13. COMMITMENTS AND CONTINGENCIES

Lease Obligations

In June 2013, the Company entered into a lease agreement for its headquarters located in Cambridge, Massachusetts. The agreement calls for a security deposit in the form of a letter of credit totaling $0.6 million. The Company purchased a certificate of deposit (“CD”) to meet the requirement and it was recorded as a long-term restricted investment in the unaudited condensed consolidated balance sheets as of June 30, 2014. The initial term of the lease agreement is for seven years with an average annual base rent of approximately $2.4 million.

In November 2013, the Company entered into the first amendment of its lease agreement for its headquarters located in Cambridge, Massachusetts. The amendment modified the original lease to add an additional 15,077 square feet to its original space, increasing its total rental space for its headquarters to 61,453 square feet. The amendment calls for additional annual base rent of approximately $0.5 million, subject to a 2.5% annual increase. In January 2014, the Company entered into an agreement to sublease the 15,077 square feet of office space to an unrelated third party for an 18-month term with a total base rent of approximately $0.7 million.

In June 2014, the Company entered into an agreement to sublease from an unrelated third party 10,939 square feet of office space with a term of less than 7 years and an annual base rent of approximately $0.3 million.

The Company also leases laboratory and office space in Corvallis, Oregon. The annual base rent at the Corvallis, Oregon facility is approximately $0.9 million, excluding other occupancy costs, and is subject to an annual increase of 3%.

For the three months ended June 30, 2014 and 2013, rent expense and occupancy costs under all leases totaled $0.9 million and $0.7 million, respectively. For the six months ended June 30, 2014 and 2013, rent expense and occupancy costs under all leases totaled $2.0 million and $1.3 million, respectively. The aggregate non-cancelable future minimum payments under leases were as follows:


	As of June 30, 2014 (in thousands)
2014 (6 months)	$	1,860
2015		4,026
2016		4,169
2017		4,271
2018		4,374
Thereafter		9,566

Total minimum lease payments	$	28,266

Royalty Obligations

The Company has license agreements for which it is obligated to pay minimum royalties if the Company does not terminate the relevant agreement. The notice period to terminate these agreements is six months or less. For each of the three and six months ended June 30, 2014 and 2013, royalty payments under these agreements were less than $100 thousand.

The Company is also obligated to pay royalties upon the net sales of DMD products. The royalty rates are in the low to mid- single-digit percentages for both inside and outside the United States. For example, under the agreement with Charley’s Fund, Inc. signed in October 2007, the Company is obligated to pay a mid-single-digit percentage royalty on the net sales of any product developed pursuant to the agreement with Charley’s Fund up to a maximum of $3.4 million. In May 2003, the Company entered into a collaboration and license agreement with Ercole Biotechnology, Inc. and Isis Pharmaceuticals, Inc. (“Isis-Ercole”). The range of percentage of royalty payments under this agreement, should such payments ever be made, is from a fraction of a percent to mid-single-digit percentages.

Milestone Obligations

The Company has license agreements for which it is obligated to pay development and commercial milestones as a product candidate proceeds from the filing of an IND application through approval for commercial sale. There were no significant milestone payments under these agreements for the three or six months ended June 30, 2014 and 2013, respectively.

Under the collaboration and license agreement with Isis-Ercole, the Company may be obligated to make up to $23.4 million in milestone payments. As of June 30, 2014, the Company has not made any payments under this agreement and is not under any current obligation to make any such milestone payments, as the conditions triggering any such milestone payment obligations have not been satisfied. Subject to the satisfaction of certain milestones triggering the obligation to make any such payments, Isis may be obligated to make milestone payments to the Company of up to $21.1 million in the aggregate for each product developed under a licensed patent under this agreement. As of June 30, 2014, Isis has not made and is not under any current obligation to make any such milestone payments, as the conditions triggering any such milestone payment obligations have not been satisfied.

In April 2013, the Company and the University of Western Australia (“UWA”) entered into an agreement under which an existing exclusive license agreement between the Company and UWA was amended and restated. Under the terms of this agreement, UWA granted the Company an exclusive license to certain UWA intellectual property rights in exchange for up to $7.1 million in up-front, development and commercial milestone payments. For the three and six months ended June 30, 2014 and 2013, the Company recognized $0 and $1.0 million, respectively, relating to certain up-front payments required under the agreement as research and development expense in the unaudited condensed consolidated statement of operations and comprehensive loss.

In March 2014, the Company entered into a patent assignment agreement with a group of scientists (collectively, “Assignors”). Under the terms of the agreement, the Assignors transferred to the Company all rights, title and interest in certain patent rights as well as technical information related to the patents. The Company may be obligated to make up to $2.7 million in development and commercial milestone payments. For the three and six months ended June 30, 2014, the Company recorded $0 and $0.3 million, respectively, relating to an up-front payment as research and development expense in the unaudited condensed consolidated statement of operations and comprehensive loss.

Litigation

In the normal course of business, the Company may from time to time be named as a party to various legal claims, actions and complaints, including matters involving securities, employment, intellectual property, effects from the use of therapeutics utilizing its technology, or others. For example, purported class action complaints were filed against the Company and certain of its officers in the U.S. District Court for the District of Massachusetts on January 27, 2014 and January 29, 2014. The complaints were consolidated into a single action (Corban v. Sarepta, et. al., No. 14-cv-10201) by order of the court on June 23, 2014, and plaintiffs were afforded 28 days to file a consolidated amended complaint. Plaintiffs’ consolidated amended complaint, filed on July 21, 2014, seeks to bring claims on behalf of themselves and persons or entities that purchased or acquired securities of the Company between July 10, 2013 and November 11, 2013. The consolidated amended complaint alleges that Sarepta and certain of its officers violated the federal securities laws in connection with disclosures related to eteplirsen, the Company’s lead therapeutic candidate for DMD, and seeks damages in an unspecified amount. Pursuant to the court’s June 23, 2014 order, Sarepta intends to file a motion to dismiss the consolidated amended complaint on or before August 18, 2014. Given the relatively early stages of the proceedings in the above mentioned purported claims, at this time, no assessment can be made as to the likely outcome of these claims or whether the outcomes would have a material impact on the Company.

Purchase Commitments

The Company has entered into long-term contractual arrangements from time to time for the provision of goods and services. The following table presents non-cancelable contractual obligations arising from these arrangements:


	As of June 30, 2014 (in thousands)
2014 (6 months)	$	38,215
2015		42,778
2016		40,188
2017		23,940
2018		5,704

Total purchase commitments	$	150,825

In February 2013, the Company issued two letters of credit totaling $7.3 million to a contract manufacturer in connection with certain manufacturing agreements. The obligations secured by the letters of credit are fulfilled upon payment for certain minimum volume commitments and construction milestones. To meet the requirement of the letters of credit, the Company purchased $7.3 million in CDs. One CD in the amount of $3.3 million was released and matured during the second quarter of 2014 and the other in the amount of $4.0 million with a July 2014 maturity date was recorded as a restricted investment in the unaudited condensed consolidated balance sheets as of June 30, 2014. If the minimum volume commitments have not occurred when the CD matures, the letter of credit will be extended.