PTC THERAPEUTICS INC
For the period ended Dec 31, 2023. Filed Feb 29, 2024.
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FY2023 · Filed Feb 29, 2024
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Item 8. 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, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders' (deficit)/equity and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 29, 2024 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.
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.
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| Variable consideration in contracts with customers | |
| Description of the Matter | As discussed in Note 2 of the consolidated financial statements, the Company’s revenues for product sold to its customers within the United States reflect discounts mandated by the Medicaid Drug Rebate Program. The Company includes an estimate of this variable consideration in its transaction price at the time of sale when control of the product transfers to the customer. The Company uses the expected value or most likely amount method when estimating variable consideration, unless discount or rebate terms are specified within contracts. The estimates for variable consideration are adjusted to reflect known changes. |
| Auditing the amount of consideration to be paid under the Medicaid Drug Rebate Program (Medicaid) was complex and highly judgmental due to the interpretation of government rules, regulations, policy, and guidance under the government program. Management is responsible for complying with these rules and regulations. Governmental pricing calculations are complex as a result of interpretation of regulations and management’s policy impacting the average manufacturer price, which would result in an impact to the best price and the unit rebate amount. The reductions to gross product revenues are sensitive to these significant estimates and calculations. | |
| How We Addressed the Matter in Our Audit | We identified, evaluated and tested controls over management’s review of the calculated reductions to gross product prices related to Medicaid and the significant assumptions and data inputs utilized in the calculations.To test the revenue adjustments related to Medicaid our audit procedures included, among others, evaluating the methodology used as well as testing the significant estimates discussed above and the underlying assumptions and data used by the Company in its analysis. We evaluated pricing adjustments recorded in the current period and assessed the historical accuracy of management’s estimates against actual results. In addition, we involved an internal governmental pricing specialist to assist with our evaluation of management’s methodology and the calculations made to measure the estimated Medicaid rebates. |
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| Valuation of acquisition-related contingent consideration liability | |
| Description of the Matter | As discussed in Note 2 and Note 3 to the consolidated financial statements under the respective captions “Business combinations and asset acquisitions,” and “Level 3 valuation” the Company recognizes contingent consideration liabilities at their estimated fair values on the acquisition date. Subsequent changes to the fair values of the contingent consideration liabilities are recorded within the consolidated statement of operations in the period of change. At December 31, 2023, the Company recorded $36.3 million in total contingent consideration liabilities related to development, regulatory and net sales milestones. The fair value of the contingent consideration is estimated utilizing a probability adjusted, discounted cash flow approach, as well as a valuation framework that estimates net sales volatility to simulate a range of possible payment scenarios. Certain assumptions, including development timelines, probabilities of success, and certain inputs to the weighted average cost of capital are highly subjective and the fair value estimate is sensitive to these assumptions. Auditing the valuation of contingent consideration liabilities was complex and required significant auditor judgment due to the high degree of subjectivity in evaluating these assumptions and the method used for the calculation. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s contingent consideration liabilities process including management’s process to establish the significant assumptions and measure the liability. To test the estimated fair value of the contingent consideration liabilities, our audit procedures included, among others, assessing the fair value methodology and testing the significant assumptions discussed above and the underlying data used in management’s analyses. We evaluated the assumptions and judgments in light of observable industry and economic trends and standards, external data sources and regulatory factors. Estimated amounts of future sales and probabilities of achieving milestones were evaluated in relation to internal and external analyses, clinical development progress and timelines, probability of success benchmarks, and regulatory notices. Additionally, we compared the weighted average cost of capital that was adjusted for the Company’s credit risk, to those of comparable guideline companies. Our procedures also included evaluating the data sources used by management in determining its assumptions and, where necessary, included an evaluation of available information that either corroborated or contradicted management’s conclusions. We involved |
valuation specialists to assist with our assessment of the Company’s fair value measurement methodology and to perform corroborative fair value calculations.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2010.
Iselin, New Jersey
February 29, 2024
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