ACADIA PHARMACEUTICALS INC 10-K

Item 9A. Controls and Procedures. Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer ( our principal executive officer and principal financial officer, respectively) , as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. As of December 31, 2021, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. 69 As of December 31, 2021, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment, management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2021, our internal control over financial reporting was effective based on those criteria. The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included herein. Changes in Internal Control Over Financial Reporting An evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of any changes in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 70 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Acadia Pharmaceuticals Inc. Opinion on Internal Control Over Financial Reporting We have audited Acadia Pharmaceuticals Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Acadia Pharmaceuticals Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Acadia Pharmaceuticals Inc. as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, cash flows and stockholders’ equity for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 and our report dated February 28, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Diego, California February 28, 2022 71 Item 9B. Other Information None. PART III Item 10. Directors, Executive Off icers and Corporate Governance . The information required by this Item and not set forth below will be set forth in the section headed “—Election of Directors” and “Information Regarding the Board of Directors and Corporate Governance” in our definitive Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the SEC by April 30, 2022 (our “Proxy Statement”) and is incorporated in this report by reference. We have adopted a code of ethics for directors, officers (including our principal executive officer, principal financial officer and principal accounting officer) and employees, known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on our website at http://www.acadia-pharm.com under the Corporate Governance section of our Investors page. We will promptly disclose on our website (i) the nature of any amendment to the policy that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver. Stockholders may request a free copy of the Code of Business Conduct and Ethics from our compliance department c/o Acadia Pharmaceuticals Inc., 12830 El Camino Real, Suite 400, San Diego, CA 92130. Item 11. Executi ve Compensation . The information required by this Item will be set forth in the section headed “Executive Compensation” in our Proxy Statement and is incorporated in this report by reference. Item 12. Security Ownership of Certain Beneficial Ow ners and Management and Related Stockholder Matters . The information required by this Item will be set forth in the section headed “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement and is incorporated in this report by reference. Information regarding our equity compensation plans will be set forth in the section headed “Executive Compensation” in our Proxy Statement and is incorporated in this report by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence . The information required by this Item will be set forth in the section headed “Transactions With Related Persons” in our Proxy Statement and is incorporated in this report by reference. Item 14. Principal Accou ntant Fees and Services . The information required by this Item will be set forth in the section headed “—Ratification of Selection of Independent Registered Public Accounting Firm” in our Proxy Statement and is incorporated in this report by reference. 72 PART IV Item 15. Exhibits and Fina ncial Statement Schedules. (a) Documents filed as part of this report. 1. The following financial statements of Acadia Pharmaceuticals Inc. and Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, are included in this report: Page Number Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F- 1 Consolidated Balance Sheets F- 3 Consolidated Statements of Operations F- 4 Consolidated Statements of Comprehensive Loss F- 5 Consolidated Statements of Cash Flows F- 6 Consolidated Statements of Stockholders’ Equity F- 7 Notes to Consolidated Financial Statements F- 8 2. List of financial statement schedules: Schedule II – Valuation and Qualifying Accounts Schedules not listed above have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. List of Exhibits required by Item 601 of Regulation S-K. See part (b) below. (b) Exhibits . Exhibit Number Description 3.1 Amended and Restated Certificate of Incorporation, as Amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q, filed August 6, 2015). 3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K, filed February 25, 2021). 3.3 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed September 12, 2013). 4.1 Form of common stock certificate of the Registrant (incorporated by reference to Exhibit 4.1 to Registration Statement No. 333-52492) . 4.2 Form of Amended and Restated Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K, filed February 26, 2019). 4.3 Description of the Registrant’s Common Stock (incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K, filed February 27, 2020). 10.1 a Form of Indemnity Agreement for directors and officers (incorporated by reference to Exhibit 10.1 to Registration Statement No. 333-113137). 10.2 a 2004 Equity Incentive Plan and forms of agreement thereunder (incorporated by reference to Exhibit 10.3 to Registration Statement No. 333-113137). 10.3 a 2010 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed June 28, 2019). 10.4 a Forms of agreement under the 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K, filed February 29, 2016). 73 10.5 a 2004 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed June 29, 2010). 10.6 a Offerings under the 2004 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K, filed February 28, 2017). 10.7 a Employment Agreement, dated September 1, 2015, between the Registrant and Stephen Davis (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed September 3, 2015). 10.8 a Employment Offer Letter, dated October 28, 2015, between the Registrant and Srdjan Stankovic (incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K, filed February 29, 2016). 10.9 a Employment Offer Letter, dated June 26, 2018, between the Registrant and Brendan Teehan. 10.10 a Employment Offer Letter, dated July 2, 2018, between the Registrant and Austin D. Kim (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed November 6, 2018). 10.11 a Employment Offer Letter, dated April 28, 2020, between the Registrant and Mark Schneyer. 10.12 a Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K, filed June 29, 2020). 10.13 a Management Severance Benefit Plan (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed December 15, 2015). 10.14 a Amended and Restated Change in Control Severance Benefit Plan (incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K, filed December 15, 2015). 10.15 b Master Manufacturing Services Agreement and Product Agreement, dated August 3, 2015, by and between the Registrant and Patheon Pharmaceuticals Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed November 5, 2015). 10.16 b First Amendment to Product Agreement, dated April 25, 2016, by and between the Registrant and Patheon Pharmaceuticals Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed August 4, 2016). 10.17 b Second Amendment to Product Agreement, dated October 6, 2016, by and between the Registrant and Patheon Pharmaceuticals Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed November 7, 2016). 10.18 b Third Amendment to Product Agreement, dated December 11, 2017, by and between the Registrant and Patheon Pharmaceuticals Inc (incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K, filed February 27, 2018 . 10.19 b Master Services Agreement, dated December 15, 2016, by and between Acadia Pharmaceuticals GmbH and Siegfried AG and its affiliates, and Attachment #1, Attachment #2 and Attachment #3 (incorporated by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K, filed February 28, 2017). 10.20 b Change Order #1 to Master Services Agreement Attachment #1, dated January 3, 2017, by and between Acadia Pharmaceuticals GmbH and Siegfried AG (incorporated by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K, filed February 28, 2017). 10.21 b Attachment #4, Attachment #5 and Attachment #6, each dated May 12, 2017, to the Master Services Agreement, dated December 15, 2016, by and between Acadia Pharmaceuticals GmbH and Siegfried AG and its affiliates (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed August 8, 2017). 10.22 c Attachment #7, dated September 30, 2020, to the Master Services Agreement, dated December 15, 2016, by and between Acadia Pharmaceuticals GmbH and Siegfried AG and its affiliates (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly report on Form 10-Q, filed November 4, 2020). 10.23 Registration Rights Agreement, dated January 6, 2016, between the Registrant and the investors listed on Schedule A thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed January 7, 2016). 74 10.24 Assignment of Brann Intellectual Property Rights, dated January 29, 1997, by Mark R. Brann in favor of the Registrant (incorporated by reference to Exhibit 10.17 to Registration Statement No. 333-52492). 10.25 b License Agreement, dated August 6, 2018, by and between the Registrant and Neuren Pharmaceuticals Ltd. (incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K, filed February 27, 2019). 10.26 b Lease Agreement, effective October 4, 2018, by and between the Registrant and Kilroy Realty, L.P. (incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K, filed February 27, 2019). 10.27 c First Amendment to Office Lease, dated December 23, 2019, between the Registrant and Kilroy Realty, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly report on Form 10-Q, filed May 8, 2020). 10.28 c Second Amendment to Office Lease, dated March 12, 2020, between the Registrant and Kilroy Realty, L.P. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly report on Form 10-Q, filed May 8, 2020). 21.1 List of subsidiaries of the Registrant. 23.1 Consent of Independent Registered Public Accounting Firm. 24.1 Power of Attorney (see signature page hereto). 31.1 Certification of Stephen Davis, Chief Executive Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Mark Schneyer, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Stephen Davis, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Mark Schneyer, Executive Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101 The following financial statements from this Annual Report, formatted in iXBRL (Inline Extensible Business Reporting Language), are filed herewith: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Stockholders’ Equity, and (vi) Notes to Consolidated Financial Statements. 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) a Indicates management contract or compensatory plan or arrangement. b We have requested or received confidential treatment of certain portions of this agreement, which have been omitted and filed separately with the SEC pursuant to Rule 406 under the Securities Act of 1933, as amended, or Rule 24b-2 of the Securities Exchange Act of 1934, as amended. c Certain portions of this exhibit (indicated by “[…***…]”) have been omitted pursuant to confidential treatment. Item 16. Form 10-K Summary None. 75 SIGNAT URES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. A cadia Pharmaceuticals Inc. Date: February 28, 2022 /s/ Stephen R. D avis Stephen R. Davis Chief Executive Officer (on behalf of the registrant and as the registrant’s Principal Executive Officer) KNOW ALL PERSO NS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Stephen R. Davis his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date / S / S TEPHEN R. D AVIS Stephen R. Davis Chief Executive Officer and Director (Principal Executive Officer) February 28, 2022 / S / M ARK C. S CHNEYER Mark C. Schneyer Executive Vice President and Chief Financial Officer (Principal Financial Officer) February 28, 2022 / S / J AMES K. K IHARA James K. Kihara Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) February 28, 2022 / S / S TEPHEN R. B IGGAR Stephen R. Biggar Chairman of the Board February 28, 2022 / S / J ULIAN C. B AKER Julian C. Baker Director February 28, 2022 / S / L AURA A. B REGE Laura A. Brege Director February 28, 2022 / S / J AMES M. D ALY James M. Daly Director February 28, 2022 / S / E LIZABETH A. G AROFALO Elizabeth A. Garofalo Director February 28, 2022 / S / E DMUND P. H ARRIGAN Edmund P. Harrigan Director February 28, 2022 / S / D ANIEL B. S OLAND Daniel B. Soland Director February 28, 2022 76 Report of Independent Regist ered Public Accounting Firm To the Stockholders and the Board of Directors of Acadia Pharmaceuticals Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Acadia Pharmaceuticals Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, cash flows and stockholders’ equity for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15(a)2 (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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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 28, 2022 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 Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F- 1 Allowance for Medicare Part D rebates Description of the Matter As more fully described in Note 2 to the consolidated financial statements, the Company recognizes revenue from product sales at the net sales price (the “transaction price”) which includes estimates of variable consideration for which reserves for sales discounts and allowances are established. Estimated sales discounts and allowances were $24.0 million as of December 31, 2021. The product sales, adjusted for the sales discounts and allowances, reflect the Company’s best estimates of the amount of consideration to which the Company is entitled based on the terms of the contract. The most significant category within the Company’s sales discounts and allowances are rebates for Medicare Part D. The Medicare Part D rebates are mandated discounts under the Medicare Part D prescription drug benefit, owed after the final dispensing of the product to a benefit plan participant and are based upon statutory requirements. The estimate for the Medicare Part D rebates is based on expected utilization and estimated payor mix of the Company’s gross sales. The Company’s estimates of payor mix and expected utilization of Medicare Part D rebates are based on historical data received from the specialty pharmacies (SPs) and specialty distributors (SDs) since product launch. Auditing the Company’s estimate for Medicare Part D rebates is complex, requires significant judgment, uses subjective assumptions, and the amounts involved are material to the financial statements. The subjective assumptions include estimates of expected utilization of rebates by benefit plan participants and payor mix of the Company’s gross sales. 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 estimate for Medicare Part D rebates including management’s review of the significant assumptions described above and inputs into the rebate calculation. For example, we tested controls over actual sales and the accuracy of forecasting expected utilization and payor mix. To test the estimate for Medicare Part D rebates, we obtained management’s calculation and performed the following audit procedures, among others. We performed a lookback analysis comparing historical Medicare Part D rebate estimates to the amounts invoiced and paid for the same period, performed sensitivity analyses over certain of the subjective assumptions to the calculation to evaluate the impact on the Medicare Part D rebate estimate, performed procedures over the completeness and accuracy of the data used in management’s estimates, and tested management’s calculation of expected rebate utilization for in-channel inventory. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2015. San Diego, California February 28, 2022 F- 2 ACADIA PHARMACEUTICALS INC. CONSOLIDATED B ALANCE SHEETS (in thousands, except share and per share amounts) December 31, 2021 2020 Assets Cash and cash equivalents $ 147,435 $ 326,028 Investment securities, available-for-sale 373,271 305,930 Accounts receivable, net 64,366 48,247 Interest and other receivables 978 2,035 Inventory 7,881 9,682 Prepaid expenses 23,892 25,694 Total current assets 617,823 717,616 Property and equipment, net 8,047 9,161 Operating lease right-of-use assets 58,268 47,283 Intangible assets, net — 1,108 Restricted cash 5,770 5,770 Long-term inventory 6,217 — Other assets 3,997 1,678 Total assets $ 700,122 $ 782,616 Liabilities and stockholders’ equity Accounts payable $ 6,876 $ 8,493 Accrued liabilities 89,192 97,474 Total current liabilities 96,068 105,967 Operating lease liabilities 56,126 44,460 Other long-term liabilities 7,034 5,180 Total liabilities 159,228 155,607 Commitments and contingencies (Note 9) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 5,000,000 shares authorized at December 31, 2021 and 2020; no shares issued and outstanding at December 31, 2021 and 2020 — — Common stock, $ 0.0001 par value; 225,000,000 shares authorized at December 31, 2021 and 2020; 161,012,695 shares and 159,637,771 shares issued and outstanding at December 31, 2021 and 2020, respectively 16 16 Additional paid-in capital 2,694,646 2,612,663 Accumulated deficit ( 2,153,576 ) ( 1,985,706 ) Accumulated other comprehensive (loss) income ( 192 ) 36 Total stockholders’ equity 540,894 627,009 Total liabilities and stockholders’ equity $ 700,122 $ 782,616 The accompanying notes are an integral part of these consolidated financial statements. F- 3 ACADIA PHARMACEUTICALS INC. CONSOLIDATED STATEM ENTS OF OPERATIONS (in thousands, except per share amounts) Years Ended December 31, 2021 2020 2019 Revenues Product sales, net $ 484,145 $ 441,755 $ 339,076 Total revenues 484,145 441,755 339,076 Operating expenses Cost of product sales 10,843 10,211 11,344 License fees and royalties 8,298 10,339 8,254 Research and development 239,415 319,130 240,385 Selling, general and administrative 396,028 388,661 325,638 Total operating expenses 654,584 728,341 585,621 Loss from operations ( 170,439 ) ( 286,586 ) ( 246,545 ) Interest income, net 591 6,610 11,165 Other income (expense) 2,329 ( 997 ) 997 Loss before income taxes ( 167,519 ) ( 280,973 ) ( 234,383 ) Income tax expense 351 611 876 Net loss $ ( 167,870 ) $ ( 281,584 ) $ ( 235,259 ) Net loss per common share, basic and diluted $ ( 1.05 ) $ ( 1.79 ) $ ( 1.60 ) Weighted average common shares outstanding, basic and diluted 160,493 157,331 147,199 The accompanying notes are an integral part of these consolidated financial statements. F- 4 ACADIA PHARMACEUTICALS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Years Ended December 31, 2021 2020 2019 Net loss $ ( 167,870 ) $ ( 281,584 ) $ ( 235,259 ) Other comprehensive (loss) income : Unrealized (loss) gain on investment securities ( 235 ) ( 253 ) 667 Foreign currency translation adjustments 7 ( 8 ) 2 Comprehensive loss $ ( 168,098 ) $ ( 281,845 ) $ ( 234,590 ) The accompanying notes are an integral part of these consolidated financial statements. F- 5 ACADIA PHARMACEUTICALS INC. CONSOLIDATED STATEM ENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2021 2020 2019 Cash flows from operating activities Net loss $ ( 167,870 ) $ ( 281,584 ) $ ( 235,259 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 63,615 84,422 82,265 Amortization of premiums and accretion of discounts on investment securities 2,404 1,470 ( 3,613 ) Amortization of intangible assets 1,108 1,477 1,477 (Gain) loss on strategic investment ( 2,329 ) 997 ( 997 ) Depreciation 2,236 1,455 1,289 Loss on disposal of assets — 281 3 Non-cash in-process research and development — 44,280 — Changes in operating assets and liabilities: Accounts receivable, net ( 16,119 ) ( 12,466 ) ( 9,691 ) Interest and other receivables 1,057 58 ( 394 ) Inventory ( 4,210 ) ( 3,320 ) ( 1,737 ) Prepaid expenses and other current assets 1,802 ( 7,088 ) 2,121 Operating lease right-of-use assets 6,287 4,280 3,875 Other assets 10 182 39 Accounts payable ( 1,617 ) 1,271 4,055 Accrued liabilities ( 8,455 ) 27,569 6,458 Operating lease liabilities ( 5,433 ) ( 1,769 ) ( 2,518 ) Long-term liabilities 1,854 2,319 1,497 Net cash used in operating activities ( 125,660 ) ( 136,166 ) ( 151,130 ) Cash flows from investing activities Purchases of investment securities ( 492,797 ) ( 339,908 ) ( 578,634 ) Maturities of investment securities 422,817 540,004 413,927 Net purchases of property and equipment ( 1,122 ) ( 7,587 ) ( 1,129 ) Net cash (used in) provided by investing activities ( 71,102 ) 192,509 ( 165,836 ) Cash flows from financing activities Proceeds from issuance of common stock, net of issuance costs 18,162 80,996 371,847 Net cash provided by financing activities 18,162 80,996 371,847 Effect of exchange rate changes on cash 7 ( 8 ) 2 Net (decrease) increase in cash, cash equivalents and restricted cash ( 178,593 ) 137,331 54,883 Cash, cash equivalents and restricted cash Beginning of year 331,798 194,467 139,584 End of year $ 153,205 $ 331,798 $ 194,467 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 1,038 $ 1,113 $ 1,597 Supplemental disclosure of noncash information: Property and equipment purchases in accounts payable and accrued liabilities $ — $ 130 $ 34 Value of common stock issued in connection with asset acquisition $ — $ 44,280 $ — The accompanying notes are an integral part of these consolidated financial statements. F- 6 ACADIA PHARMACEUTICALS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders' Shares Amount Capital Deficit Income (Loss) Equity Balances at December 31, 2018 143,853,597 $ 14 $ 1,948,300 $ ( 1,468,863 ) $ ( 372 ) $ 479,079 Issuance of common stock in public offering, net of issuance costs 7,187,500 1 271,451 — — 271,452 Issuance of common stock from exercise of stock options and units 3,965,166 — 95,984 — — 95,984 Issuance of common stock pursuant to employee stock purchase plan 269,037 — 4,411 — — 4,411 Net loss — — — ( 235,259 ) — ( 235,259 ) Stock-based compensation — — 82,799 — — 82,799 Other comprehensive income — — — — 669 669 Balances at December 31, 2019 155,275,300 15 2,402,945 ( 1,704,122 ) 297 699,135 Issuance of common stock in connection with asset acquisition 1,156,626 — 44,280 — — 44,280 Issuance of common stock from exercise of stock options 2,827,586 1 73,833 — — 73,834 Issuance of common stock pursuant to employee stock purchase plan 378,259 — 7,162 — — 7,162 Net loss — — — ( 281,584 ) — ( 281,584 ) Stock-based compensation — — 84,443 — — 84,443 Other comprehensive income — — — — ( 261 ) ( 261 ) Balances at December 31, 2020 159,637,771 16 2,612,663 ( 1,985,706 ) 36 627,009 Issuance of common stock from exercise of stock options and units 1,078,074 — 12,850 — — 12,850 Issuance of common stock pursuant to employee stock purchase plan 296,850 — 5,312 — — 5,312 Net loss — ( 167,870 ) ( 167,870 ) Stock-based compensation — — 63,821 — — 63,821 Other comprehensive income — — ( 228 ) ( 228 ) Balances at December 31, 2021 161,012,695 $ 16 $ 2,694,646 $ ( 2,153,576 ) $ ( 192 ) $ 540,894 The accompanying notes are an integral part of these consolidated financial statements. F- 7 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Business Acadia Pharmaceuticals Inc. (the Company), based in San Diego, California, is a biopharmaceutical company focused on the development and commercialization of innovative medicines to address unmet medical needs in central nervous system disorders. The Company is incorporated in Delaware. In April 2016, the U.S. Food and Drug Administration (FDA) approved the Company’s first drug, NUPLAZID ® (pimavanserin), for the treatment of hallucinations and delusions associated with Parkinson’s disease psychosis (PDP). NUPLAZID became available for prescription in the United States on May 31, 2016. 2. Summary of Significant Accounting Policies Significant accounting policies followed in the preparation of these financial statements are as follows: Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries located in Europe. All intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity date at the date of purchase of three months or less to be cash equivalents. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows (in thousands). Twelve Months Ended December 31, 2021 Twelve Months Ended December 31, 2020 Beginning of period End of period Beginning of period End of period Cash and cash equivalents $ 326,028 $ 147,435 $ 189,680 $ 326,028 Restricted cash 5,770 5,770 4,787 5,770 Total cash, cash equivalents and restricted cash shown in the statements of cash flows $ 331,798 $ 153,205 $ 194,467 $ 331,798 Investment Securities Currently, all of the Company’s investment securities are debt securities. The Company has classified all of its investment securities as available-for-sale as the sale of such securities may be required prior to maturity to implement management strategies, and accordingly, carries these investments at fair value. Unrealized gains and losses, if any, are reported as a separate component of stockholders’ equity. The cost of investment securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. Realized gains and losses, if any, are also included in interest income. The cost of securities sold is based on the specific identification method. F- 8 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Fair Value of Financial Instruments The carrying values of the Company’s financial instruments, consisting of cash and cash equivalents, trade receivables, interest and other receivables, restricted cash, and accounts payable and accrued liabilities, approximate fair value due to the relative short-term nature of these instruments. As disclosed in Note 4, the Company classifies its cash equivalents and available-for-sale investment securities within the fair value hierarchy as defined by authoritative guidance: Level 1 Inputs — Quoted prices for identical instruments in active markets. Level 2 Inputs — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable. Level 3 Inputs — Valuation derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Accounts Receivable Accounts receivable are recorded net of customer allowances for distribution fees, prompt payment discounts, chargebacks, and credit losses. Allowances for distribution fees, prompt payment discounts and chargebacks are based on contractual terms. The Company adopted FASB Accounting Standards Codification 326-20, Financial Instruments – Credit Losses (ASC 326-20) as of January 1, 2020. The Company estimated the current expected credit losses of its accounts receivable by assessing the risk of loss and available relevant information about the collectability, including historical credit losses, existing contractual payment terms, actual payment patterns of its customers, individual customer circumstances, and reasonable and supportable forecast of economic conditions expected to exist throughout the contractual life of the receivable. Based on its assessment, as of December 31, 2021, the Company determined that an allowance for credit loss was not required. Although the Company has not historically experienced significant credit losses, the Company’s exposure may increase due to uncertainties associated with the global economic recession and other disruptions resulting from the COVID-19 pandemic. Inventory Inventory is stated at the lower of cost or net realizable value under the first-in, first-out method (FIFO). The Company uses a combination of standard and actual costing methodologies to determine the cost basis for its inventories which approximates actual costs. Inventory consists of raw material, work in process, and finished goods, including third-party manufacturing costs, freight, and indirect overhead costs. The Company capitalizes inventory costs associated with its products upon regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed. Prior to FDA approval of NUPLAZID in April 2016, all costs related to the manufacturing of NUPLAZID were charged to research and development expense in the period incurred. The Company periodically reviews inventory and reduces the carrying value of items to net realizable value for potentially excess, dated or obsolete inventory based on an analysis of forecasted demand compared to quantities on hand and any firm purchase orders, as well as product shelf life. During the years ended December 31, 2021, 2020 and 2019, the Company recorded charges of $ 1.3 million, $ 0.4 million and $ 1.1 million, respectively, to reduce certain finished goods and work in process inventory to its net realizable value. F- 9 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Property and Equipment Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the lease by use of the straight-line method. Construction-in-process reflects amounts incurred for property, equipment or improvements that have not been placed in service. Maintenance and repair costs are expensed as incurred. When assets are retired or sold, the assets and accumulated depreciation are removed from the respective accounts and any gain or loss is recognized. Estimated useful lives by major asset category are as follows: Useful Lives Machinery and equipment 5 to 7 years Computers and software 3 years Furniture and fixtures 10 years Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Through December 31, 2021 , no such impairment losses have been recorded by the Company. License Fees and Royalties The Company expenses amounts paid to acquire licenses associated with products under development when the ultimate recoverability of the amounts paid is uncertain and the technology has no alternative future use when acquired. Acquisitions of technology licenses are charged to expense or capitalized based upon management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. The Company has determined that technological feasibility for its product candidates is reached when the requisite regulatory approvals are obtained to make the product available for sale. In connection with the FDA approval of NUPLAZID in April 2016, the Company made a one-time milestone payment of $ 8.0 million pursuant to its 2006 license agreement with the Ipsen Group in which the Company licensed certain intellectual property rights that complement its patent portfolio for its serotonin platform, including NUPLAZID. The Company capitalized the $ 8.0 million payment as an intangible asset and is amortizing the asset on a straight-line basis over the estimated useful life of the licensed patents through the second half of 2021. The Company recorded amortization expense related to its intangible asset of $ 1.1 million, $ 1.5 million and $ 1.5 million for the years ended December 31, 2021, 2020 and 2019. As of December 31, 2021, the intangible asset was fully amortized. Royalties incurred in connection with the Company’s license agreement with the Ipsen Group, as disclosed in Note 9, are expensed to license fees and royalties as revenue from product sales is recognized. Acquisitions The Company accounts for acquisitions of an asset or group of similar identifiable assets that do not meet the definition of a business as asset acquisition using the cost accumulation method, whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of their relative fair values. No goodwill is recognized in an asset acquisition. Intangible assets acquired in an asset acquisition for use in research and development activities which have no alternative future use are expensed as in-process research and development on the acquisition date. Intangible assets acquired for use in research and development activities which have an alternative future use are capitalized as in-process research and development. Future costs to develop these assets are recorded to research and development expense as they are incurred. Contingent milestone payments associated with asset acquisitions are recognized when probable and estimable. These amounts are expensed to research and development if there is no alternative future use associated with the asset, or capitalized as an intangible asset if alternative future use of the asset exists. F- 10 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Advertising Expense In connection with the FDA approval and commercial launch of NUPLAZID in 2016, the Company began to incur advertising costs. Advertising costs are expensed when services are performed or goods are delivered. The Company incurred $ 41.8 million, $ 51.1 million and $ 38.3 million in advertising costs during the years ended December 31, 2021, 2020 and 2019 , respectively, related to NUPLAZID. No advertising costs were capitalized as prepaid expenses at December 31, 2021 or 2020 . Revenue Recognition Product Sales, Net The Company accounts for contracts with its customers in accordance with Revenue from Contracts with Customers (Topic 606) . The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Payment terms differ by customer, but typically range from 31 to 35 days from the date of shipment. Revenue for the Company’s product sales has not been adjusted for the effects of a financing component as the Company expects, at contract inception, that the period between when the Company transfers control of the product and when the Company receives payment will be one year or less. The Company’s net product sales consist of U.S. sales of NUPLAZID. NUPLAZID was approved by the FDA in April 2016 and the Company commenced shipments of NUPLAZID to specialty pharmacies (SPs) and specialty distributors (SDs) in late May 2016. SPs dispense product to a patient based on the fulfillment of a prescription and SDs sell product to government facilities, long-term care pharmacies, or in-patient hospital pharmacies. Product shipping and handling costs are included in cost of product sales. The Company recognizes revenue from product sales at the net sales price (the “transaction price”) which includes estimates of variable consideration for which reserves for sales discounts and allowance are established and reflects each of these as either a reduction to the related account receivable or as an accrued liability, depending on how the amount payable is settled. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which the Company is entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from estimates, the Company may need to adjust its estimates, which would affect net revenue in the period of adjustment. The following are the Company’s significant categories of sales discounts and allowances: Distribution Fees : Distribution fees include distribution service fees paid to the SPs and SDs based on a contractually fixed percentage of the wholesale acquisition cost (WAC), fees for data, and prompt payment discounts. Distribution fees are recorded as an offset to revenue based on contractual terms at the time revenue from the sale is recognized. F- 11 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Rebates : Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and the Medicare Part D prescription drug benefit. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements with, or statutory requirements pertaining to, Medicaid and Medicare benefit providers. The allowance for rebates is based on statutory discount rates, estimated payor mix, and expected utilization. The Company’s estimates for expected utilization of rebates are based on historical data received from the SPs and SDs since product launch. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for prior quarters’ unpaid rebates still estimated to be incurred. Chargebacks : Chargebacks are discounts and fees that relate to contracts with government and other entities purchasing from the SDs at a discounted price. The SDs charge back to the Company the difference between the price initially paid by the SDs and the discounted price paid to the SDs by these entities. The Company also incurs group purchasing organization fees for transactions through certain purchasing organizations. The Company estimates sales with these entities and accrues for anticipated chargebacks and organization fees, based on the applicable contractual terms. Co-Payment Assistance : The Company offers co-payment assistance to commercially insured patients meeting certain eligibility requirements. Co-payment assistance is accrued for based on actual program participation and estimates of program redemption using data provided by third-party administrators. Product Returns : Consistent with industry practice, the Company offers the SPs and SDs limited product return rights for damages, shipment errors, and expiring product; provided that the return is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. The Company does not allow product returns for product that has been dispensed to a patient. As the Company receives inventory reports from the SPs and SDs and has the ability to control the amount of product that is sold to the SPs and SDs, it is able to make a reasonable estimate of future potential product returns based on this on-hand channel inventory data and sell-through data obtained from the SPs and SDs. In arriving at its estimate for product returns, the Company also considers historical product returns, the underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry. Research and Development Expenses Research and development expenses are charged to operations as incurred. Research and development expenses include costs associated with services provided by contract organizations for preclinical development, pre-commercialization manufacturing expenses, and clinical trials, salaries and related personnel expenses including stock-based compensation expense, and facilities and equipment expenses. The upfront consideration and transaction costs associated with acquired in-process research and development are also included in the research and development expenses. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or services provided and the invoices received from its external service providers. When the Company makes payments in advance of services being provided, it records those amounts as prepaid expenses on its consolidated balance sheet and expense them as the services are rendered. In the case of clinical trials, a portion of the estimated cost normally relates to the projected cost to treat a patient in the trials, and this cost is recognized based on the number of patients enrolled in the trial. Other indirect costs are generally recognized on a straight-line basis over the estimated period of the study. As actual costs become known, the Company adjusts its accruals accordingly. Concentration Risk Financial instruments, which potentially subject the Company to concentrations of credit risk, principally consist of cash, cash equivalents, investment securities, accounts receivable, and restricted cash. The Company invests its excess cash primarily in money market funds, U.S. treasury notes, and high quality, marketable debt instruments of corporations and government sponsored enterprises in accordance with the Company’s investment policy. The Company’s investment policy defines allowable investments and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity. All investment securities have a credit rating of at least Aa3/AA- or better, or P-1/A-1 or better, as determined by Moody’s Investors Service or Standard & Poor’s . Further, the Company specifies credit quality standards for its customers that are designed to limit the Company’s credit exposure to any single party. F- 12 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company does not currently have any of its own manufacturing facilities, and therefore it depends on an outsourced manufacturing strategy for the production of NUPLAZID for commercial use and for the production of its product candidates for clinical trials. The Company has contracts in place with two third-party manufacturers of commercial drug product and one third-party manufacturer of drug substance that is approved for the production of NUPLAZID active pharmaceutical ingredient (API). Although there are potential sources of supply other than the Company’s existing suppliers, any new supplier would be required to qualify under applicable regulatory requirements. The Company has entered into distribution agreements with a limited number of SPs and SDs, and all of the Company’s product sales are to these customers. For the year ended December 31, 2021 , the Company’s four largest customers represented approximately 74 % of the Company’s product revenue and 77 % of the Company’s accounts receivable balance at December 31, 2021. For the year ended December 31, 2020 , the Company’s four largest customers represented approximately 74 % of the Company’s product revenue and 75 % of the Company’s accounts receivable balance at December 31, 2020. For the year ended December 31, 2019 , the Company’s four largest customers represented approximately 77 % of the Company’s product revenue and 75 % of the Company’s accounts receivable balance at December 31, 2019 . Stock-Based Compensation The fair value of each employee stock option and each employee stock purchase right granted is estimated on the grant date under the fair value method using the Black-Scholes valuation model. The estimated fair value of each stock option and purchase right is then expensed over the requisite service period, which is generally the vesting period. The following weighted-average assumptions were used during these periods: Years Ended December 31, 2021 2020 2019 Stock Options: Expected volatility 64 % 63 % 62 % Risk-free interest rate 1 % 1 % 2 % Expected dividend yield 0 % 0 % 0 % Expected life of options in years 5.4 5.5 5.7 Years Ended December 31, 2021 2020 2019 Employee Stock Purchase Plan: Expected volatility 49 %- 100 % 50 %- 76 % 62 %- 86 % Risk-free interest rate 0.0 %- 0.5 % 0.1 %- 0.2 % 1.5 %- 2.4 % Expected dividend yield 0 % 0 % 0 % Expected life in years 0.5 - 2.0 0.5 - 2.0 0.5 - 2.0 Expected Volatility. The Company considers its historical volatility and implied volatility when determining the expected volatility. Risk-Free Interest Rate. The Company determines its risk-free interest rate assumption based on the U.S. Treasury yield for obligations with contractual terms similar to the expected term of the stock option or purchase right being valued. Expected Dividend Yield. The Company has never paid any dividends and currently has no plans to do so. Expected Life. In determining the expected life for stock options, the Company considers, among other factors, its historical exercise experience to date as well as the mean time remaining to full vesting of all outstanding options and the mean time remaining to the end of the contractual term of all outstanding options. The estimated life for the Company’s employee stock purchase rights is based upon the terms of each offering period. F- 13 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The fair value of restricted stock units (RSUs) is estimated based on the c losing market price of the Company’s common stock on the date of grant. RSUs generally vest over a four-year period. Certain RSUs also have an accelerated vesting clause based on specified market condition target and continued employment through a minimum vesting period. The fair value of RSUs expected to vest are recognized and amortized on a straight-line basis over the requisite service period, which is generally the vesting period. For those RSUs requiring satisfaction of both market and service conditions, the requisite service period is the longest of the explicit, implicit and derived service periods. The fair value of performance-based stock units (PSUs) is estimated based on the closing market price of the Company’s common stock on the date of grant. PSUs vest upon the achievement of certain pre-defined company-specific performance-based criteria. Expense related to these PSUs is recognized ratably over the expected performance period once the pre-defined performance-based criteria for vesting becomes probable. During the year ended December 31, 2021, the Company had a change in estimate related to the achievement of certain performance-based criteria for performance-based stock awards which resulted in a reduction in stock-based compensation expenses by approximatel y $ 6.8 m illion. The table below summarizes the total stock-based compensation expense included in the Company’s statements of operations for the periods presented (in thousands): Years Ended December 31, 2021 2020 2019 Cost of product sales $ 1,286 $ 2,632 $ 2,936 Research and development 21,969 31,314 32,533 Sales, general and administrative 40,360 50,476 46,796 $ 63,615 $ 84,422 $ 82,265 Income Taxes Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is computed for the expected future impact of differences between the financial reporting and income tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax credits and loss carryforwards. Deferred income tax expense or benefit represents the net change during the year in the deferred income tax asset or liability. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company recognizes the impact of a tax position in the financial statements only if that position is more likely than not to be sustained upon examination by taxing authorities, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions will be reflected in income tax expense. Net Loss Per Share Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, stock options, employee stock purchase rights, RSUs, and warrants are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be antidilutive. The Company incurred net losses for all periods presented and there were no reconciling items for potentially dilutive securities. More specifically, at December 31, 2021, 2020 and 2019 , options, employee stock purchase rights, RSUs, PSUs, and warrants covering a total of approximately 17,535,000 shares, 19,331,000 shares and 19,516,000 shares, respectively, were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive. Segment Reporting Management has determined that the Company operates in one business segment which is the development and commercialization of innovative medicines. All revenues for the years ended December 31, 2021, 2020 and 2019 were generated from customers in the United States. F- 14 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Recently Issued Accounting Standards In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments , which changes the impairment model for most financial assets and certain other instruments. For trade receivables and other instruments, entities will be required to use a new forward-looking expected loss model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those years, with early adoption permitted only as of annual reporting periods beginning after December 15, 2018. The Company adopted this guidance on January 1, 2020. The adoption of ASU 2016-13 did not have material impact on the Company’s consolidated financial statements. In April 2019 , the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments , which, among other things, provides entities with practical expedients and policy elections related to the presentation and disclosure of accrued interest and the related allowance for credit losses and clarifies how to disclose line-of-credit arrangements that are converted to term loans in the vintage table disclosure. ASU 2019-04 has the same effective date as the new credit impairment standard for entities that have not yet adopted the standard. For entities that early adopted the new credit impairment standard, ASU 2019-04 is effective for fiscal years beginning after December 15, 2019 and interim periods therein. Entities that early adopted the new credit impairment standard may early adopt ASU 2019-04. The Company adopted this guidance on January 1, 2020. There was no significant impact of the adoption of this guidance on the Company’s consolidated financial statements. In December 2019, the FASB issued ASU 2019-12 Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes . The Board issued this Update as part of its Simplification Initiative to improve areas of GAAP and reduce cost and complexity while maintaining usefulness. The main provision that impacts the Company is the removal of the exception to the incremental approach of intra-period tax allocation when there is a loss from continuing operations and income or gain from other items (for example, discontinued operations and other comprehensive income). ASU 2019-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company has elected to early adopt ASU 2019-12 as of the beginning of 2020, however, there is no cumulative effect to be recognized with the early adoption and no material impact on the Company’s consolidated financial statements. 3. Investments The carrying value and amortized cost of the Company’s investments, summarized by major security type, consisted of the following (in thousands): December 31, 2021 Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value U.S. Treasury notes $ 140,287 $ — $ ( 100 ) $ 140,187 Government sponsored enterprise securities 49,512 — ( 38 ) 49,474 Municipal bonds 26,006 — ( 22 ) 25,984 Commercial paper 157,670 9 ( 53 ) 157,626 $ 373,475 $ 9 $ ( 213 ) $ 373,271 December 31, 2020 Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value U.S. Treasury notes $ 205,111 $ 6 $ ( 27 ) $ 205,090 Government sponsored enterprise securities 10,004 — ( 5 ) 9,999 Corporate debt securities 52,341 47 — * 52,388 Commercial paper 38,443 21 ( 11 ) 38,453 $ 305,899 $ 74 $ ( 43 ) $ 305,930 _______________________ * Unrealized loss was less than $ 500 . F- 15 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company has classified all of its available-for-sale investment securities, including those with maturities beyond one year, as current assets on its consolidated balance sheets based on the highly liquid nature of the investment securities and because these investment securities are considered available for use in current operations. As of December 31, 2021 and 2020, all of the Company’s available-for-sale investment securities have contractual maturity dates of less than one year . The Company has classified all equity securities as other assets on its consolidated balance sheets. At December 31, 2021 and 2020 , the Company had 39 and 24 securities, respectively, in an unrealized loss position. The following table presents gross unrealized losses and fair value for those available-for-sale investments that were in an unrealized loss position as of December 31, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous loss position (in thousands): Less Than 12 Months 12 Months or Greater Total Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses December 31, 2021: U.S. Treasury notes $ 140,287 $ ( 100 ) $ — $ — $ 140,287 $ ( 100 ) Government sponsored enterprise securities 49,512 ( 38 ) — — 49,512 ( 38 ) Municipal bonds 26,006 ( 22 ) — — 26,006 ( 22 ) Commercial paper 75,192 ( 53 ) — — 75,192 ( 53 ) Total $ 290,997 $ ( 213 ) $ — $ — $ 290,997 $ ( 213 ) December 31, 2020: U.S. Treasury notes $ 129,631 $ ( 27 ) $ — $ — $ 129,631 $ ( 27 ) Government sponsored enterprise securities 10,004 ( 5 ) — — 10,004 ( 5 ) Corporate debt securities 6,252 — * — — 6,252 — * Commercial paper 23,466 ( 11 ) — — 23,466 ( 11 ) Total $ 169,353 $ ( 43 ) $ — $ — $ 169,353 $ ( 43 ) _______________________ * Unrealized loss was less than $ 500 . At each reporting date, the Company performs an evaluation of impairment to determine if any unrealized losses are the result of credit losses. Impairment is assessed at the individual security level. Factors considered in determining whether a loss resulted from a credit loss or other factors include the Company’s intent and ability to hold the investment until the recovery of its amortized cost basis, the extent to which the fair value is less than the amortized cost basis, the length of time and extent to which fair value has been less than the cost basis, the financial condition of the issuer, any historical failure of the issuer to make scheduled interest or principal payments, any changes to the rating of the security by a rating agency, any adverse legal or regulatory events affecting the issuer or issuer’s industry, any significant deterioration in economic conditions. The Company does not intend to sell the investment in unrealized loss position and it is unlikely that the Company will be required to sell the investment before the recovery of its amortized cost basis. Based on its evaluation, the Company determined its year-to-date credit losses related to its available-for-sale securities were immaterial at December 31, 2021. Although the Company has not historically experienced significant losses on its investments, the Company’s exposure may increase due to uncertainties associated with the global economic recession and other disruptions resulting from the COVID-19 pandemic. 4. Fair Value Measurements The Company’s investments include cash equivalents, available-for-sale investment securities consisting of money market funds, U.S. treasury notes, and marketable debt instruments of corporations and government sponsored enterprises in accordance with the Company’s investment policy, and equity investments. The Company’s investment policy defines allowable investment securities and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity. All investment securities have a credit rating of at least Aa3/AA- or better, or P-1/A-1 or better, as determined by Moody’s Investors Service or Standard & Poor’s . F- 16 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company’s cash equivalents, available-for-sale investment securities, and equity securities are classified within the fair value hierarchy as defined by authoritative guidance. The Company’s investment securities and equity securities classified as Level 1 are valued using quoted market prices. The Company obtains the fair value of its Level 2 financial instruments from third-party pricing services. The pricing services utilize industry standard valuation models whereby all significant inputs, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, or other market-related data, are observable. The Company validates the prices provided by the third-party pricing services by reviewing their pricing methods and matrices and obtaining market values from other pricing sources. After completing the validation procedures, the Company did not adjust or override any fair value measurements provided by these pricing services as of December 31, 2021 and 2020, respectively. The Company does not hold any securities classified as Level 3, which are securities valued using unobservable inputs. The Company has not transferred any investment securities between the classification levels. The recurring fair value measurements of the Company’s cash equivalents, available-for-sale investment securities, and equity securities at December 31, 2021 and 2020 consisted of the following (in thousands): Fair Value Measurements at Reporting Date Using December 31, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Money market fund $ 122,876 $ 122,876 $ — $ — U.S. Treasury notes 140,187 140,187 — — Equity securities 3,638 3,638 — — Government sponsored enterprise securities 49,474 — 49,474 — Municipal bonds 25,984 — 25,984 — Commercial paper 157,626 — 157,626 — $ 499,785 $ 266,701 $ 233,084 $ — Fair Value Measurements at Reporting Date Using December 31, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Money market fund $ 300,339 $ 300,339 $ — $ — U.S. Treasury notes 230,088 230,088 — — Equity securities 1,309 1,309 — — Government sponsored enterprise securities 9,999 — 9,999 — Corporate debt securities 52,388 — 52,388 — Commercial paper 38,453 — 38,453 — $ 632,576 $ 531,736 $ 100,840 $ — F- 17 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 5. Balance Sheet Details Inventory consisted of the following (in thousands): December 31, 2021 2020 Finished goods $ 1,114 $ 1,453 Work in process 6,767 6,367 Raw material 6,217 1,862 $ 14,098 $ 9,682 Reported as: Inventory $ 7,881 $ 9,682 Long-term inventory 6,217 — Total $ 14,098 $ 9,682 Amount reported as long-term inventory consisted of raw materials as of December 31, 2021. The Company has raw materials beyond one year production plan that prevent the Company from potential supply interruption. Those raw materials that beyond one year production plan were classified as long-term inventory. Property and equipment, net, consisted of the following (in thousands): December 31, 2021 2020 Computers and software $ 5,873 $ 5,315 Leasehold improvements 3,696 4,033 Furniture and fixtures 4,549 3,648 Machinery and equipment 113 113 14,231 13,109 Accumulated depreciation ( 6,184 ) ( 3,948 ) $ 8,047 $ 9,161 Depreciation of property and equipment was $ 2.2 million, $ 1.5 million, and $ 1.3 million for the years ended December 31, 2021, 2020, and 2019, respectively. For the year ended December 31, 2021 , the Company did no t retire any fully depreciated property and equipment. During 2020 and 2019 , the Company retired $ 3.1 million and $ 0.2 million, respectively, of fully depreciated property and equipment. Accrued liabilities consisted of the following (in thousands): December 31, 2021 2020 Accrued research and development services $ 27,270 $ 28,380 Accrued compensation and benefits 25,896 25,811 Accrued sales allowances 15,717 14,115 Accrued consulting and professional fees 9,319 18,969 Current portion of lease liabilities 8,304 5,087 Other 2,686 5,112 $ 89,192 $ 97,474 F- 18 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 6. Stockholders’ Equity Stock Offerings In August 2020, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with CerSci Therapeutics Incorporated (CerSci), pursuant to which one of the Company’s wholly owned subsidiaries merged with and into CerSci, with CerSci as the surviving corporation and the Company’s wholly owned subsidiary. Approximately 1.2 million shares of the Company’s common stock with a value of $ 44.3 million were issued to CerSci’s former equity holders. The Company filed a registration statement on Form S-3 with the SEC to register the resale of the shares of the Company’s common stock issued in connection with its acquisition of CerSci. In September 2019, the Company raised net proceeds of approximately $ 271.5 million from the sale of 7,187,500 shares of its common stock in a follow-on public offering, including 937,500 shares sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares. Equity Awards The Company’s 2010 Equity Incentive Plan, as amended to date (the 2010 Plan), permits the grant of options to employees, directors and consultants. In addition, the 2010 Plan permits the grant of stock bonuses, rights to purchase restricted stock, and other stock awards. The exercise price of options granted under the 2010 Plan cannot be less than 100 percent of the fair market value of the common stock on the date of grant and the maximum term of any option is 10 years. Options granted under the 2010 Plan generally vest over a four-year period. All shares that remained eligible for grant under the Company’s 2004 Equity Incentive Plan (the 2004 Plan) at the time of approval of the 2010 Plan were transferred to the 2010 Plan. The 2010 Plan share reserve also has been, and may be, increased by the number of shares that otherwise would have reverted to the 2004 Plan reserve after June 2010. In June 2015, June 2016, June 2017, June 2018, and June 2019, the Company’s stockholders approved amendments to its 2010 Plan to, among other things, increase the aggregate number of shares of common stock authorized for issuance under the plan by 5,000,000 shares, 3,000,000 shares, 5,500,000 shares, 6,700,000 shares, and 8,300,000 shares, respectively. At December 31, 2021 , there were 27,357,064 shares of common stock authorized for issuance, of which 9,590,133 shares were available for new grants under the 2010 Plan. Stock Options The 2010 Plan provided for the grant of options to employees, directors and consultants. The exercise price of options granted under the 2010 Plan was at 100 percent of the fair market value of the common stock on the date of grant and the maximum term of any option was 10 years. Options granted under the 2010 Plan generally vested over a four-year period. The following table summarizes the Company’s stock option activity during the year ended December 31, 2021: Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2020 16,441,994 $ 30.40 Granted 1,879,092 $ 43.62 Exercised ( 577,627 ) $ 22.25 Cancelled/forfeited ( 2,657,318 ) $ 34.83 Outstanding at December 31, 2021 15,086,141 $ 31.58 5.8 $ 16,416 Vested and exercisable at December 31, 2021 11,003,784 $ 30.09 5.1 $ 12,879 Unvested at December 31, 2021 4,082,357 $ 35.60 7.7 $ 3,537 The aggregate intrinsic value of options exercisable as of December 31, 2021 is calculated as the difference between the exercise price of the underlying options and the closing market price of the Company’s common stock on that date, which was $23.34 per share. The aggregate intrinsic value of options exercised during the years ended December 31, 2021, 2020, and 2019 was approximately $ 8.0 million, $ 55.5 million, and $ 56.6 million, respectively, determined as of the date of exercise. The Company received $ 12.9 million and $ 73.8 million in cash from options exercised during the year ended December 31, 2021 and 2020, respectively. F- 19 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The weighted average per share fair value of options granted during the years ended December 31, 2021, 2020, and 2019 was approximately $ 24.07 , $24.16, and $ 15.97 , respectively. As of December 31, 2021 and 2020, total unrecognized compensation cost related to stock options was approximately $66.0 million and $ 99.1 million, and the weighted average period over which this cost is expected to be recognized is approximately 2.3 years and 2.5 years, respectively. Restricted Stock The Company grants RSUs and PSUs, both of which are considered restricted stock, pursuant to the 2010 Plan and satisfies such grants through the issuance of new shares. RSUs are share awards that, upon vesting, will deliver to the holder shares of the Company’s common stock. RSUs generally vest over a four-year period. Certain RSUs also has accelerated vesting clause based on specified market condition target and continued employment through the vesting period. PSUs for which the number of shares issuable at the end of performance period can reach up to 200% of the shares approved in the award based on the achievement of certain pre-defined Acadia-specific performance criteria and continued employment through the vesting period . The following table summarizes the Company’s restricted stock activity during the year ended December 31, 2021: Number of Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2020 2,207,247 $ 33.81 Granted 1,713,829 $ 35.84 Vested ( 491,813 ) $ 30.10 Cancelled/forfeited ( 748,473 ) $ 38.74 Outstanding at December 31, 2021 2,680,790 $ 34.41 $ 62,570 There were 1,276,936 and 700,156 PSUs outstanding at December 31, 2021 and 2020, respectively. During the years ended 2021 and 2020 , 918,434 and 255,878 PSUs were granted, respectively, none of which were vested. During the years ended December 31, 2021 and 2020 , total intrinsic value of PSUs outstanding was $ 29.8 million and $ 37.4 million, respectively. Total unrecognized compensation cost related to RSUs was approximately $ 39.8 million and $ 41.7 million for the years ended December 31, 2021 and 2020 , respectively, and the weighted average period over which the cost is expected to be recognized is approximately 2.3 years and 2.7 years, respectively. Total unrecognized compensation cost related to PSUs was approximately $ 11.5 million and $ 2.6 million for the years ended December 31, 2021 and 2020 , respectively, and the weighted average remaining contractual term related to outstanding PSUs was 3.3 years and 2.8 years, respectively. Employee Stock Purchase Plan The Company’s 2004 Employee Stock Purchase Plan (the Purchase Plan) became effective upon the closing of the Company’s initial public offering in June 2004. In June 2016, June 2019 and June 2020, the Company’s stockholders approved an amendment to the Purchase Plan to, among other things, increase the aggregate number of shares of common stock authorized for issuance under the plan by 400,000 shares, 600,000 shares and 3,000,000 shares, respectively. At December 31, 2021 , a total of 5,525,000 shares of common stock had been reserved for issuance under the Purchase Plan. At December 31, 2021 , 2,810,145 shares of common stock remained available for issuance pursuant to the Purchase Plan. Eligible employees who elect to participate in an offering under the Purchase Plan may have up to 15 percent of their earnings withheld, subject to certain limitations, to purchase shares of common stock pursuant to the Purchase Plan. The price of common stock purchased under the Purchase Plan is equal to 85 percent of the lower of the fair market value of the common stock at the commencement date of each offering period or the relevant purchase date. During the years ended December 31, 2021, 2020, and 2019 , a total of 296,850 , 377,963 , and 269,037 shares of common stock were issued under the Purchase Plan at average per share prices of $ 17.89 , $ 18.94 , and $ 16.41 , respectively. The weighted average per share fair value of purchase rights granted during the years ended December 31, 2021, 2020, and 2019 wa s $ 23.97 , $ 22.47 , and $ 14.24 , respectively. During the years ended December 31, 2021, 2020, and 2019 , the Company recorded cash received from the exercise of purchase rights of $ 5.3 million, $ 7.2 million, and $ 4.4 million, respectively. F- 20 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Contingent Cash Awards In November 2021, the Company established a plan whereby substantially all full-time employees excluding executive management are eligible to receive a series of cash bonuses over certain periods based on continued employment and the Company’s stock price reaching a pre-specified target. The maximum potential payout of the cash awards at the grant date was $ 15.1 million. The Company has determined that the cash awards were classified as liabilities pursuant to ASC Topic 718, Compensation – Stock Compensation . The Company estimates the fair value of the awards at each reporting period using the Monte Carlo simulation, which is recognized as compensation cost over the derived service period . Total fair value of the awards at the grant date was $ 4.4 million. The maximum potential payout at December 31, 2021 after adjusting for forfeitures was $ 14.6 million. The fair value of the awards at December 31, 2021 was approximately $ 5.6 million. During year ended December 31, 2021, the Company recorded a total of $ 0.6 million compensation cost related to the awards. 7. 401(k) Plan Effective January 1997, the Company established a deferred compensation plan (the 401(k) Plan) pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended (the Code), whereby substantially all employees are eligible to contribute up to 60 percent of their pretax earnings, not to exceed amounts allowed under the Code. The Company makes discretionary contributions to the 401(k) Plan equal to 100 percent of each employee’s pretax contributions up to 5 percent of his or her eligible compensation, subject to limitations under the Code. The Company’s total contributions to the 401(k) Plan were $ 5.8 million, $ 5.1 million, and $ 4.3 million for the years ended December 31, 2021, 2020, and 2019 , respectively. 8. Income Taxes Domestic and foreign pre-tax loss is as follows (in thousands): Years Ended December 31, 2021 2020 2019 Domestic $ ( 138,913 ) $ ( 238,885 ) $ ( 123,411 ) Foreign ( 28,606 ) ( 42,088 ) ( 110,972 ) $ ( 167,519 ) $ ( 280,973 ) $ ( 234,383 ) At December 31, 2021, the Company had federal, state, and foreign net operating loss (NOL) carryforwards of approximately $ 551.2 million, $ 426.2 million, and $ 1,354.3 million, respectively. The Company recognized state income tax provisions of $ 0.4 million, $ 0.4 million and $ 0.9 million for the years ended December 31, 2021, 2020 and 2019 , respectively. The Company recognized foreign income tax in the amount of $ 0.2 million for the year ended December 31, 2020. These tax liabilities were associated with minimum taxes and a patent box entry tax for Switzerland. Utilization of the domestic NOL and research and development (R&D) credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred or that could occur in the future, as required by Section 382 of the Code, as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. The Company previously completed a study to assess whether an ownership change, as defined by Section 382 of the Code, had occurred from the Company’s formation through December 31, 2013. Based upon this study, the Company determined that several ownership changes had occurred. Accordingly, the Company reduced its deferred tax assets related to the federal NOL carryforwards and the federal R&D credit carryforwards that are anticipated to expire unused as a result of these ownership changes. These tax attributes were excluded from deferred tax assets with a corresponding reduction of the valuation allowance with no net effect on income tax expense or the effective tax rate. The Company completed a study through December 31, 2020 and concluded no additional ownership changes occurred. Future ownership changes may further limit the Company’s ability to utilize its remaining tax attributes. F- 21 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Federal and state NOL carryforwards of $ 6.9 million and less than $ 0.1 million will expire in 2025 unless utilized. The remaining federal and state NOL carryforwards will begin to expire in 2026 . At December 31, 2021, the Company had federal and state charitable contribution carryforwards of $ 171.3 million and $ 21.8 million will expire in 2022 unless utilized. At December 31, 2021, the Company had $ 65.8 million of federal R&D credit carryforwards, of which $ 0.3 million will expire in 2022 unless utilized, and the remaining federal R&D credit carryforwards will begin to expire in 2023. At December 31, 2021, the Company had state R&D credit carryforwards of approximately $ 2.8 million that will begin to expire in 2024 and $ 18.5 million that have no expiration date. At December 31, 2021, the Company had foreign NOL carryforwards of approximately $ 218.5 million that will expire in 2022 unless utilized and $ 3.4 million that have no expiration date. The Company continues to record the deferred tax assets related to these attributes, subject to valuation allowance, until expiration occurs. The components of the deferred tax assets are as follows (in thousands): December 31, 2021 2020 Deferred tax assets NOL carryforwards $ 229,476 $ 218,905 R&D credit carryforwards 74,702 63,886 Stock-based compensation 51,170 47,547 Charitable contributions 41,355 28,470 Lease liabilities 15,550 11,675 Intangibles 6,741 7,109 Capitalized R&D — 6,073 Other 11,700 9,390 Total deferred tax assets 430,694 393,055 Valuation allowance ( 416,630 ) ( 380,533 ) Deferred tax liabilities Right-of-use assets ( 14,063 ) ( 11,142 ) Property and equipment ( 1 ) ( 1,380 ) Total deferred tax liabilities ( 14,064 ) ( 12,522 ) Total net deferred tax assets $ — $ — Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by approximately $ 36.1 million in 2021 primarily due to an increase in deferred tax assets generated from net operating losses, R&D credits and stock-based compensation expense, offset in part by the remeasurement of deferred tax balance for changes in state tax rates, and limitations on executive stock compensation. During 2019, Switzerland implemented tax reform that is effective for tax years 2020 and forward. As a result, the Company has remeasured the deferred tax assets, primarily comprised of net operating loss carryforwards, at the amount and rate in which it is anticipated they will reverse. The tax reform also allowed the Company to take as a deduction for Cantonal purposes only, a portion of the increase in value of the intellectual property transferred to Switzerland. This deduction was available as a result of establishing Lucerne as the Cantonal location for the Company. As a result, during 2019 a deferred tax asset of $ 57.0 million was established which was the estimated amount that would be allowed as a future deduction. During December 2020, the Company moved to Basel-City from Lucerne. As a result, the intellectual property deduction is no longer available and has been reversed. The deferred tax assets and net operating losses were remeasured at the amount and rate in which they are anticipated to reverse as a result of the change in jurisdiction. The adjustments made to the deferred tax assets are offset by a valuation allowance. F- 22 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) A reconciliation of income taxes to the amount computed by applying the statutory federal income tax rate to the pretax loss is summarized as follows (in thousands): Years Ended December 31, 2021 2020 2019 Amounts computed at statutory federal rate $ ( 35,179 ) $ ( 59,004 ) $ ( 49,365 ) Stock-based compensation and other permanent differences 6,696 991 5,691 Write-off of IP R&D 1,277 9,565 — R&D credits ( 11,727 ) ( 17,909 ) ( 16,687 ) Change in valuation allowance 36,099 5,925 99,846 State taxes ( 2,617 ) ( 5,038 ) ( 2,138 ) Contingencies 3,879 2,665 1,861 Foreign rate differential 2,857 4,208 20,413 Limitation on executive compensation 1,808 3,705 1,178 Deferred rate adjustment ( 2,424 ) 2,130 — Switzerland tax reform ( 923 ) 53,045 ( 59,181 ) Other 605 328 ( 742 ) Income tax expense $ 351 $ 611 $ 876 The tax years 2002-2020 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination. The Company recorded an uncertain tax position reserve of $ 4.1 million, $ 2.9 million and $ 1.9 million for the years ended December 31, 2021, 2020 and 2019 , respectively. Due to the valuation allowance recorded against the Company’s deferred tax assets, an immaterial amount of the total unrecognized tax benefits as of December 31, 2021 would reduce the annual effective tax rate if recognized. The Company does not anticipate that the amount of unrecognized tax benefits as of December 31, 2021 will significantly change within the next twelve months. The Company’s practice is to recognize interest and/or penalties related to uncertain income tax positions in income tax expense. The Company had no interest and/or penalties accrued on the Company’s consolidated balance sheets at December 31, 2021 or 2020 , respectively. Further, the Company did no t recognize any interest and/or penalties in the statement of operations for the years ended December 31, 2021, 2020 and 2019, respectively, related to uncertain tax positions. The following table provides a reconciliation of changes in unrecognized tax benefits (in thousands): Years Ended December 31, 2021 2020 2019 Balance at beginning of period $ 9,843 $ 6,945 $ 5,037 Additions related to current period tax positions 3,973 2,722 1,908 Additions related to prior period tax positions 140 212 — Reductions related to prior period tax positions ( 33 ) ( 36 ) — Balance at end of period $ 13,923 $ 9,843 $ 6,945 9. Commitments and Contingencies Royalty Payments Pursuant to the terms of its 2006 license agreement with the Ipsen Group, the Company is required to make royalty payments of 2 % of net sales of NUPLAZID. This obligation terminated in October 2021. F- 23 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) License and Merger Agreements The Company has entered into various collaboration, licensing and merger agreements which provide the Company with rights to certain know-how, technology and patent rights. The agreements generally include upfront license fees, development and commercial milestone payments upon achievement of certain clinical and commercial development and annual net sales milestones, as well as royalties calculated as a percentage of product revenues, with rates that vary by agreement. The Company incurred $ 11.0 million, $ 72.7 million and $ 1.4 million in upfront and license payments in the years ended December 31, 2021, 2020 and 2019, respectively. These upfront and license payments were included in the research and development expenses in the consolidated statements of operations as there was no alternative future use associated with the payments. As of December 31, 2021, the Company may be required to make milestone payments up to $ 2.2 billion in the aggregate, of which, $ 10.0 million may be paid in the next 12 months if the FDA accepts for review of the NDA for trofinetide for the treatment of Rett syndrome. In May 2018, the Company signed an Exclusivity Deed (the Deed) with Neuren that provided for exclusive negotiations for a period of three months from the date of the Deed. Under the terms of the Deed, the Company invested $ 3.1 million to subscribe for 1,330,000 shares of Neuren and paid $ 0.9 million for the exclusive right to negotiate a deal with Neuren, which was recorded in selling, general and administrative expenses in the consolidated statements of operations in the second quarter of 2018. At December 31, 2021, the Company continues to hold the equity securities as a strategic investment in which the Company does not have a controlling interest or significant influence. Publicly held equity securities are measured using quoted prices in their respective active markets with changes recorded through other expense on the statements of operations. Net gain on the strategic investments recognized in other income in the consolidated statements of operations for the year ended December 31, 2021 was $ 2.3 million, net loss on strategic investments recognized for the year ended December 31, 2020 was $ 1.0 million and net gain on strategic investments recognized for the year ended December 31, 2019 was $ 1.0 million . As of December 31, 2021 and 2020 , the aggregate carrying amount of the Company’s strategic equity investment was $ 3.6 million and $ 1.3 million, respectively, included in other assets on the consolidated balance sheets. In August 2018, the Company entered into a license agreement with Neuren and obtained exclusive North American rights to develop and commercialize trofinetide for Rett syndrome and other indications. Under the terms of the agreement, Neuren received an upfront payment of $ 10.0 million and is eligible to receive milestone payments of up to $ 455.0 million, based on the achievement of certain development and annual net sales milestones , including a $ 10.0 million payment upon the FDA’s acceptance of an NDA filing for trofinetide and a $ 40.0 million payment upon the Company’s first commercial sale of trofinetide in North America . In addition, Neuren is eligible to receive tiered, escalating, double-digit percentage royalties based on net sales. The license agreement was accounted for as an asset acquisition and the upfront cash payment of $ 10.0 million was recorded in research and development expenses in the consolidated statements of operations in the third quarter of 2018, as there is no alternative use for the asset. Under the license agreement, Neuren and its non-Acadia licensees and sublicensees are prohibited from developing or commercializing any other product (including Neuren’s other existing compounds) for Rett syndrome, or for any other indication being developed pursuant to the agreement, in North America. Furthermore, with respect to Neuren’s development or commercial activities outside North America, (i) if Neuren is developing trofinetide for the same indication as the Company, Neuren is obligated to use commercially reasonable efforts to conduct such activities in a manner that minimizes any adverse impact on trofinetide in North America, and (ii) if Neuren is developing trofinetide for a different indication, Neuren may not undertake such activities if the Company believes, and the joint steering committee determines, they would be reasonably likely to materially adversely affect the development and commercialization of trofinetide in North America. In March 2020, the Company entered into a license agreement and research collaboration with Vanderbilt University and obtained exclusive worldwide rights to develop and commercialize novel drug candidates targeting positive allosteric modulators of the muscarinic M1 receptor (the M1 PAM program) with the potential to treat a range of central nervous system disorders. Under the terms of the agreement, the Company paid Vanderbilt University an upfront license fee of $ 10.0 million and may be required to pay up to $ 515.0 million in milestone payments based on the achievement of certain clinical and commercial development and annual net sales milestones. In addition, the Company may be required to pay Vanderbilt University tiered royalties based on net sales. Furthermore, the Company is required to spend a minimum annual amount in development and the pursuit of regulatory approval for the M1 PAM compounds over the first three years of the license agreement. Such amounts are not material to the Company. The license agreement was accounted for as an asset acquisition and the upfront cash payment of $ 10.0 million was expensed to research and development in the first quarter of 2020 as there is no future alternative use for the assets. F- 24 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) In August 2020, the Company entered into the Merger Agreement with CerSci, with CerSci remaining as the surviving corporation and the Company’s wholly owned subsidiary. CerSci’s lead development program is a unique Reactive Species Decomposition Accelerant, a non-opioid, mechanism focused on interrupting pathways that sensitize neurons to pain. The portfolio contains additional preclinical stage programs, including brain penetrant compounds, with potential for symptomatic and disease modifying treatment utility in neurodegenerative diseases. The Company incurred an aggregate of $ 52.8 million in upfront consideration and transaction costs, of which, $ 44.3 million was paid through the issuance of approximately 1.2 million shares of the Company’s common stock. In addition, under the terms of the Merger Agreement, the Company may be required to pay CerSci’s former equity holders up to $ 887.0 million in cash upon the achievement of certain development, commercialization and sales milestones, in addition to tiered cash royalties in the mid-single digits based on annual net sales. As substantially all of the fair value of the gross assets acquired was concentrated in the in-process research and development intangible assets acquired, the Company concluded that this transaction did not meet the definition of a business combination pursuant to FASB Accounting Standard Codification Topic 805, Business Combinations. As such, the transaction was accounted for as an asset acquisition and the upfront consideration of $ 45.7 million was expensed to research and development in the third quarter of 2020 as there is no future alternative use for the assets. Corporate Credit Card Program In connection with the Company’s credit card program, the Company established a letter of credit in 2016 for $ 2.0 million, which has automatic annual extensions and is fully secured by restricted cash. Fleet Program In connection with the Company’s fleet program, the Company established a letter of credit for $ 0.4 million, which has automatic annual extensions and is fully secured by restricted cash. Legal Proceedings Between July 19 and August 3, 2018, following negative publicity about NUPLAZID, three purported company stockholders filed putative securities class action complaints (captioned Staublein v. Acadia Pharmaceuticals, Inc., Case No. 18-cv-01647, Stone v. Acadia Pharmaceuticals Inc., Case No. 18-cv-01672, and Barglow v. Acadia Pharmaceuticals Inc., Case No. 18-cv-01812) in the U.S. District Court for the Southern District of California against the Company and certain of its current and former executive officers. Thereafter, several putative lead plaintiffs filed motions to consolidate the cases and to appoint a lead plaintiff. On January 3, 2019, the Court consolidated the cases under the caption In re Acadia Pharmaceuticals Inc. Securities Litigation, Case No. 18-cv-01647, and took the lead plaintiff motions under submission. On February 26, 2019, the Court appointed a lead plaintiff and lead counsel. Lead plaintiff filed a consolidated complaint on April 15, 2019. The consolidated complaint generally alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making materially false and misleading statements regarding the Company’s business, operations, and prospects by failing to disclose that adverse events and safety concerns regarding NUPLAZID threatened initial and continuing FDA approval, and by failing to disclose that the Company engaged in business practices likely to attract regulatory scrutiny. The consolidated complaint seeks unspecified monetary damages and other relief. Defendants filed a motion to dismiss the consolidated complaint on June 7, 2019. On June 1, 2020, the Court granted the motion in part and gave lead plaintiff leave to file an amended complaint. On July 16, 2020, lead plaintiff filed the amended complaint. Defendants filed a motion to dismiss the amended complaint on August 28, 2020. Lead plaintiff opposed the motion on September 15, 2020. Defendants’ reply in support of the motion to dismiss was filed on November 11, 2020. On March 29, 2021, the Court granted the defendants’ motion to dismiss with leave to amend. On April 16, 2021, lead plaintiff filed a third amended complaint. Defendants filed a motion to dismiss the third amended complaint on May 31, 2021. The lead plaintiff opposed the motion on July 12, 2021 and Defendants filed their reply in support of their motion on August 11, 2021. On January 3, 2022, the Court issued an order and judgment dismissing lead plaintiff’s third amended complaint without leave to amend and closing the case. The deadline to appeal the order and judgment expired on February 2, 2022. F- 25 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) On February 7, 2020, a purported stockholder of the Company filed a derivative complaint (captioned Barney v. Davis et al., Case No. 20-cv-0238) in the U.S. District Court for the Southern District of California against the Company’s directors and certain of the Company’s current and former executive officers. The complaint asserts claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment arising from allegations similar to those in the federal securities class action described above. On September 9, 2020, the Court substituted plaintiffs and re-captioned the case Shumacher v. Davis et al., Case No. 20-cv-0238. On June 23, 2020, a second derivative complaint (captioned Lazarus v. Davis et al., Case No. 20-cv-0843) was filed in the U.S. District Court for the District of Delaware. On September 9, 2020, the Court transferred the Lazarus case to the U.S. District Court for the Southern District of California and re-captioned the case Lazarus v. Davis et al., Case No. 20-cv-1774. On January 15, 2021, the Court consolidated the cases under the name In re ACADIA Pharmaceuticals Inc. Stockholder Derivative Litigation, Case No. 20-cv-0238, appointed lead counsel for the plaintiffs, and designated the complaint in the Shumacher case as the operative complaint. The consolidated case is stayed until the defendants in the federal securities class action answer, or the federal securities class action is dismissed with prejudice and all appeals are exhausted, or any party to the stipulation to stay gives 15 days’ written notice that it no longer consents to the voluntary stay. As discussed above, the federal securities class action was dismissed with prejudice on January 3, 2022, and the deadline to appeal that dismissal expired on February 2, 2022. On July 24, 2020, the Company filed complaints against (i) Aurobindo Pharma Limited and its affiliate Aurobindo Pharma USA, Inc. and (ii) Teva Pharmaceuticals USA, Inc. and its affiliate Teva Pharmaceutical Industries Ltd., and on July 30, 2020, the Company filed complaints against (i) Hetero Labs Limited and its affiliates Hetero Labs Limited Unit-V and Hetero USA Inc., (ii) MSN Laboratories Private Ltd. and its affiliate MSN Pharmaceuticals, Inc., and (iii) Zydus Pharmaceuticals (USA) Inc. and its affiliate Cadila Healthcare Limited. These complaints, which were filed in the United States District Court for the District of Delaware, allege infringement of certain of the Company’s Orange Book-listed patents covering NUPLAZID. The cases have been assigned to the Honorable Richard G. Andrews. On September 1, 2020, Aurobindo filed its answer and counterclaims seeking declaratory judgments of noninfringement and invalidity. On September 22, 2020, the Company filed its answer to Aurobindo’s counterclaims. On August 31, 2020, Teva filed its answer and counterclaims seeking declaratory judgments of noninfringement and invalidity. On September 21, 2020, the Company filed its answer to Teva’s counterclaims. On October 5, 2020, Hetero filed its answer and counterclaims seeking declaratory judgments of noninfringement and invalidity. On October 26, 2020, the Company filed its answer to Hetero’s counterclaims. On September 30, 2020, MSN filed its answer and counterclaims seeking declaratory judgments of noninfringement and invalidity regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID. On November 5, 2020, the Company filed its first amended complaint against MSN in the United States District Court for the District of Delaware, alleging infringement of certain of the Company’s Orange Book-listed patents covering NUPLAZID. On November 19, 2020, MSN filed its answer and counterclaims seeking declaratory judgments of noninfringement and invalidity regarding certain of the Company’s Orange Book-listed patents covering NUPLAZID. On December 10, 2020, the Company filed its answer to MSN’s counterclaims. On November 2, 2020, Zydus filed its answer and counterclaims seeking declaratory judgments of noninfringement and invalidity. On November 23, 2020, the Company filed its answer to Zydus’s counterclaims. On December 8, 2020, the parties’ joint proposed scheduling order was entered by Judge Andrews. On April 7, 2021, the Company filed its first amended complaints against Hetero and Teva and its second amended complaint against MSN, to include an additional Orange Book-listed patent covering NUPLAZID. On April 8, 2021, the Company filed its first amended complaint against Zydus and on April 9, 2021, the Company filed its first amended complaint against Aurobindo. On April 20, 2021, MSN filed its answer, affirmative defenses, and counterclaims to the Company ’s second amended complaint, seeking declaratory judgments of noninfringement and invalidity regarding certain of the Company ’s Orange Book-listed patents covering NUPLAZID. On April 21, 2021, Teva filed its answer, affirmative defenses, and counterclaims to Company ’s first amended complaint, seeking declaratory judgments of noninfringement and invalidity. On April 22, 2021, Zydus filed its answer, affirmative defenses, and counterclaims to Company ’s first amended complaint, seeking declaratory judgments of noninfringement and invalidity . On April 22, 2021, Aurobindo filed its answer, affirmative defenses, and counterclaims to the Company ’s first amended complaint, seeking declaratory judgments of noninfringement and invalidity. On May 11, 2021, the Company filed its answer to MSN’s counterclaims. On May 12, the Company filed its answer to Teva’s counterclaims. On May 13, the Company filed its answer to Zydus’s counterclaims and its answer to Aurobindo’s counterclaims. A joint trial in the matters is scheduled for May 15, 2023. The Company entered into an agreement effective April 22, 2021 with Hetero settling all claims and counterclaims in the litigation. The agreement allows Hetero to launch its generic pimavanserin product on July 27, 2038, subject to certain triggers for earlier launch. The Hetero case was dismissed by joint agreement on May 3, 2021. F- 26 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) On August 27, 2021, the Company filed its second amended complaint against Zydus to include an additional Orange Book-listed patent covering NUPLAZID. On September 10, 2021, Zydus filed its answer, affirmative defenses, and counterclaims to the Company ’s second amended complaint, seeking declaratory judgments of noninfringement and invalidity. Also on September 10, 2021, the parties filed their Joint Claim Construction Chart. On October 1, 2021, the Company filed its answer to Zydus’s counterclaims. On November 30, 2021, the Company filed a stipulation and proposed order to dismiss two of its Orange Book-listed patents covering NUPLAZID against Teva, which was ordered by the Court on December 1, 2021. On January 28, 2022, the parties filed their Joint Claim Construction Brief and Appendix. On January 31, 2022, a joint motion for claim construction was ordered by the Court, setting a claim construction hearing on February 23, 2022. A ruling is expected in the near future. On April 19, 2021, a purported stockholder of the Company filed a putative securities class action complaint (captioned Marechal v. Acadia Pharmaceuticals, Inc., Case No. 21-cv-0762) in the U.S. District Court for the Southern District of California against the Company and certain of the Company’s current executive officers. The complaint generally alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making materially false and misleading statements regarding the Company’s business, operations, and prospects by failing to disclose that the materials submitted in support of its sNDA seeking approval of pimavanserin for the treatment of hallucinations and delusions associated with dementia-related psychosis contained statistical and design deficiencies and that the FDA was unlikely to approve the sNDA in its current form. The complaint seeks unspecified monetary damages and other relief. On June 21, 2021, five motions for lead plaintiff and lead counsel were filed. Thereafter, four of the five movants either withdrew their motions or filed statements of non-opposition. On September 29, 2021, the Court issued an order designating lead plaintiff and lead counsel. On December 10, 2021, lead plaintiff filed an amended complaint. Defendants filed a motion to dismiss the amended complaint on February 15, 2022. Management currently believes that none of the foregoing claims or actions pending against the Company as of December 31, 2021 is likely to have, individually or in the aggregate, a material adverse effect on the Company’s business, liquidity, financial position, or results of operations. Given the unpredictability inherent in litigation, however, the Company cannot predict the outcome of these matters. The Company is unable to estimate possible losses or ranges of losses that may result from these matters, and therefore it has not accrued any amounts in connection with these matters other than attorneys’ fees incurred to date . 10. Leases The Company leases facilities and certain equipment under noncancelable operating leases that expire at various dates through February 2031 . Under the terms of the facilities leases, the Company is required to pay its proportionate share of property taxes, insurance and normal maintenance costs. In 2015, the Company entered into a master lease agreement giving the Company the ability to lease vehicles under operating leases with initial terms of 36 months from the date of delivery. In 2018, the lease agreement was terminated and a new master lease agreement was entered into with a new vendor giving the Company the ability to lease vehicles under operating leases with initial terms ranging from 12 to 50 months from the date of delivery. The Company leases facilities and certain equipment under noncancelable operating leases with remaining lease terms of 2.0 year to 9.4 years, some of which include options to extend the lease for up to two five-year terms. These optional periods were not considered in the determination of the right-of-use asset or the lease liability as the Company did not consider it reasonably certain that it would exercise such options. The operating lease costs were as follows (in thousands): Years Ended December 31, 2021 2020 2019 Operating lease cost $ 8,874 $ 6,917 $ 5,155 F- 27 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Supplemental cash flow information related to the Company’s leases were as follows (in thousands): Years Ended December 31, 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 5,303 $ 4,480 Right-of-use assets obtained in exchange for operating lease obligations: 17,272 42,039 The balance sheet classification of the Company’s lease liabilities was as follows (in thousands): December 31, 2021 December 31, 2020 Operating lease liabilities Current portion included in accrued liabilities $ 8,304 $ 5,087 Operating lease liabilities 56,126 44,460 Total operating lease liabilities $ 64,430 $ 49,547 Maturities of lease liabilities were as follows (in thousands): Operating Leases Years ending December 31, 2022 $ 8,520 2023 8,390 2024 8,275 2025 8,355 2026 7,719 Thereafter 36,556 Total lease payments 77,815 Less: Imputed interest ( 13,385 ) Total operating lease liabilities $ 64,430 Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. As of December 31, 2021 and 2020, the weighted average remaining lease term was 9.0 years and 9.4 years, respectively, and the weighted average discount rate used to determine the operating lease liability was 4.3 % and 4.7 %, respectively. In the fourth quarter of 2018, the Company entered into an agreement to lease the 4th and 5th floors of corporate office space in San Diego, California with total minimum lease payments of $ 50.4 million over an initial term of 10 years and 9 months . In February 2020, the Company entered into the first amendment to the lease agreement to lease the 2nd floor of corporate office space in San Diego, California with total minimum lease payments of $ 25.3 million over an initial term of approximately 10 years and 7 months. In March 2020, the Company entered into the second amendment to the lease agreement which increased the total minimum lease payments of the original corporate office space to $ 51.4 million. In the third quarter of 2020, the lease for the 4th and 5th floors of corporate office space commenced and the Company capitalized a right of use asset and related lease liability of $ 40.3 million. In the first quarter of 2021 , the lease for the 2nd floor of corporate office space commenced and the Company capitalized a right of use asset and related lease liability of $ 19.2 million. In connection with this lease and the amendment, the Company established a letter of credit for $ 3.1 million, which has automatic annual extensions and is fully secured by restricted cash. F- 28 ACADIA PHARMACEUTICALS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 11. Selected Quarterly Financial Data (Unaudited) The following financial information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods. Summarized quarterly data for the years ended December 31, 2021 and 2020 are as follows (in thousands, except per share data): Fiscal Year 2021 Quarters 1st 2nd 3rd 4th Total Revenues $ 106,554 $ 115,221 $ 131,612 $ 130,758 $ 484,145 Gross profit (1) $ 104,369 $ 112,695 $ 127,924 $ 128,314 $ 473,302 Net loss $ ( 66,448 ) $ ( 43,871 ) $ ( 14,457 ) $ ( 43,094 ) $ ( 167,870 ) Basic and diluted net loss per share (2) $ ( 0.42 ) $ ( 0.27 ) $ ( 0.09 ) $ ( 0.27 ) $ ( 1.05 ) Fiscal Year 2020 Quarters 1st 2nd 3rd 4th Total Revenues $ 90,068 $ 110,103 $ 120,577 $ 121,007 $ 441,755 Gross profit (1) $ 87,269 $ 107,204 $ 118,572 $ 118,499 $ 431,544 Net loss $ ( 88,023 ) $ ( 42,141 ) $ ( 84,660 ) $ ( 66,760 ) $ ( 281,584 ) Basic and diluted net loss per share (2) $ ( 0.57 ) $ ( 0.27 ) $ ( 0.05 ) $ ( 0.42 ) $ ( 1.79 ) (1) Determined by subtracting cost of product sales from product sales, net. (2) Net loss per common share, basic and diluted, are computed independently for each quarter and the full year based upon respective average shares outstanding. Therefore, the sum of the quarterly net loss per common share amounts may not equal the annual amounts reported. 12. Subsequent Event In January 2022, the Company entered a license and collaboration agreement with Stoke Therapeutics, Inc. (Stoke) to discover, develop and commercialize novel RNA-based medicines for potential treatment of severe and rare genetic neurodevelopmental diseases of the CNS. The collaboration includes SYNGAP1 syndrome, Rett syndrome (MECP2), and an undisclosed neurodevelopmental target. For the SYNGAP1 program, the two companies will jointly share global research, development and commercialization responsibilities and share 50/50 in all worldwide costs and future profits. In addition, Stoke is eligible to receive potential development, regulatory, first commercial sales and sales milestones. For the MECP2 program and the undisclosed neurodevelopmental program, the Company acquired an exclusive worldwide license to develop and commercialize MECP2 program and the undisclosed neurodevelopmental program. Stoke will lead research and pre-clinical development activities, while the Company will lead clinical development and commercialization activities. The Company will fund research and pre-clinical development activities related to these two targets and Stoke is eligible to receive potential development, regulatory, first commercial sales and sales milestones as well as tiered royalty payments on worldwide sales starting in the mid-single digit range and escalating to the mid-teens based on revenue levels. Under the terms of the agreement, the Company paid Stoke a $ 60.0 million upfront payment and may be required to pay up to an additional $ 907.5 million in milestones as well as royalties on future sales. F- 29 SCHEDULE II – Valuation and Qualifying Accounts (in thousands) Additions Deductions Balance at Beginning of Period Provision Related to Current Period Sales Actual Distribution Fees, Discounts and Chargebacks Related to Current Period Sales Actual Distribution Fees, Discounts and Chargebacks Related to Prior Period Sales Balance at End of Period Allowance for distribution fees, discounts and chargebacks: For the year ended December 31, 2019 $ 1,840 $ 33,827 $ ( 31,251 ) $ ( 1,840 ) $ 2,576 For the year ended December 31, 2020 $ 2,576 $ 51,684 $ ( 47,463 ) $ ( 2,576 ) $ 4,221 For the year ended December 31, 2021 $ 4,221 $ 72,011 $ ( 63,544 ) $ ( 4,221 ) $ 8,467