What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-09 · 64 added, 42 removed, 189 unchanged (36% of the section changed)

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In March 2023, the FDA approved DAYBUE for the treatment of Rett syndrome, which is the first and only drug approved for this condition.

DAYBUE became available for prescription in the United States in April 2023.

DAYBUE became available by prescription in the United States in April 2023.

NUPLAZID is a selective serotonin inverse agonist/antagonist, preferentially targeting 5-HT2A receptors with no appreciable affinity for dopaminergic, histaminergic, or muscarinic receptors.

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We hold worldwide commercialization rights to pimavanserin.

In March 2024, we announced top-line results from the Phase 3 ADVANCE-2 trial evaluating pimavanserin for the treatment of negative symptoms of schizophrenia.

Pimavanserin did not demonstrate a statistically significant improvement over placebo on the study’s primary endpoint, the change from baseline to week 26 on the Negative Symptom Assessment-16 (NSA-16) total score.

The safety and tolerability profile of pimavanserin was consistent with previous clinical trials, showing a low rate of adverse events.

At this point, we do not intend to initiate any further clinical trials with pimavanserin.

In August 2018, we acquired an exclusive North American license to develop and commercialize DAYBUE for Rett syndrome and other indications from Neuren.

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In addition, we will be required to pay Neuren tiered royalties from the mid-teens to low-twenties percent based on net sales of trofinetide and NNZ-2591.

Looking beyond the U.S., we are making significant progress toward making DAYBUE available in additional markets.

Our pediatric investigation plan (PIP) has been agreed with the pediatric committee of the European Medicines Agency (EMA), paving the way for an anticipated filing in the first quarter of 2025.

In Japan, we have a formal meeting scheduled with the Pharmaceuticals and Medical Devices Agency (PMDA) in the second quarter of 2024 to discuss our proposed clinical plan.

And in Canada, we recently announced that our New Drug Submission was accepted for filing and granted priority review by Health Canada, potentially leading to an approval in that market around the end of this year.

Looking beyond the U.S., we are advancing efforts to make trofinetide available in additional markets.

Our pediatric investigation plan (PIP) has been agreed to with the pediatric committee of the European Medicines Agency (EMA), paving the way for an anticipated filing in the first quarter of 2025.

In Japan, we held our first formal meeting with the Pharmaceuticals and Medical Devices Agency (PMDA) in the second quarter of 2024 to discuss our proposed clinical plan.

And in Canada, we announced in April 2024 that our New Drug Submission was accepted for filing and granted priority review by Health Canada, potentially leading to an approval in that market around the end of this year.

In June 2023, we announced that we added a new Phase 3 development candidate to our rare disease portfolio, ACP-101 (intranasal carbetocin), for the treatment of hyperphagia (an intense persistent sensation of hunger accompanied by food preoccupations, an extreme drive to consume food, food-related behavior problems, and a lack of normal satiety) in Prader-Willi syndrome (PWS).

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We have incurred substantial operating losses since our inception due in large part to expenditures for our research and development activities.

As of March 31, 2024, we had an accumulated deficit of $2.4 billion.

As of June 30, 2024, we had an accumulated deficit of $2.4 billion.

Contingent on the level of business development activities we may complete as well as pipeline programs we may advance, we may continue to incur operating losses for the next few years as we incur significant research and development costs and costs for continued commercialization of NUPLAZID and DAYBUE.

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Cost of sales for a newly launched product does not include the full cost of manufacturing until the initial pre-launch inventory is depleted, and additional inventory is manufactured and sold.

Thus the cost of sales as a percentage of net sales of DAYBUE for the three months ended March 31, 2024 was affected by use of the initial pre-launch inventory, which was previously expensed as research and development expense, and is referred to as zero cost inventories.

Thus, the cost of sales as a percentage of net sales of DAYBUE for the three and six months ended June 30, 2024 was affected by use of the initial pre-launch inventory, which was previously expensed as research and development expense, and is referred to as zero cost inventories.

However, we do not expect that the cost of sales as a percentage of net sales of DAYBUE will increase significantly once we commence the sales of full cost inventories.

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Accordingly, we have not reported our internal research and development costs on a project-by-project basis.

To the extent that external expenses are not attributable to a specific project, they are included in other early-stage programs.

The following table summarizes our research and development expenses for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended March 31,

To the extent that external expenses are not attributable to a specific project, they are allocated proportionally to each of the projects.

The following table summarizes our research and development expenses for the three and six months ended June 30, 2024 and 2023 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Costs of external service providers:

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Early-stage programs

Upfront and milestone payments

Internal costs

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Further, we expect our sales allowances to vary from quarter to quarter due to fluctuations in our Medicare Part D Coverage Gap liability and the volume of purchases eligible for government mandated discounts and rebates, as well as changes in discount percentages that may be impacted by potential future price increases and other factors.

We cannot predict with certainty what the full impact that geopolitical and macroeconomic developments, including the ongoing military conflict between Ukraine and Russia and the ongoing conflict in Israel and surrounding areas may have on our business, results of operations, financial condition and prospects.

We cannot predict with certainty what the full impact that geopolitical and macroeconomic developments may have on our business, results of operations, financial condition and prospects.

Due to these fluctuations, we believe that the period-to-period comparisons of our operating results are not a good indication of our future performance.

Comparison of the Three Months Ended March 31, 2024 and 2023

Comparison of the Three Months Ended June 30, 2024 and 2023

Product Sales, Net

Net product sales, comprised of NUPLAZID and DAYBUE, were $205.8 million and $118.5 million for the three months ended March 31, 2024 and 2023, respectively.

Net product sales of NUPLAZID were $129.9 million and $118.5 million for the three months ended March 31, 2024 and 2023, respectively.

Net product sales, comprised of NUPLAZID and DAYBUE, were $242.0 million and $165.2 million for the three months ended June 30, 2024 and 2023, respectively.

Net product sales of NUPLAZID were $157.4 million and $142.0 million for the three months ended June 30, 2024 and 2023, respectively.

The increase in net product sales of NUPLAZID of $15.4 million was due to the growth in NUPLAZID unit sales as well as a higher average net selling price of NUPLAZID in 2024 compared to 2023.

Net product sales of DAYBUE were $75.9 million for the three months ended March 31, 2024.

There were no net product sales of DAYBUE during the three months ended March 31, 2023.

The following table provides a summary of activity with respect to our sales allowances and accruals for the three months ended March 31, 2024 (in thousands):

Net product sales of DAYBUE were $84.6 million and $23.2 million for the three months ended June 30, 2024 and 2023, respectively.

The increase in net product sales of DAYBUE of $61.4 million was due to the growth in DAYBUE unit sales.

Cost of Product Sales

Cost of product sales was $18.2 million and $7.5 million for the three months ended June 30, 2024 and 2023, respectively, or approximately 8% and 5% of net product sales, respectively.

Cost of product sales as a percentage of net product sales for NUPLAZID remained relatively flat during the three months ended June 30, 2024 as compared to the same period of 2023.

The increase in cost of product sales was primarily due to the increase in license fees and royalties expensed for DAYBUE, including royalties due to Neuren based on net sales of DAYBUE and the amortization of the milestone payments capitalized under our 2018 license agreement with Neuren.

The license fees and royalties expensed during the three months ended June 30, 2024 were $10.8 million as compared to $3.7 million in the same period of 2023.

We are required to pay Neuren tiered and escalating royalties between 10% to 15% based on annual net sales of DAYBUE in North America.

Currently, we are required to pay 10% of royalties to Neuren.

If our annual net sales of DAYBUE in North America exceed $250.0 million, we will be required to pay 12% of royalties to Neuren on net sales that exceed $250.0 million.

We will be required to pay higher royalties if net sales exceeds next scales.

Certain manufacturing related expenses incurred prior to DAYBUE receiving FDA approval were classified as research and development expenses, resulting in zero cost inventory.

If cost of product sales included previously expensed inventories, the total cost of sales with these manufacturing costs included for the three months ended June 30, 2024 would have increased by approximately $3.7 million.

Research and Development Expenses

Research and development expenses increased to $76.2 million for the three months ended June 30, 2024, including $3.7 million in stock-based compensation expense, from $58.8 million for the three months ended June 30, 2023, including $3.7 million in stock-based compensation expense.

The increase in research and development expenses was mainly due to increased costs from ACP101, ACP-204 and early-stage programs, partially offset by a reduction in costs associated with our pimavanserin negative symptoms of schizophrenia program.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $117.1 million for the three months ended June 30, 2024, including $11.6 million in stock-based compensation expense, from $96.0 million for the six months ended June 30, 2023, including $11.3 million in stock-based compensation expense.

The increase in selling, general and administrative expenses was primarily driven by upfront costs related to a new consumer activation program to support the NUPLAZID franchise, increased marketing costs in the U.S.

to support DAYBUE, and investments to support commercialization of trofinetide outside the U.S.

Comparison of the Six Months Ended June 30, 2024 and 2023

Product Sales, Net

Net product sales, comprised of NUPLAZID and DAYBUE, were $447.8 million and $283.7 million for the six months ended June 30, 2024 and 2023, respectively.

Net product sales of NUPLAZID were $287.3 million and $260.5 million for the six months ended June 30, 2024 and 2023, respectively.

The increase in net product sales of NUPLAZID of $26.8 million was due to the growth in NUPLAZID unit sales as well as a higher average net selling price of NUPLAZID in 2024 compared to 2023.

Net product sales of DAYBUE were $160.5 million and $23.2 million for the six months ended June 30, 2024 and 2023, respectively.

The increase in net product sales of DAYBUE of $137.3 million was due to the growth in DAYBUE unit sales.

The following table provides a summary of activity with respect to our sales allowances and accruals for the six months ended June 30, 2024 (in thousands):

Distribution Fees,

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Credits/payments for prior period sales

Balance as of March 31, 2024

Balance as of June 30, 2024

Cost of Product Sales

Cost of product sales was $23.0 million and $1.7 million for the three months ended March 31, 2024 and 2023, respectively, or approximately 11% and 1% of net product sales, respectively.

Cost of product sales as a percentage of net product sales for NUPLAZID remained relatively flat during the three months ended March 31, 2024 as compared to the same period of 2023.

The increase in cost of product sales was primarily due to the $12.9 million in license fees and royalties expensed during the three months ended March 31, 2024 for DAYBUE, including royalties due to Neuren based on net sales of DAYBUE and the amortization of the milestone payments capitalized under our 2018 license agreement with Neuren.

There were no license fees and royalties in the same

period of 2023 for either product.

Our cost of sales expense increased as a result of the capitalization and amortization of the $50.0 million sales milestone to be paid to Neuren, which included a one-time cumulative catch-up of $3.9 million of expense.

Cost of product sales was $41.2 million and $9.1 million for the six months ended June 30, 2024 and 2023, respectively, or approximately 9% and 3% of net product sales, respectively.

Cost of product sales as a percentage of net product sales for NUPLAZID remained relatively flat during the six months ended June 30, 2024 as compared to the same period of 2023.

The license fees and royalties expensed during the six months ended June 30, 2024 were $23.7 million as compared to $3.7 million in the same period of 2023.

Currently, we are required to pay 10% of royalties to Neuren based on the annual net sales of DAYBUE in North America.

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Prior to receiving FDA approval for DAYBUE in March 2023, we manufactured inventory and recorded approximately $29.9 million related to the zero cost inventory as research and development expense.

Utilizing the actual direct costs to manufacture DAYBUE prior to receiving FDA approval, had the previously expensed inventory been capitalized and recognized when sold, the total cost of sales with these manufacturing costs included for the three months ended March 31, 2024 would have increased by approximately $3.5 million.

Utilizing the actual direct costs to manufacture DAYBUE prior to receiving FDA approval, had the previously expensed inventory been capitalized and recognized when sold, the total cost of sales with these manufacturing costs included for the six months ended June 30, 2024 would have increased by approximately $7.2 million.

We do not expect our cost of product sales for DAYBUE to increase significantly as a percentage of net product sales in future periods as we continue to produce inventory for future sales.

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Research and Development Expenses

Research and development expenses decreased to $59.7 million for the three months ended March 31, 2024, including $4.1 million in stock-based compensation expense, from $69.1 million for the three months ended March 31, 2023, including $4.0 million in stock-based compensation expense.

The decrease in research and development expenses was mainly due to trofinetide commercial supply build in the prior period that was expensed prior to approval.

Research and development expenses increased to $135.9 million for the six months ended June 30, 2024, including $7.8 million in stock-based compensation expense, from $127.9 million for the six months ended June 30, 2023, including $7.6 million in stock-based compensation expense.

The increase in research and development expenses was mainly due to increased costs from ACP-101, ACP-204 and early stage programs, partially offset by the elimination of pre-FDA approval trofinetide commercial supply expenses that were included in the previous year as well as a reduction costs associated with our pimavanserin negative symptoms of schizophrenia program.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $108.0 million for the three months ended March 31, 2024, including $10.5 million in stock-based compensation expense, from $101.2 million for the three months ended March 31, 2023, including $10.6 million in stock-based compensation expense.

The increase in selling, general and administrative expenses was primarily driven by annualization of DAYBUE expenses as well as foundational investments to commercialize trofinetide outside the U.S.

Selling, general and administrative expenses increased to $225.1 million for the six months ended June 30, 2024, including $22.1 million in stock-based compensation expense, from $197.2 million for the six months ended June 30, 2023, including $21.9 million in stock-based compensation expense.

The increase in selling, general and administrative expenses was primarily driven upfront costs related to a new consumer activation program to support the NUPLAZID franchise, increased marketing costs in the U.S.

to support DAYBUE, and investments to support commercialization of trofinetide outside the U.S.

Liquidity and Capital Resources

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In the past, periods of turmoil and volatility in the financial markets have adversely affected the market capitalizations of many biotechnology companies, and generally made equity and debt financing more difficult to obtain.

For example, due to geopolitical and macroeconomic developments, including the Ukraine-Russia military conflict and related sanctions, and the ongoing conflict in Israel and surrounding areas, the global credit and financial markets have experienced extreme volatility and disruptions, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.

For example, due to geopolitical and macroeconomic developments, the global credit and financial markets have experienced extreme volatility and disruptions, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.

These events, coupled with other factors, may limit our access to additional financing in the future.

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We are also required to make royalty payments in connection with the product sales for DAYBUE under the agreements.

At March 31, 2024, we had $470.5 million in cash, cash equivalents, and investment securities, compared to $438.9 million at December 31, 2023.

At June 30, 2024, we had $500.9 million in cash, cash equivalents, and investment securities, compared to $438.9 million at December 31, 2023.

This $62.0 million increase was primarily due to cash provided by operating activities.

Net cash provided by operating activities increased to $29.1 million for the three months ended March 31, 2024 compared to $17.9 million of net cash used in operating activities for the three months ended March 31, 2023.

This increase in cash provided by operations primarily resulted from an increase in our net revenues partially offset by the increase cost of product sales.

Net cash used in investing activities totaled $14.0 million for the three months ended March 31, 2024 compared to $192.5 million of cash provided by investing activities for the three months ended March 31, 2023.

The decrease in net cash provided by investing activities for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to decreased net sale and maturities of investment securities.

Net cash provided by financing activities decreased to $1.0 million for the three months ended March 31, 2024 compared to $1.5 million for the three months ended March 31, 2023.

This decrease in net cash provided by financing activities for the three months ended March 31, 2024 was attributable primarily to a decrease in proceeds resulting from the exercise of employee stock options.

Net cash provided by operating activities increased to $54.1 million for the six months ended June 30, 2024 compared to $9.7 million of net cash used in operating activities for the six months ended June 30, 2023.

This increase in cash provided by operations primarily resulted from an increase in our net revenues partially offset by the increase cost of product sales and selling, general and administrative cost.

Net cash used in investing activities totaled $70.2 million for the six months ended June 30, 2024 compared to $1.8 million for the six months ended June 30, 2023.

The increase in net cash used in investing activities for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily due to increased net purchases of investment securities.

Net cash provided by financing activities decreased to $4.6 million for the six months ended June 30, 2024 compared to $6.9 million for the six months ended June 30, 2023.

This decrease in net cash provided by financing activities for the six months ended June 30, 2024 was attributable primarily to a decrease in proceeds resulting from the exercise of employee stock options.

Off-Balance Sheet Arrangements

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We do not have any direct investments in auction-rate securities or securities that are collateralized by assets that include mortgages or subprime debt.

If a 10 percent change in interest rates were to have occurred on March 31, 2024, this change would not have had a material effect on the fair value of our investment portfolio as of that date.

If a 10 percent change in interest rates were to have occurred on June 30, 2024, this change would not have had a material effect on the fair value of our investment portfolio as of that date.

Due to our investment in investment-grade, interest-bearing securities, as of the date of this Quarterly Report on Form 10-Q, we do not expect anticipated changes in interest rates to have a material effect on our interest rate risk in future reporting periods.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis