News Column

PTC THERAPEUTICS, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

August 7, 2014

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year ended December 31, 2013 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 6, 2014. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth in Part II, Item 1A. (Risk Factors) of this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. Overview and Corporate Update We are a biopharmaceutical company focused on the discovery and development of orally administered, proprietary small molecule drugs that target post-transcriptional control processes. Our internally discovered pipeline addresses multiple therapeutic areas, including rare disorders, oncology and infectious diseases. We have developed proprietary technologies that we apply in our drug discovery activities and in collaborations with leading biopharmaceutical companies. Our lead candidate is ataluren, an investigational new drug in the US, for the treatment of patients with genetic disorders that arise from a type of genetic mutation known as a nonsense mutation. The brand name of ataluren is Translarna™. Translarna™ for nmDMD On August 4, 2014, we were notified that the European Commission, or EC, granted conditional marketing authorization for Translarna for the treatment of Duchenne muscular dystrophy caused by nonsense mutations, or nmDMD, in ambulatory patients aged five years and older. The conditional marketing authorization allows us to market Translarna in the European Economic Area, or EEA, which is comprised of the 28 member states of the European Union plus Norway, Iceland and Liechtenstein. Our conditional marketing authorization is subject to an annual review by the European Medicines Agency, or EMA, and we will seek to renew the approval on an annual basis until our obligations have been fulfilled and the approval is converted from a conditional approval into a full approval. We have begun our commercialization efforts and plan to launch Translarna in selected countries beginning in the first half of 2015, subject to completion of each country's market access process and timeline. Our strategy is to initially focus our commercial efforts in those countries in Europe which we believe represent a significant portion of the commercial opportunity. We are currently working on country-specific market access submissions for these target countries, which we expect to begin submitting during the fourth quarter of 2014. The market access process timeline varies from country to country and can take over eighteen months in certain circumstances. We currently expect Translarna to be priced at levels consistent with the pricing for other therapies for the treatment of rare disorders where high unmet medical need exists. We ultimately intend to market Translarna in all markets in the EEA where market access is possible. In parallel, we have begun to pursue reimbursed expanded access programs for Translarna for nmDMD patients in selected territories, which we refer to as our EAP program. Our EAP program is intended to make Translarna available to patients before commercial product becomes available in those countries in accordance with local regulations. Funded named patient programs for Translarna, which form part of our EAP program, have already been authorized in Turkey and Spain. On July 9, 2014, the French National Agency for Medicines and Health Products Safety, or ANSM, granted a Temporary Authorization for Use, or ATU cohort. Under a named patient program a physician on behalf of the specific, or "named", patient requests access to Translarna, whereas, the ATU cohort allows for a broader temporary authorization for use for nmDMD meeting the inclusion criteria. We recently initiated the supply of Translarna for the first patients authorized under our EAP program. In addition, we expect to seek regulatory approval for Translarna in those territories outside of Europe that will reference the European conditional marketing authorization as the basis for a local market authorization process. This will include specific countries where we have elected to market Translarna through a third-party distributor/marketing partner. We have initiated a confirmatory Phase 3 clinical trial of Translarna for the treatment of nmDMD. We refer to this trial as the Ataluren Confirmatory Trial in DMD, or ACT DMD. We dosed the first patient in this trial in April 2013. Based on our current estimates regarding patient enrollment, we expect to complete enrollment for this trial in the near term and have initial, top-line data available in the second half of 2015. As part of the conditional marketing authorization granted by the European Commission, we are required to complete ACT DMD and submit additional efficacy and safety data from the trial. We are engaging in further dialogue with the U.S. Food and Drug Administration, or FDA, to discuss potential pathways to accelerate bringing Translarna to US patients. We estimate that a nonsense mutation is the cause of Duchenne muscular dystrophy in approximately 13% of patients, or approximately 2,000 patients in the United States and 2,500 patients in the European Union. We estimate that approximately 40% of nmDMD patients are ambulatory and at least five years old. Our estimates of both the number of people who have DMD caused by a nonsense mutation, as well as the subset of people with who are ambulatory and at least five years old, are based on our beliefs and estimates derived from a variety of sources and may prove to be incorrect. 17

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Table of Contents Translarna™ for nmCF At the end of the second quarter of 2014, we initiated our global confirmatory Phase 3 clinical trial of Translarna for the treatment of cystic fibrosis caused by nonsense mutations, or nmCF. We refer to this trial as the Ataluren Confirmatory Trial in Cystic Fibrosis, or ACT CF. ACT CF is an international, randomized, double-blind, placebo-controlled, study of Translarna in patients six years of age or older with nmCF not receiving chronic inhaled aminoglycosides. Based on our estimates regarding patient enrollment, we expect to complete enrollment for this trial in the second half of 2015 and have initial, top-line data available approximately one year later.



Translarna™ for nmMPS I and other Indications

We also plan to pursue additional indications for Translarna beyond nmDMD and nmCF and our goal is to initiate a Phase 2 proof-of-concept study in the fourth quarter of 2014 in mucopolysaccharidosis type I,or MPS I, an inherited genetic disorder caused by a deficiency in an essential enzyme that is responsible for the breakdown of by-products of chemical reactions in the body's cells. Globally, MPS I occurs in about 1 in every 100,000 births. It is estimated that 60% to 80% of patients have their disease as a result of a nonsense mutation, which we refer to as nmMPS I. There is no cure for MPS I and enzyme replacement therapies do not sufficiently address the central nervous system, skeletal or cardiac symptoms associated with the disorder. Prognosis of patients with MPS I is poor and there is an urgent need for the development of new treatments targeting the underlying cause of MPS I. Spinal Muscular Atrophy We continue to advance the development of our 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. In January 2014, a Phase 1a single ascending dose, placebo-controlled clinical trial in healthy volunteers was initiated. The primary objectives of this trial were to explore safety and pharmacokinetics of the drug candidate, RG7800. This trial has now completed and a multiple dose clinical trial in SMA patients is currently in preparation. Preliminary findings in the Phase 1a study indicate that RG7800 was well-tolerated at all dose levels studied. There were no deaths, serious adverse events (SAEs) or withdrawals due to adverse events (AEs) and no dose-related trends were identified. Additionally, RG7800 had a dose-dependent effect on SMN2 splicing, as shown by a change in the ratio of full-length SMN2 mRNA to SMN2 mRNA without exon 7 (SMND7), which may be interpreted as proof of mechanism in terms of the expected pharmacodynamic effect. BMI1 IND-enabling preclinical studies are ongoing for our development candidate, PTC596, for the treatment of chemotherapy resistant cancers through the targeting of cancer stem cells. We plan to initiate a Phase 1 study in PTC596 for the treatment of drug-resistant tumors. PTC596 is a first-in-class, oral, potent and selective inhibitor of BMI1 protein expression. Elevated levels of BMI1 are associated with more aggressive tumors and a poor prognosis in a wide variety of cancers including glioblastoma. Reducing levels of BMI1 therefore represents a promising new therapeutic strategy to treat drug-resistant cancers. Other We are also pursuing additional programs to expand our pipeline that are currently either at the preclinical development or discovery stage. These are focused on new treatments for multiple therapeutic areas, including neuromuscular disease, oncology and infectious diseases. In particular, we expect to declare a development candidate in our antibacterial program later this year. This program is based on a novel chemical scaffold and has the potential to address the significant need for new treatment options to combat drug resistant gonorrhea. Funding To date, we have financed our operations primarily through our public offering of common stock in February 2014, our initial public offering of common stock in June 2013, private placements of our preferred stock, collaborations, bank debt and convertible debt financings and grants and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed by our product candidates. As of June 30, 2014, we had an accumulated deficit of $368.0 million. We had a net loss of $39.2 million for the six months ended June 30, 2014 and a net loss of $29.3 million for the six months ended June 30, 2013. We anticipate that our expenses will increase substantially in connection with the expansion of our commercial infrastructure as we seek to establish an international presence, particularly throughout Europe, and our efforts to commercialize Translarna for the treatment of nmDMD, including significant sales and marketing, legal and regulatory, and distribution and manufacturing expenses. In addition, we expect to continue to incur significant costs in connection with our ongoing confirmatory Phase 3 clinical trials for Translarna for the treatment of nmDMD and nmCF as well as our planned Phase 2 proof-of-concept study for nmMPS I. We also expect to incur ongoing research 18

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and development expenses for our other product candidates. In addition, we may seek marketing approval for Translarna for other indications or in other territories, which would significantly impact the timing and extent of our commercialization expenses.

Furthermore, as a result of our initial public offering in June 2013, we have incurred and expect to continue to incur additional costs associated with operating as a public company. These costs include significant legal, accounting, investor relations and other expenses that we did not incur as a private company. 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. We will need to generate significant revenues to achieve and sustain profitability, and we may never do so.



Financial operations overview

Revenues



To date, we have not generated product sale revenues. We have begun our commercialization efforts for Translarna for nmDMD and we plan to launch in selected countries during the first half of 2015, subject to completion of each country's market access process and timeline. Our revenues to date have consisted of collaborative agreements revenues and grant revenues.

We have ongoing collaborations 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 the SMA Foundation, for our spinal muscular atrophy program and early stage discovery arrangements with other institutions.

Roche and the SMA Foundation. In November 2011, we entered into a license and collaboration agreement with Roche and the SMA Foundation pursuant to which we are collaborating with Roche and the SMA Foundation to further develop and commercialize compounds identified under our spinal muscular atrophy sponsored research program with the SMA Foundation, as described below, and to research, develop and commercialize other small molecule compounds with potential for therapeutic use in patients with spinal muscular atrophy. Pursuant to the license and collaboration agreement, Roche paid us an upfront nonrefundable payment of $30.0 million.



In August 2013, we announced the selection of a development candidate. The achievement of this milestone triggered a $10.0 million payment to us from Roche, which we recorded as collaboration revenue for the year ended December 31, 2013.

In January 2014, we initiated a Phase 1 clinical program, which triggered a $7.5 million milestone payment to us from Roche. Roche is responsible for pursuing clinical development of compounds from the program, consistent with a governance structure that includes representation from us and the SMA Foundation, and then commercialization of these compounds.

Grant revenue. We receive grant funding from various institutions and governmental bodies. The grants are typically for early discovery research, and generally the grant program lasts from two to five years.

Research and development expense

Research and development expenses consist of the costs associated with our research activities, as well as the costs associated with our drug discovery efforts, conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings. Our research and development expenses consist of: † external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites, third-party manufacturing organizations and consultants; † employee-related expenses, which include salaries



and

benefits, including share-based compensation, for the personnel involved in our drug discovery and development activities; and

† facilities, depreciation and other allocated



expenses,

which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and laboratory and other supplies.

We use our employee and infrastructure resources across multiple research projects, including our drug development programs. We track expenses related to our clinical programs and certain preclinical programs on a per project basis.

We expect our research and development expenses to increase in connection with our ongoing activities, particularly as we continue our confirmatory Phase 3 clinical trials of Translarna for the treatment of nmDMD and nmCF, commence our Phase 2 proof-of-concept study in nmMPS I, continue our research activities in our preclinical programs and initiate clinical development of other product 19 --------------------------------------------------------------------------------



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candidates. 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 product candidates and the related expansion of our research and development organization, regulatory requirements, advancement of our preclinical programs and product candidate manufacturing costs. The following table provides research and development expense for our most advanced principal product development programs, for the three and six months ended June 30, 2014. Three months ended Six months ended June 30, June 30, 2014 2013 2014 2013 (in thousands) (in thousands) Translarna $ 12,384$ 10,435$ 22,448$ 16,790 Antibacterial 1,770 1,488 3,824 2,692 BMI1 462 1,948 1,105 1,877 Spinal muscular atrophy 812 783 1,477 1,353



Other research and preclinical 2,885 58 5,348 3,257 Total research and development $ 18,313$ 14,712$ 34,202$ 25,969

The successful development of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of: † the scope, rate of progress and expense of our clinical trials and other research and development activities; † the potential benefits of our product



candidate over other therapies;

† our ability to market, commercialize



and

achieve market acceptance for any of our product candidates that we are developing or may develop in the future;

† clinical trial results; † the terms and timing of regulatory approvals; and † the expense of filing, prosecuting, defending



and enforcing patent claims and other intellectual property rights.

A change in the outcome of any of these variables with respect to the development of Translarna or any other product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the EMA or FDA or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of Translarna or any other product candidate or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.



General and administrative expense

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, finance, accounting, information technology and human

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resource functions. Other 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, and accounting services.

We expect that general and administrative expenses will increase in 2014 and future periods as a result of the expansion of our commercial infrastructure as we seek to establish an international presence, particularly throughout Europe, and our efforts to commercialize Translarna for the treatment of nmDMD, including significant sales and marketing, legal and regulatory, and distribution and manufacturing expenses. Interest income, net



Interest income, net consists of interest realted to our secured debt facility and interest income earned on investments.In July 2013, we paid in full the outstanding principal and interest related to our secured debt facility.

Critical accounting policies and significant judgments and estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in the notes to our financial statements appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, we believe that the following accounting policies are the most critical to understanding and evaluating our financial condition and results of operations. As an emerging growth company under the Jumpstart Our Business Startups Act of 2012, we have elected to delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies. As a result of this election, our financial statements may not be comparable to the financial statements of other public companies. Revenue recognition We recognize revenue when amounts are realized or realizable and earned. Revenue is considered realizable and earned when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price is fixed or determinable; and (4) collection of the amounts due are reasonably assured.



To date our revenue has been generated primarily through collaborative research and development and licensing agreements and grants.

The terms of these agreements typically include payments 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. For existing collaborations entered into prior to the adoption in 2011 of the revised multiple element revenue recognition guidance described below, we recognize revenue consistent with the approach established at the inception of each arrangement. For these existing collaborations, where we have continued involvement, we recorded nonrefundable, upfront fees as deferred revenue and recognize revenue on a straight line basis as collaboration revenue over the expected performance period. For new collaborations or for material modifications made to existing collaborations, in 2011, we adopted the updated multiple element revenue recognition guidance. Under this guidance, all non-contingent arrangement consideration is allocated to the identified units of accounting based on their relative selling price at inception of the collaboration arrangement. We derive the selling price using a combination of internal subjective and available external objective information, such as comparable transactions. We recognize revenue commensurate with delivery, such as in the case with delivery of a license, or ratably over the course of a service period, as appropriate, such as in the case of ongoing research and development activities. We evaluate all contingent consideration earned, such as a milestone payment, using the criteria as provided by the Financial Accounting Standards Board, or FASB, guidance on the milestone method of revenue recognition. At the inception of a collaboration arrangement, we evaluate if milestone payments are substantive. The criteria requires that (1) we determine if the milestone is commensurate with either its performance to achieve the milestone or the enhancement of value resulting from our activities to achieve the milestone; (2) the milestone be related to past performance; and (3) the milestone be reasonable relative to all deliverable and payment terms of the collaboration arrangement. If these criteria are met then the contingent milestones can be considered as 21

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substantive milestones and will be recognized as revenue in the period that the milestone is achieved. We recognize royalties as earned in accordance with the terms of various research and collaboration agreements. If not substantive, the contingent consideration is allocated to the existing units of accounting based on relative selling price and recognized following the same basis previously established for the associated unit of accounting. We recognize reimbursements for research and development costs under collaboration agreements as revenue 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. Our principal obligation under our grant agreements is to conduct the internal or external research in the specific field funded by the grant. We determine, through the grant's normal research process, which research and development projects to pursue. We recognize grant revenues as the research activities are performed. If the grant includes an upfront payment, we defer the amount and recognize it as revenue as the expenditures are incurred. Accrued expenses As part of the process of preparing our financial statements, we are required to estimate accrued expenses. This process involves communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us. Examples of estimated accrued expenses include: † fees paid to contract research



organizations

in connection with preclinical and toxicology studies and clinical trials;

† fees paid to investigative sites in



connection with clinical trials;

† fees paid to contract manufacturers in



connection with the production of clinical trial materials; and

† professional service fees. Share-based compensation We expect to grant additional stock options that will result in additional share-based compensation expense. We measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. For service type awards, share-based compensation expense is recognized on a straight-line basis over the period during which the employee is required to provide service in exchange for the entire award. For awards that vest or begin vesting upon achievement of a performance condition, we estimate the likelihood of satisfaction of the performance condition and recognize compensation expense when achievement of the performance condition is deemed probable using an accelerated attribution model. The fair value of options is calculated using the Black-Scholes option pricing model to determine the fair value of stock options on the date of grant based on key assumptions, such as expected volatility and expected term. As a new public company, we do not have sufficient history to estimate the volatility of our common stock price or the expected life of the options. We calculate expected volatility based on reported data for similar publicly traded companies for which historical information is available and will continue to do so until the historical volatility of our common stock is sufficient to measure expected volatility for future option grants. Restricted stock awards are granted subject to certain restrictions, including service conditions. The grant date fair value of restricted stock awards, which is determined based upon the market value of our common stock on the grant date, is expensed over the vesting period.



The fair value of grants made in the six months ended June 30, 2014 and 2013 was contemporaneously estimated on the date of grant using the following assumptions:

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Table of Contents Six months ended June 30, 2014 2013 Risk-free interest rate 0.11%-2.03% 0.85%-1.69% Expected volatility 89%-91% 87-88% Expected term 5.50-6.25 years 5.00-6.00 years We assumed no expected dividends for all grants. The weighted average grant date fair value of options granted during the six month period ended June 30, 2014 was $20.75 per share. We use the "simplified method" to determine the expected term of options. Under this method, the expected term represents the average of the vesting period and the contractual term. The expected volatility of share options was estimated based on a historical volatility analysis of peers that were similar to us with respect to industry, stage of life cycle, size, and financial leverage. The risk-free rate of the option is based on U.S. Government Securities Treasury Constant Maturities yields at the date of grant for a term similar to the expected term of the option. We recorded share-based compensation expense in the statement of operations as follows: Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Research and development $ 2,209 $ 1,107 $ 4,153$ 1,364 General and administrative 2,069 774 3,830 1,138 Total $ 4,278 $ 1,881 $ 7,983$ 2,502 As of June 30, 2014 there was approximately $36.1 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the 1998, 2009, 2013 Plans and inducement grants made pursuant to the NASDAQ inducement grant exception as a component of our new hires' employment compensation. This cost is expected to be recognized as share-based compensation expense over the weighted average remaining service period of approximately 2.67 years. Results of operations



Three months ended June 30, 2014 compared to three months ended June 30, 2013

The following table summarizes revenues and selected expense and other income data for the three months ended June 30, 2014 and 2013.

Three months ended June 30, (in thousands) 2014 2013 Change 2014 vs. 2013 Revenues $ 1,677$ 6,854 $ (5,177 ) Research and development expense 18,313 14,712



3,601

General and administrative expense 8,733 6,595



2,138

Interest income (expense), net 248 (114 ) 362 Revenues. Revenues were $1.7 million for the three months ended June 30, 2014, a decrease of $5.2 million, or 76%, from $6.9 million for the three months ended June 30, 2013. Collaboration revenue was $1.4 million for the three months ended June 30, 2014, a decrease of $4.5 million, or 76%, from collaboration revenues of $5.9 million for the three months ended June 30, 2013. The decrease was due to a decrease in the recognition of non-cash deferred revenue compared to the same period in 2013. Grant revenue was $0.3 million for the three months ended June 30, 2014, a decrease of $0.7 million from grant revenue of $1.0 million for the three months ended June 30, 2013. Research and development expense. Research and development expense was $18.3 million for the three months ended June 30, 2014, an increase of $3.6 million, or 24%, from $14.7 million for the three months ended June 30, 2013. The increase resulted primarily from an increase in clinical trial expenses, including the manufacturing of drug product for our clinical trials, regulatory costs associated with the efforts to obtain conditional approval for Translarna in Europe and an increase in non-cash, stock-based compensation of approximately $1.1 million. General and administrative expense. General and administrative expense was $8.7 million for the three months ended June 30, 2014, an increase of $2.1 million, or 32%, from $6.6 million for the three months ended June 30, 2013. The increase resulted primarily from increased non-cash stock-based compensation expense of approximately $1.3 million and costs related to efforts to obtain conditional approval for Translarna in Europe, pre-commercial activities and public company costs. Interest income (expense), net. Net interest income was $0.2 million for the three months ended June 30, 2014. The increase from interest expense of $0.1 million for the three months ended June 30, 2013 was due to interest income related to investments offset by lower interest expense resulting from the payoff of debt in July 2013. 23 --------------------------------------------------------------------------------



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Six months ended June 30, 2014 compared to six months ended June 30, 2013

The following table summarizes revenues and selected expense and other income data for the six months ended June 30, 2014 and 2013.

Six months ended June 30, (in thousands) 2014 2013 Change 2014 vs. 2013 Revenues $ 10,894$ 13,996 $ (3,102 ) Research and development expense 34,202 25,969



8,233

General and administrative expense 16,273 11,056



5,217

Interest income (expense), net 419 (6,276 ) 6,695 Revenues. Revenues were $10.9 million for the six months ended June 30, 2014, a decrease of $3.1 million, or 22%, from $14.0 million for the six months ended June 30, 2013. Collaboration revenue was $10.6 million for the six months ended June 30, 2014, a decrease of $1.3 million, or 11%, from collaboration revenues of $11.9 million for the six months ended June 30, 2013. The decrease resulted primarily from a decrease in the recognition of non-cash deferred revenue compared to the same period in 2013 partially offset by the recognition of a $7.5 million milestone in our spinal muscular atrophy collaboration with Roche. Grant revenue was $0.3 million for the six months ended June 30, 2014, a decrease of $1.7 million, or 84%, from grant revenue of $2.0 million for the six months ended June 30, 2013. Research and development expense. Research and development expense was $34.2 million for the six months ended June 30, 2014, an increase of $8.2 million, or 32%, from $26.0 million for the six months ended June 30, 2013. The increase resulted primarily from increased clinical trial expenses, including the manufacturing of drug product for our clinical trials, regulatory costs associated with the efforts to obtain conditional approval for Translarna in Europe and increase in non-cash, stock-based compensation expense of $2.8 million. General and administrative expense. General and administrative expense was $16.3 million for the six months ended June 30, 2014, an increase $5.2 million or 47% from $11.1 million for the six months ended June 30, 2013. The increase resulted primarily from increased non-cash stock-based compensation expense of $2.7 million, costs related to efforts to obtain conditional approval for Translarna in Europe, and pre-commercial activities. Interest expense. Interest income was $0.4 million for the six months ended June 30, 2014, an increase of $6.7 million from interest expense of $6.3 million for the six months ended June 30, 2013. The increase was due to interest income related to investments combined with lower interest expense resulting from the payoff of debt in July 2013. Interest expense for the six months ended June 30, 2013 was due to interest related to the debt discount associated with the convertible debt issued in 2013.



Liquidity and capital resources

Sources of liquidity Since inception, we have incurred significant operating losses. To date, we have not generated product sale revenues. We have begun our commercialization efforts for Translarna for nmDMD and we plan to launch commercially in selected countries in Europe during the first half of 2015, subject to completion of each country's market access process and timeline. We have financed our operations primarily through the issuance and sale of our common stock in our public offering in February 2014 and our initial public offering in June 2013, private placements of our preferred stock, collaborations, bank debt and convertible debt financings and grants and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed by our product candidates. In February 2014, we closed a public offering of 5,163,265 shares of common stock at a public offering price of $24.50 per share, including 673,469 shares pursuant to the exercise by the underwriters of an over-allotment option. We received net proceeds from the public offering of approximately $118.4 million after deducting underwriting discounts and commissions and other offering expenses payable by us. 24 --------------------------------------------------------------------------------

Table of Contents Cash flows



As of June 30, 2014, we had cash, cash equivalents and marketable securities of $226.9 million.

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

Six months ended June 30, (in thousands) 2014 2013 Cash provided by (used in): Operating activities $ (32,245 )$ (27,282 ) Investing activities (80,361 ) (11,680 ) Financing activities 118,364 190,331 Net cash used in operating activities was $32.2 million for the six months ended June 30, 2014 and $27.3 million for the six months ended June 30, 2013. The change in net cash used in operating activities primarily related to supporting clinical development and pre-commercial activities. Net cash used in investing activities was $80.4 million for the six months ended June 30, 2014 and $11.7 million for the six months ended June 30, 2013. Cash used in investing activities was primarily related to net purchases of marketable securities for the six months ended June 30, 2014 and June 30, 2013. Net cash provided by financing activities was $118.4 million for the six months ended June 30, 2014. Net cash provided by financing activities in 2014 was attributable to approximately $118.4 million in net proceeds from the public offering in February 2014. Net cash provided by financing activities was $190.3 million for the six months ended June 30, 2013. Net cash provided by financing activities in 2013 was primarily attributable to the $60.8 million in net proceeds that we received from the sale of Series Four preferred stock and the $131.7 million in net proceeds that we received from our initial public offering of common stock in June 2013. Funding requirements We anticipate that our expenses will increase substantially in connection with the expansion of our commercial infrastructure as we seek to establish an international presence, particularly throughout Europe, and our efforts to commercialize Translarna for the treatment of nmDMD, including significant sales and marketing, legal and regulatory, and distribution and manufacturing expenses. In addition, we expect to continue to incur significant costs in connection with our ongoing confirmatory Phase 3 clinical trials for Translarna for the treatment of nmDMD and nmCF as well as our planned Phase 2 proof-of-concept study for nmMPS I. We also expect to incur ongoing research and development expenses for our other product candidates. In addition, we may seek marketing approval for Translarna for other indications, including nmCF, or in other territories, which would significantly impact the timing and extent of our commercialization expenses.



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

† initiate or continue the research and development of Translarna for additional indications and of our other product candidates;

† seek to discover and develop additional product candidates;



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

† add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts.

We believe that our existing cash and cash equivalents, including the net proceeds from our public offerings of common stock, marketable securities and research funding that we expect to receive under our collaborations, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into mid-2016. 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 progress and results of confirmatory Phase 3 clinical trials of Translarna for nmDMD and nmCF as well as our planned Phase 2 proof-of-concept study for nmMPS I; 25

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† the scope, costs and timing of the expansion of our commercial infrastructure, including in connection with the growth of our international presence in Europe and in other territories;

† the scope, costs and timing of our commercialization activities, including product sales, marketing, legal, regulatory, distribution and manufacturing, in connection with the conditional marketing authorization in the European Economic Area for nmDMD and any of our other product candidates that may receive marketing approval or any additional indications or territories in which we receive authorization to market Translarna; † the timing and scope of growth in our employee base; † the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for Translarna for additional indications and for our other product candidates;



† the number and development requirements of other product candidates that we pursue;

† the costs, timing and outcome of regulatory review of Translarna and our other product candidates;

† revenue received from commercial sales of Translarna or any of our other product candidates;

† the costs of preparing, filing and prosecuting patent applications, maintaining, and protecting our intellectual property rights and defending against intellectual property-related claims;

† the extent to which we acquire or invest in other businesses, products and technologies; and

† our ability to establish and maintain collaborations, including our collaborations with Roche and the SMA Foundation, and our ability to obtain research funding and achieve milestones under these agreements.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs 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 candidates and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future 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 June 30, 2014.

More Less than 1-3 4-5 than (in thousands) Total 1 year years years 5 years Operating lease obligations(1) $ 4,174$ 938$ 2,587$ 649 $ - Total fixed contractual obligations $ 4,174$ 938$ 2,587$ 649 $ -



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(1) We lease office space under a noncancelable operating lease with a term that extends through February 2019.

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.

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We have entered into funding agreements with Wellcome Trust for the research and development of small molecule compounds in connection with our BMI1 and antibacterial programs. To the extent that we develop and commercialize program intellectual property on a for-profit basis, we may become obligated to pay to Wellcome Trust development and regulatory milestone payments of up to an aggregate of $68.9 million 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 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, 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 a specified amount. 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. 27 --------------------------------------------------------------------------------



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