlement of deferred and contingent consideration ​ ​ ​ 10,613 ​ ​ — ​ ​ —

Weighted-average shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

See accompanying consolidated notes.

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PTC Therapeutics, Inc.

Consolidated Statements of Comprehensive Loss

In thousands

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year ended December 31,

Other comprehensive (loss) income: ​ ​ ​

​

See accompanying consolidated notes.

​

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PTC Therapeutics, Inc.

Consolidated Statements of Stockholders’ Equity

In thousands, except shares

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​

​ ​ ​ ​ ​ ​ Additional other ​ ​ ​ Total

​ ​ Common stock ​ paid-in comprehensive ​ Accumulated ​ stockholders’

​ Shares Amount capital income (loss) deficit equity

Adjustment to accumulated deficit ​ — ​ — ​ — ​ — ​ 3,266 ​ ​ 3,266

Restricted stock vesting and issuance, net 119,691 ​ — ​ — ​ — ​ — ​ —

Share-based compensation expense — ​ — ​ 33,252 ​ — ​ — ​ 33,252

Receivable from investor — ​ — ​ 929 ​ — ​ — ​ 929

Comprehensive loss ​ — ​ — ​ — ​ (2,507) ​ — ​ ​ (2,507)

Equity component of convertible notes, net — ​ — ​ 119,482 ​ — ​ — ​ 119,482

Restricted stock vesting and issuance, net 169,792 ​ — ​ — ​ — ​ — ​ —

Share-based compensation expense — ​ — ​ 42,134 ​ — ​ — ​ 42,134

Comprehensive loss — ​ — ​ — ​ (12,046) ​ — ​ (12,046)

Restricted stock vesting and issuance, net 180,028 ​ — ​ — ​ — ​ — ​ —

Share-based compensation expense — ​ — ​ 70,325 ​ — ​ — ​ 70,325

Receivable from investor ​ — ​ ​ — ​ ​ 9,107 ​ ​ — ​ ​ — ​ ​ 9,107

Other ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (218) ​ ​ (218)

Comprehensive loss — ​ — ​ — ​ (50,373) ​ — ​ (50,373)

​

See accompanying consolidated notes.

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PTC Therapeutics, Inc.

Consolidated Statements of Cash Flows

In thousands

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year ended December 31,

Cash flows from operating activities ​ ​ ​ ​ ​ ​ ​ ​

Non-cash operating lease expense ​ 6,084 ​ 3,709 ​ —

Non-cash finance lease amortization expense ​ ​ 41,382 ​ ​ — ​ ​ —

Settlement of deferred and contingent consideration ​ ​ 10,613 ​ ​ — ​ ​ —

Non-cash stock consideration, acquisition ​ ​ 42,869 ​ ​ — ​ ​ —

Unrealized gain on equity investment in ClearPoint ​ (14,310) ​ (2,194) ​ —

Unrealized gain on ClearPoint convertible debt security ​ ​ (19,252) ​ ​ — ​ ​ —

Amortization of premiums (discounts) on investments, net ​ 409 ​ (1,922) ​ (433)

Amortization of debt issuance costs ​ 1,020 ​ 694 ​ 524

Disposal of asset ​ 16 ​ 312 ​ 2

Deferred income taxes ​ 5,872 ​ 8,829 ​ —

Unrealized foreign currency transaction gains, net ​ (56,980) ​ (11,619) ​ (59)

Changes in operating assets and liabilities: ​ ​ ​

Prepaid expenses and other current assets ​ (12,621) ​ (8,835) ​ (1,609)

Deposits and other assets ​ (662) ​ (484) ​ (1,093)

Cash flows from investing activities ​ ​ ​

Purchase of convertible debt security ​ ​ (10,000) ​ ​ — ​ ​ —

Acquisition of product rights and licenses ​ ​ (38,134) ​ ​ (31,682) ​ ​ (8,433)

Purchase of equity investment ​ — ​ (4,000) ​ —

Business acquisition, net of cash acquired ​ — ​ — ​ (48,892)

Cash flows from financing activities ​ ​ ​

Proceeds from issuance of convertible notes ​ — ​ 279,267 ​ —

Termination and exit fees related to payoff of secured term loan ​ (597) ​ — ​ —

Repayment of senior secured term loan ​ (28,333) ​ (11,667) ​ —

Payments on deferred consideration obligation ​ ​ (38,100) ​ ​ — ​ ​ —

Proceeds from employee stock purchase plan ​ ​ 5,303 ​ ​ 3,577 ​ ​ 2,787

Payment of finance lease principal ​ ​ (17,829) ​ ​ — ​ ​ —

Effect of exchange rate changes on cash ​ 7,688 ​ (1,303) ​ (3,611)

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Supplemental disclosure of cash information ​ ​ ​

Supplemental disclosure of non-cash investing and financing activity ​ ​ ​

Unrealized gain on marketable securities, net of tax ​ $ 1,145 ​ $ 724 ​ $ 9

Acquisition of product rights and licenses ​ $ 14,191 ​ $ 11,434 ​ $ 5,981

Issuance of common stock related to rights exchange ​ $ 150,528 ​ $ — ​ $ —

Capital expenditures unpaid at the end of period ​ $ 1,060 ​ $ — ​ $ —

​

See accompanying consolidated notes.

​

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PTC Therapeutics, Inc.

Notes to consolidated financial statements

December 31, 2020

(In thousands except share and per share amount)

​

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 leverage its strong scientific expertise and global commercial infrastructure to maximize value for its patients and other stakeholders.

The Company has two products, TranslarnaTM (ataluren) and EmflazaTM (deflazacort), for the treatment of Duchenne muscular dystrophy (“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 (“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. In July 2020, the European Commission approved the removal of the statement “efficacy has not been demonstrated in non-ambulatory patients” from the indication statement for Translarna. Emflaza is approved in the United States for the treatment of DMD in patients two years and older.

The Company holds the rights for the commercialization of TegsediTM (inotersen) and WaylivraTM (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 (“hATTR amyloidosis”). Waylivra has received marketing authorization in the EU for the treatment of familial chylomicronemia syndrome (“FCS”). The Company filed for marketing authorization for Waylivra for the treatment of FCS with ANVISA, the Brazilian health regulatory authority, in June 2020 and, subject to potential delays in the review process related to the COVID-19 pandemic, expects a regulatory decision on approval from ANVISA in the third quarter of 2021.

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 SMA program has one approved product, EvrysdiTM (risdiplam), which was approved in August 2020 by the United States Food and Drug Administration (“FDA”) for the treatment of SMA in adults and children two months and older. Evrysdi also received marketing authorization for the treatment of SMA in Brazil in October 2020. The European Medicines Agency (“EMA”) accepted the marketing authorization application, (“MAA”) filed by Roche for Evrysdi for the treatment of SMA in August 2020 and an opinion from the Committee for Medical Products (“CHMP”) is expected in the first quarter of 2021. Additionally, in October 2020, Chugai Pharmaceutical Co., Ltd. (“Chugai”), a subsidiary of Roche, filed an NDA in Japan for Evrysdi for the treatment of SMA and a regulatory decision on approval is expected in 2021. In addition to the Company’s SMA program, the Company’s splicing platform also includes PTC518, which is being developed for the treatment of Huntington’s disease (“HD”). The Company expects results from our Phase 1 study of PTC518 in healthy volunteers in the first half of 2021.

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 (“AADC”) deficiency (“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 (“BLA”) for PTC-AADC for the treatment of AADC deficiency in the United States, which it anticipates submitting to the FDA in the second

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(In thousands except share and per share amount)

quarter of 2021. In January 2020, the Company submitted an MAA to the EMA for PTC-AADC for the treatment of AADC deficiency in the EEA, and the Company expects an opinion from the CHMP in the second quarter of 2021.

The Company’s Bio-e platform consists of small molecule compounds that target oxidoreductase enzymes that regulate oxidative stress and inflammatory pathways central to the pathology of a number of CNS diseases. The two most advanced molecules in the Company’s Bio-e platform are vatiquinone and PTC857. The Company initiated a registration-directed Phase 2/3 placebo-controlled trial of vatiquinone in children with mitochondrial disease and associated refractory epilepsy in the third quarter of 2020 and anticipates data from this trial to be available in the third quarter of 2022. The Company also initiated a registration-directed Phase 3 trial of vatiquinone in children and young adults with Friedreich ataxia in the fourth quarter of 2020 and anticipates data from this trial to be available in 2023. In the second quarter of 2020, the Company initiated a Phase 1 trial in healthy volunteers to evaluate the safety and pharmacology of PTC857. The Company expects data from the Phase 1 trial to be available in the first half of 2021.

On May 29, 2020, the Company completed its acquisition of Censa Pharmaceuticals, Inc. (“Censa”) pursuant to an Agreement and Plan of Merger, dated as of May 5, 2020 (the "Censa Merger Agreement"), by and among the Company, Hydro Merger Sub, Inc., the Company’s wholly owned, indirect subsidiary, and, solely in its capacity as the representative, agent and attorney-in-fact of the securityholders of Censa, Shareholder Representative Services LLC (the "Censa Merger"). The transaction was accounted for as an asset acquisition. In connection with the Censa Merger, the Company acquired PTC923. The Company expects to initiate a registration-directed Phase 3 trial for PTC923 for phenylketonuria (“PKU”) in mid-2021. Refer to Note 3 for further details.

In June 2020, the Company initiated a Phase 2/3 clinical trial evaluating the efficacy and safety of PTC299, a dihydroorotate dehydrogenase inhibitor that it has also been developing in oncological indications, in patients hospitalized with COVID-19 infection. The Company expects data from this trial to be available in the second half of 2021.

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 June 2020 and is effective, unless extended, through August 5, 2021. 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.

Translarna is an investigational new drug in the United States. During the first quarter of 2017, the Company filed a New Drug Application (“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

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(In thousands except share and per share amount)

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 followed the FDA’s recommendation and collected, using newer technologies via procedures and methods that the Company designed, such dystrophin data in a new study, Study 045, and announced the results of Study 045 in February 2021. Although Study 045 did not meet its pre-specified primary endpoint, the Company plans to discuss the Study 045 dystrophin results and the totality of existing clinical and real-world data with the FDA to determine if there is a potential path to approval based on these results and data. There is substantial risk that the FDA will determine that the results from the Company’s clinical trials and existing real-world data are not sufficient to support a marketing approval for Translarna for the treatment of nmDMD in the United States. In that case, as the Company expects to have data for Study 041 in the third quarter of 2022, and subject to a positive outcome in that study, the Company would plan to re-submit the NDA at that time.

On August 23, 2018, the Company completed its acquisition of Agilis Biotherapeutics, Inc. (“Agilis”), pursuant to an Agreement and Plan of Merger, dated as of July 19, 2018 (the “Agilis 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 “Agilis Merger”).

Upon the closing of the Agilis 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 Nasdaq for the 10 consecutive trading-day period ending on the second trading-day immediately preceding the closing of the Agilis Merger. Agilis equityholders are 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.

On April 29, 2020, the Company, certain of the former equity holders of Agilis, and, for the limited purposes set forth in the agreement, Shareholder Representative Services LLC, entered into a Rights Exchange Agreement (the “Rights Exchange Agreement”). Pursuant to the Rights Exchange Agreement, the Company issued 2,821,176 shares of its common stock (the “Common Stock Consideration”) and paid $36.9 million (the “Cash Consideration”), in the aggregate, to such former equityholders of Agilis (the “Participating Rightholders”) in exchange for the cancellation and forfeiture by the Participating Rightholders of their rights to receive certain milestone-based contingent payments under the Agilis Merger Agreement, pursuant to which the Company completed the Agilis Merger.

The Rights Exchange Agreement has no effect on the Agilis Merger Agreement other than to provide for the cancellation and forfeiture of the Participating Rightholders’ rights to receive $211.6 million, in the aggregate, of the milestone payments described above. As a result, all other rights and obligations under the Agilis Merger Agreement remain in effect pursuant to their terms. The Company’s outstanding obligations under the Agilis Merger Agreement include obligations to pay up to an aggregate maximum amount of $20.0 million upon the achievement of certain development milestones, up to an aggregate maximum amount of $361.0 million upon the achievement of certain regulatory milestones, up to a maximum aggregate amount of $150.0 million upon the achievement of certain net sales milestones and a percentage of annual net sales for Friedreich ataxia and Angelman syndrome during specified terms, ranging from 2% to 6%, pursuant to the terms of the Agilis Merger Agreement. Refer to Note 4 for further details regarding the Rights Exchange Agreement.

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December 31, 2020

(In thousands except share and per share amount)

As of December 31, 2020, the Company had an accumulated deficit of approximately $1,628.9 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 8), public offerings of common stock in February 2014, October 2014, April 2018, January 2019, and September 2019, “at the market offering” of its common stock, its initial public offering of common stock in June 2013, proceeds from the Royalty Purchase Agreement (see Note 2), private placements of its convertible preferred stock, collaborations, bank debt, the Company’s credit and security agreement (the "Credit Agreement"), with MidCap Financial Trust (“MidCap Financial”) as administrative agent and MidCap Financial and other certain institutions as lenders thereto (see Note 8), 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

Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented. Certain prior period balances have been reclassified to conform to the current period presentation. These reclassifications did not have a material impact on the consolidated statements of operations, consolidated balance sheets, consolidated statements of cash flows, or notes to the consolidated financial statements.

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, royalty revenue, certain accruals related to the Company’s research and development expenses, valuation procedures for liability for sale of future royalties, valuation procedures for the convertible notes, 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.

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 the Company’s 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.

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(In thousands except share and per share amount)

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:

​

​ ​ ​ ​ ​ ​ ​

​ End of ​ Beginning of

​ period- period-

​ December 31, December 31,

Restricted cash included in deposits and other assets ​ 7,500 ​ 7,500

​

Consolidation

The consolidated financial statements include the accounts of PTC Therapeutics, Inc. and its wholly owned subsidiaries. All inter-company accounts, transactions, and profits have been eliminated in consolidation.

Segment and geographic information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating and reporting segment.

Cash equivalents

The Company considers all highly liquid investments with a maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents are carried at cost which approximates fair value due to their short-term nature.

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 twelve month period ended December 31, 2020, no allowance was recorded for credit losses.

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December 31, 2020

(In thousands except share and per share amount)

Concentration of credit risk

The Company’s financial instruments that are exposed to credit risks consist primarily of cash and cash equivalents, available-for-sale marketable securities and accounts receivable. The Company maintains its cash and cash equivalents in bank accounts, which, at times, exceed federally insured limits. The Company has not experienced any credit losses in these accounts and does not believe it is exposed to any significant credit risk on these funds. The Company’s investment policy includes guidelines on the quality of the financial institutions and financial instruments the Company is allowed to invest in, which the Company believes minimizes the exposure to concentration of credit risk.

The Company is subject to credit risk from its accounts receivable related to its product sales. The payment terms are predetermined and the Company evaluates the creditworthiness of each customer or distributor on a regular basis. The Company reserves all uninsured amounts billed directly to a patient until the time of cash receipt as collectability is not reasonably assured at the time the product is received. To date, the Company has not incurred any material credit losses.

Fixed assets

Fixed assets are stated at cost. Depreciation is computed starting when the asset is placed into service on a straight-line basis over the estimated useful life of the related asset as follows:

Leasehold improvements Lesser of useful life or lease term

Computer equipment and software ​ 3 years

Machinery and lab equipment ​ 7 years

Furniture and fixtures ​ 7 years

​

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:

​

​ ​ ​ ​ ​ ​ ​

​

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. The Company recorded write downs of $0.5 million and $0.4 million for the twelve month periods ended December 31, 2020 and 2019, respectively, primarily related to

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product approaching expiration. 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 twelve month periods ended December 31, 2020 and December 31, 2019, these amounts were immaterial.

Cost of product sales

Cost of product sales consists of the cost of inventory sold, manufacturing and supply chain costs, storage costs, amortization of the acquired intangible asset, royalty payments associated with net product sales, and royalty payments to collaborative partners associated with royalty revenues and collaboration revenue related to milestones. Production costs are expensed as cost of product sales when the related products are sold or royalty revenues and collaboration revenue milestones are earned.

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income (loss) consists of unrealized gains or losses on marketable securities and foreign currency translation adjustments.

Revenue recognition

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. On January 1, 2018, the Company adopted ASC Topic 606 using the modified retrospective approach, a practical expedient permitted under Topic 606, 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 the opening balance of accumulated deficit, related to the product sales of Emflaza. The ASC 606 transition adjustment recorded for Emflaza resulted in sales being recognized earlier than under Topic 605, as the deferred revenue recognition model (sell-through) is not allowed under Topic 606. The one-time adjustment consisted of $3.9 million in deferred revenue offset by $0.6 million of variable consideration.

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

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(In thousands except share and per share amount)

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 years ended December 31, 2020, 2019, and 2018, net product sales outside of the United States were $194.4 million, $190.3 million, and $171.0 million respectively, and net product sales in the United States were $139.0 million, $101.0 million, and $92.0 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.

Upon adoption of ASC Topic 606 on January 1, 2018, the Company elected the following practical expedients:

Shipping and handling costs associated with finished goods delivered to customers are recorded as a selling expense.

Collaboration and royalty 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

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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 royalties from product sales at the later of when the related sales occur or when the performance obligation to which the royalty has been allocated has been satisfied. If it is probable that a significant revenue reversal will not occur, the Company will estimate the royalty payments using the most likely amount method.

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 Company also assesses whether an allowance for expected credit losses may be required. For the twelve month period ended December 31, 2020, no allowance was recorded for credit losses. The allowance for doubtful accounts was $0.1 million as of December 31, 2020 and $0.3 million as of December 31, 2019. For the twelve months ended December 31, 2020, 2019 and 2018, bad debt expense was immaterial.

Liability for sale of future royalties

On July 17, 2020, the Company, RPI Intermediate Finance Trust (“RPI”), and, for the limited purposes set forth in the agreement, Royalty Pharma PLC, entered into a Royalty Purchase Agreement (the “Royalty Purchase Agreement”). Pursuant to the Royalty Purchase Agreement, the Company sold to RPI 42.933% (the “Assigned Royalty Payment”) of the Company’s right to receive sales-based royalty payments (the “Royalty”) on worldwide net sales of Evrysdi and any other product developed pursuant to the License and Collaboration Agreement (the “License Agreement”), dated as of November 23, 2011, by and among the Company, Roche and, for the limited purposes set forth therein, the SMA Foundation under the SMA program. In consideration for the sale of the Assigned Royalty Payments, RPI paid the Company $650.0 million in cash consideration. The Company has retained a 57.067% interest in the Royalty and all economic rights to receive the remaining potential regulatory and sales milestone payments under the License Agreement, which milestone payments equal $355.0 million in the aggregate as of December 31, 2020. The Royalty Purchase Agreement will terminate 60 days following the earlier of the date on which Roche is no longer obligated to make any payments of the Royalty pursuant to the License Agreement and the date on which RPI has received $1.3 billion in respect of the Assigned Royalty Payments.

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Notes to consolidated financial statements (Continued)

December 31, 2020

(In thousands except share and per share amount)

The cash consideration obtained pursuant to the Royalty Purchase Agreement is classified as debt and is recorded as “liability for sale of future royalties-current” and “liability for sale of future royalties-noncurrent” on the Company’s consolidated balance sheet based on the timing of the expected payments to be made to RPI. The fair value for the liability for sale of future royalties at the time of the transaction was based on the Company’s estimates of future royalties expected to be paid to RPI over the life of the arrangement, which was determined using forecasts from market data sources, which are considered Level 3 inputs. The liability will be amortized using the effective interest method over the life of the arrangement, in accordance with the respective guidance. The Company will utilize the prospective method to account for subsequent changes in the estimated future payments to be made to RPI. Refer to Note 8 for further details.

​

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 and finance leases are classified as right of use ("ROU") assets, short term lease liabilities, and long term lease liabilities. Operating and finance 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.