What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-28 · 95 added, 90 removed, 248 unchanged (43% of the section changed)

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This discussion contains forward-looking statements, which involve a number of risks and uncertainties.

Such forward-looking statements include statements about the benefits to be derived from NUPLAZID ® (pimavanserin), DAYBUE (trofinetide) and our drug candidates, the potential market opportunities for NUPLAZID and DAYBUE and our drug candidates, our strategy for the commercialization of NUPLAZID and DAYBUE, our plans for exploring and developing NUPLAZID and DAYBUE for indications other than PDP or Rett syndrome, respectively, and the commercialization of DAYBUE in jurisdictions other than the U.S., our plans and timing with respect to seeking regulatory approvals, the potential commercialization of any of our drug candidates that receive regulatory approval, the progress, timing, results or implications of clinical trials and other development activities involving NUPLAZID, DAYBUE and our drug candidates, our strategy for discovering, developing and, if approved, commercializing drug candidates, our existing and potential future collaborations, our estimates of future payments, revenues and profitability, our estimates regarding our capital requirements, future expenses and need for additional financing, the potential or expected impacts of geopolitical and macroeconomic developments, possible changes in legislation, and other statements that are not historical facts, including statements which may be preceded by the words “believes,” “expects,” “hopes,” “may,” “will,” “plans,” “intends,” “estimates,” “could,” “should,” “would,” “continues,” “seeks,” “aims,” “projects,” “predicts,” “pro forma,” “anticipates,” “potential” or similar words.

Such forward-looking statements include statements about the benefits to be derived from our products and our product candidates, the potential market opportunities for our products and our drug candidates, our strategy for the commercialization of our products, our plans for exploring and developing our products for additional indications, the commercialization of DAYBUE or trofinetide in jurisdictions other than the U.S., our plans and timing with respect to seeking regulatory approvals, the potential commercialization of any of our product candidates that receive regulatory approval, the progress, timing, results or implications of clinical trials and other development milestones and activities involving our products and our product candidates, our strategy for discovering, developing and, if approved, commercializing our product candidates, our existing and potential future collaborations, our estimates of future payments, revenues and profitability, our estimates regarding our capital requirements, future expenses and needs for additional financing, the potential or expected impacts of geopolitical and macroeconomic developments, possible changes in legislation, and other statements that are not historical facts, including statements which may be preceded by the words “aims,” “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential” “predicts,” “pro forma,” “projects,” “seeks,” “should,” “will,” “would,” or similar words.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject.

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We are a biopharmaceutical company focused on the development and commercialization of innovative medicines that address unmet medical needs in CNS disorders and rare diseases.

We have a portfolio of commercial stage products, in-development product opportunities, and research programs that are designed to address significant unmet needs in CNS disorders and rare diseases.

In order to achieve significant long-term growth, we will develop our current portfolio, expand our pipeline of early- and late-stage programs through strategic business development, and invest in targeted internal research efforts.

Our commercial portfolio includes two products.

In April 2016, the FDA approved NUPLAZID for the treatment of hallucinations and delusions associated with PDP, which is the first and only drug approved in the United States for this condition.

In September 2023, we announced that the FDA made two changes to the NUPLAZID label clarifying its use in patients with Parkinson’s disease-related hallucinations and delusions, with or without dementia, which is consistent with the current indication.

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.

NUPLAZID is a selective serotonin inverse agonist/antagonist, preferentially targeting 5-HT 2A receptors with no appreciable affinity for dopaminergic, histaminergic, or muscarinic receptors.

Through this novel mechanism, NUPLAZID demonstrated significant efficacy in reducing the hallucinations and delusions associated with PDP without negatively impacting motor function in our Phase 3 pivotal trial.

NUPLAZID has the potential to avoid many of the debilitating side effects of existing antipsychotics, none of which are approved by the FDA for the treatment of PDP.

We hold worldwide commercialization rights to pimavanserin.

We have two core franchises in neuroscience and neuro-rare diseases.

Our neuroscience franchise is anchored by the commercial product NUPLAZID (pimavanserin), which is the first and only drug approved by the FDA for the treatment of hallucinations and delusions associated with PDP.

Our neuro-rare disease franchise is anchored by the commercial product DAYBUE, which is the first and only drug approved for the treatment of Rett syndrome.

Net product sales from these two commercial products totaled $957.8 million for 2024, compared with $726.4 million for 2023.

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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Up to $83 million

In addition to the treatment of hallucinations and delusions associated with the PDP, we believe that pimavanserin has the potential as a treatment of the negative symptoms of schizophrenia.

Today we are evaluating pimavanserin for the treatment of the negative symptoms of schizophrenia in a Phase 3 clinical development program.

The negative symptoms of schizophrenia have been associated with poor long-term outcomes and disability even when the positive symptoms are well-controlled, and today there are no FDA-approved therapies.

In the fourth quarter of 2019 we announced positive results from our pivotal ADVANCE study and in the third quarter of 2020, we initiated a second pivotal study, ADVANCE-2.

The Phase 3 program is evaluating the efficacy of pimavanserin in patients with predominantly negative symptoms of schizophrenia who have achieved adequate control of positive symptoms with their existing antipsychotic treatment.

We completed enrollment in ADVANCE-2 and expect that top-line results will be available in the first quarter of 2024.

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 PWS.

We acquired worldwide rights to develop and commercialize ACP-101 with the acquisition of Levo Therapeutics in June 2022.

In addition to these commercial products, we have a portfolio of product candidates and research programs that are designed to address significant unmet medical needs in CNS disorders and rare diseases.

In order to achieve significant long-term growth, we plan to develop our current portfolio, expand our pipeline of early- and late-stage product candidates and expand into areas of rare disease that are adjacent to our existing franchises, including through strategic business development, and make use of our internal capabilities and knowledge.

Our most advanced product candidate is ACP-101 (intranasal carbetocin) for the treatment of hyperphagia in PWS, a neuro rare disease.

Hyperphagia is 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 November 2023, we initiated the Phase 3 COMPASS PWS study evaluating the efficacy and safety of ACP-101 for the treatment of hyperphagia in PWS.

In addition, in August 2022 we announced that we are developing an internally discovered new molecule, ACP-204, which builds upon the learnings of pimavanserin in the treatment of neuropsychiatric symptoms.

We completed Phase 1 study of ACP-204 which demonstrated a favorable safety and tolerability profile, and supports its target product profile as a potential treatment for ADP.

Our next most advanced product candidate is ACP-204 for the treatment of ADP.

In November 2023, we initiated a Phase 2 study evaluating the efficacy and safety of ACP-204 for the treatment of hallucinations and delusions associated with ADP.

ACP-204 is a new chemical entity for which we hold the worldwide rights.

In January 2022, we entered into a license and collaboration agreement with Stoke to discover, develop and commercialize novel RNA-based medicines for the 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.

For the Rett syndrome (MECP2) and the undisclosed neurodevelopmental program, Stoke will lead research and pre-clinical development activities, while we will lead clinical development and commercialization activities.

We plan to initiate an additional Phase 2 study of ACP-204 in LBDP in the third quarter of 2025.

We have several product candidates in earlier stages of development for the treatment of CNS disorders and rare diseases, including ACP-711 for the treatment of essential tremor, for which we expect to initiate a Phase 2 study in 2026.

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

As of December 31, 2024, we had an accumulated deficit of approximately $2.2 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.

Contingent on the level of business development activities we may complete as well as pipeline programs we may advance, we may incur operating losses as we incur significant research and development costs and costs for continued commercialization of our products.

Financial Operations Overview

Product Revenues

Net product sales consist of sales of NUPLAZID and DAYBUE.

Net product sales consist of sales of our products.

The FDA approved NUPLAZID in April 2016 for the treatment of hallucinations and delusions associated with PDP and we launched the product in the United States in May 2016.

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Cost of Product Sales

Cost of product sales consists of third-party manufacturing costs, freight, and indirect overhead costs associated with sales of NUPLAZID and DAYBUE.

Cost of product sales consists of third-party manufacturing costs, freight, and indirect overhead costs associated with sales of our products.

Cost of product sales may also include period costs related to certain inventory manufacturing services, excess or obsolete inventory adjustment charges, unabsorbed manufacturing and overhead costs, and manufacturing variances.

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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 year ended December 31, 2023 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 year ended December 31, 2024 and 2023 were 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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We charge all research and development expenses to operations as incurred.

Our research and development activities have focused on pimavanserin, trofinetide, ACP-101, ACP-204 and other early-stage programs.

We currently are responsible for all costs incurred in the ongoing development of pimavanserin.

In connection with the FDA approval of NUPLAZID, we committed to conduct four post-marketing studies.

We have fulfilled three of the four studies.

The fourth commitment has been completed and we are awaiting FDA’s acknowledgement and acceptance.

In connection with the FDA approval of DAYBUE, we are required to conduct post-marketing work, including a clinical study of renal impairment in healthy volunteers, nonclinical carcinogenicity studies, and nonclinical in vitro drug interaction studies.

We will be responsible for all costs incurred for these post-marketing requirements.

In addition, we expect to incur increased research and development expenses as a result of advancement of our early-stage development pipeline programs.

We use external service providers to manufacture our product candidates and for the majority of the services performed in connection with the preclinical and clinical development of pimavanserin, trofinetide, and our early-stage programs.

Our research and development activities have focused on pimavanserin, trofinetide, ACP-101, ACP-204 and other earlier-stage product candidates.

The FDA has released us from one of the five PMRs.

In addition, we have fulfilled one of the five PMRs.

Of the remaining three PMRs, we have also completed one and we are awaiting the FDA’s acknowledgement and acceptance of that completed PMR.

We will be responsible for all costs incurred for these PMRs.

In addition, we expect to incur increased research and development expenses as a result of advancement of our early-stage product candidates.

Historically, we have used our internal research and development resources, including our employees and discovery infrastructure, across several projects and many of our costs have not been attributable to a specific project.

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.

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 years ended December 31, 2024, 2023, and 2022 (in thousands):

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DAYBUE (trofinetide)

Early-stage programs

Early-stage product candidates

Upfront and milestone payments*

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* Includes upfront and milestone consideration as well as transaction costs associated with acquired in-process research and development.

At this time, due to the risks inherent in regulatory requirements and clinical development, we are unable to estimate with certainty the costs we will incur for the ongoing or additional development of pimavanserin for the negative symptoms of schizophrenia or to support the commercialization of DAYBUE, as well as the further development of our early-stage pipeline programs.

At this time, due to the risks inherent in regulatory requirements and clinical development, we are unable to estimate with certainty the costs we will incur to support the commercialization of DAYBUE, as well as the further development of our early-stage product candidates.

Likewise, we are unable to determine with certainty the anticipated completion dates for our current research and development programs.

Clinical development and regulatory approval timelines, probability of success, and development costs vary widely.

While our current development efforts are primarily focused on advancing the development of pimavanserin for the treatment of the negative symptoms of schizophrenia and the development of ACP-101, ACP-204 and other early-stage programs, we anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate, as well as an ongoing assessment of the commercial potential of each opportunity and our financial position.

We cannot forecast with any degree of certainty which product opportunities will be subject to future collaborative or licensing arrangements, when such arrangements will be secured, if at all, and to what degree any such arrangements would affect our development plans and capital requirements.

While our current development efforts are primarily focused on advancing the development of ACP-101, ACP-204 and other early-stage product candidates, we anticipate that we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate, as well as an ongoing assessment of the commercial potential of each candidate and our financial position.

We cannot forecast with any degree of certainty which product candidates will be subject to future collaborative or licensing arrangements, when such arrangements will be secured, if at all, and to what degree any such arrangements would affect our development plans and capital requirements.

Similarly, we are unable to estimate with certainty the costs we will incur for post-marketing studies that we committed to conduct in connection with FDA approval of DAYBUE.

We expect our research and development expenses will continue to be substantial as we conduct studies pursuant to our post-marketing commitments and pursue the development of pimavanserin for the negative symptoms of schizophrenia and the further development of ACP-101, ACP-204 and other early-stage pipeline programs.

The lengthy process of completing clinical trials and supporting development activities and seeking regulatory approval for our product opportunities requires the expenditure of substantial resources.

We expect our research and development expenses will continue to be substantial as we conduct studies pursuant to our PMRs and pursue the further development of ACP-101, ACP-204 and other early-stage product candidates.

The lengthy process of completing clinical trials and supporting development activities and seeking regulatory approval for our product candidates requires the expenditure of substantial resources.

Any failure by us or delay in completing clinical trials, or in obtaining regulatory approvals, could cause our research and development expenses to increase and, in turn, have a material adverse effect on our results of operations.

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Our selling, general and administrative expenses consist of salaries and other related costs, including stock-based compensation expense, for our commercial personnel, including our specialty sales forces, our medical education professionals, and our personnel serving in executive, finance, business development, and business operations functions.

Also included in selling, general and administrative expenses are fees paid to external service providers to support our commercial activities associated with NUPLAZID and DAYBUE, professional fees associated with legal and accounting services, costs associated with patents and patent applications for our intellectual property and charitable donations to independent charitable foundations that support Parkinson’s disease patients generally.

Changes in selling, general and administrative expenses in future periods are subject to the evolving PDP market dynamics, the Rett syndrome market and our further development of pimavanserin in additional indications other than PDP.

Also included in selling, general and administrative expenses are fees paid to external service providers to support our commercial activities associated with our products, professional fees associated with legal and accounting services, costs associated with patents and patent applications for our intellectual property and charitable donations to independent charitable foundations that support Parkinson’s disease patients generally.

Changes in selling, general and administrative expenses in future periods are subject to the evolving PDP market dynamics and the Rett syndrome market.

Gain on Sale of Non-Financial Asset

Following the FDA approval of DAYBUE, we were granted a Rare Pediatric Disease PRV.

During the year ended December 31, 2024, we sold the PRV to a third party for the aggregate net proceeds of $146.5 million.

Income Tax Expense

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For restricted stock units requiring satisfaction of both market and service conditions, the estimated fair values are generally expensed over the longest of the explicit, implicit and derived service periods.

Performance-based stock awards vest upon the achievement of certain pre-defined company-specific performance-based criteria.

Expense related to these performance-based stock awards is generally recognized ratably over the expected performance period once the pre-defined performance-based criteria for vesting becomes probable.

The fair value of performance-based stock awards (PSUs) that vest upon the achievement of certain pre-defined company-specific performance-based criteria is estimated based on the closing market price of our common stock on the date of grant.

Expense related to these PSUs is recognized ratably over the expected performance period once the pre-defined performance-based criteria for vesting becomes probable and can vest up to 200 percent of the target number of shares granted.

Beginning in 2024, the structure of the PSU design was revised with a relative total shareholder return (rTSR) approach such that awards are earned for our rTSR performance over three-year measurement periods relative to a peer group of companies and the actual numbers of PSUs that will vest at the end of the performance period may be anywhere from zero to 150 percent of the target number of shares granted.

The fair value of these PSUs is estimated using a Monte Carlo model.

Expense related to these PSUs is recognized ratably over the three-year measurement period.

See also Item 15 of Part IV, “Notes to Consolidated Financial Statements—Note 2—Summary of Significant Accounting Policies” for further discussion of our assumptions and estimates related to our stock-based compensation.

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Our results of operations have fluctuated significantly from period to period in the past and are likely to continue to do so in the future.

We anticipate that our quarterly and annual results of operations will be impacted for the foreseeable future by several factors, including the progress and timing of expenditures related to our commercial activities associated with NUPLAZID and DAYBUE and the extent to which we generate revenue from product sales, our development of pimavanserin for the negative symptoms of schizophrenia, our further development of our early-stage pipeline programs and the progress and timing of expenditures related to studies of DAYBUE pursuant to our post-marketing commitments.

We anticipate that our quarterly and annual results of operations will be impacted for the foreseeable future by several factors, including the progress and timing of expenditures related to our commercial activities associated with our products and the extent to which we generate revenue from product sales, our development of pimavanserin for the negative symptoms of schizophrenia, our further development of our early-stage product candidates and the progress and timing of expenditures related to studies of DAYBUE pursuant to our PMRs.

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, including the ongoing military conflict between Ukraine and Russia and in the Middle East, and tariffs and trade tensions 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.

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Product Sales, Net

Net product sales, comprised of NUPLAZID and DAYBUE, were $726.4 million and $517.2 million for the years ended December 31, 2023 and 2022, respectively.

Net product sales, comprised of our products, were $957.8 million and $726.4 million for the years ended December 31, 2024 and 2023, respectively.

Net product sales of NUPLAZID were $609.4 million and $549.2 million in 2024 and 2023, respectively.

The increase in net product sales of NUPLAZID of $60.2 million was due to the growth in NUPLAZID unit sales as well as a higher average net selling price in NUPLAZID in 2024 compared to 2023.

Net product sales of DAYBUE were $177.2 million for 2023.

There were no net product sales of DAYBUE during 2022.

Net product sales of DAYBUE were $348.4 million and $177.2 million in 2024 and 2023, respectively.

The increase in net product sales of DAYBUE of $171.2 million was mainly due to the growth in DAYBUE unit sales in 2024 compared to 2023.

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

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Cost of product sales was $81.8 million and $41.6 million in 2024 and 2023, respectively, or approximately 9% and 6% of net product sales, respectively.

Cost of product sales as a percentage of net product sales for NUPLAZID remains flat in 2023 as compared to 2022.

The increase in cost of product sales was primarily due to the $21.8 million in license fees and royalties expensed during 2023 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 2022 for either product.

Cost of product sales as a percentage of net product sales for NUPLAZID remained flat in 2024 as compared to 2023.

The increase in cost of product sales was primarily due to the $51.8 million in license fees and royalties expensed during 2024 as compared to $21.8 million in the same period of 2023 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.

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

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Research and development expenses decreased to $303.2 million in 2024, including $14.1 million in stock-based compensation, from $351.6 million in 2023, including $17.4 million in stock-based compensation.

The decrease in research and development expenses during 2023 was mainly due to trofinetide commercial supply build that was expensed prior to approval.

There was a similar level of clinical spend and business development investment year over year.

The decrease in research and development expenses during 2024 was due to decreased business development payments, which in the period ending December 31, 2023 included the $100.0 million payment to Neuren under the expanded license agreement for trofinetide, partially offset by increased costs from clinical stage programs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $488.4 million in 2024, including $51.6 million in stock-based compensation expense, from $406.6 million in 2023, including $48.0 million in stock-based compensation expense.

The increase in selling, general and administrative expenses was primarily due to increased commercial costs associated with the DAYBUE launch, partially offset by reductions in expenses associated with NUPLAZID.

The increase in selling, general and administrative expenses was primarily driven by increased marketing costs to support the NUPLAZID and DAYBUE franchises in the U.S.

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

Gain on Sale of Non-Financial Asset

Following the FDA approval of DAYBUE, we were granted a Rare Pediatric Disease PRV.

During the year ended December 31, 2024, we sold the PRV to a third party for the aggregate net proceeds of $146.5 million.

No other non-financial asset sale happened during the year ended December 31, 2023.

Comparison of the Years Ended December 31, 2023 and 2022

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Product sales, net, comprised of NUPLAZID, were $726.4 million and $517.2 million in 2023 and 2022, respectively.

Product sales, net for the year ended December 31, 2022 increased as compared to the year ended December 31, 2021 primarily due to a higher average gross selling price of NUPLAZID in 2022 as compared to 2021.

Net product sales of NUPLAZID were $549.2 million and $517.2 million in 2023 and 2022, respectively.

The increase in net product sales of NUPLAZID of $32.0 million was due to the growth in NUPLAZID unit sales as well as a higher average net selling price in NUPLAZID in 2023 compared to 2022.

Net product sales of DAYBUE were $177.2 million for 2023.

There were no net product sales of DAYBUE during 2022.

The following table provides a summary of activity with respect to our sales allowances and accruals for the year ended December 31, 2023 (in thousands):

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Cost of product sales was $41.6 million and $10.2 million in 2023 and 2022, respectively, or approximately 6% and 2% of net product sales, respectively.

The cost of product sales excluding license fees and royalties, as a percentage of net product sales stayed flat during 2022 as compared to 2021.

License fees and royalties were $0 and $8.3 million in 2022 and 2021, respectively, and in 2021 include royalties due to the Ipsen Group of two percent of net sales of NUPLAZID and amortization related to the milestone paid to the Ipsen Group upon FDA approval of NUPLAZID in 2016.

The royalty obligation terminated in October 2021 which was the primary reason for the decrease in cost of product sales during 2022 as compared to 2021.

Cost of product sales as a percentage of net product sales for NUPLAZID remained flat in 2023 as compared to 2022.

There were no license fees and royalties in the same period of 2022 for either product.

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

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 year ended December 31, 2023 would have increased by approximately $9.4 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.

Subsequent to using our entire zero cost inventories, we estimate our overall cost of product sales as a percentage of total net product sales will be in the range of a mid-single digit to high single digit percentage.

Research and Development Expenses

Research and development expenses increased to $361.6 million in 2022, including $22.6 million in stock-based compensation expense, from $239.4 million in 2021, including $22.0 million in stock-based compensation expense.

The increase in research and development expenses was mainly due to the $60 million upfront payment made to Stoke for the license and collaboration agreement and the $10 million milestone to Neuren in 2022 upon acceptance of the trofinetide NDA filing, as well as increased costs of our development activities for trofinetide, ACP-204 and other early-stage programs.

Research and development expenses decreased to $351.6 million in 2023, including $17.4 million in stock-based compensation expense, from $361.6 million in 2022, including $22.6 million in stock-based compensation expense.

The decrease in research and development expenses during 2023 was mainly due to trofinetide commercial supply build that was expensed prior to approval.

There was a similar level of clinical spend and business development investment year over year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased to $369.1 million in 2022, including $44.5 million in stock-based compensation expense, from $396.0 million in 2021, including $40.3 million in stock-based compensation expense.

The decrease in selling, general and administrative expenses was primarily related to the continued reduction and optimization of commercial spend related to NUPLAZID, leading to a reduction in overall advertising and promotional costs, offset by investments in preparing for the launch of trofinetide.

Selling, general and administrative expenses increased to $406.6 million in 2023, including $48.0 million in stock-based compensation expense, from $369.1 million in 2022, including $44.4 million in stock-based compensation expense.

Liquidity and Capital Resources

We have funded our operations primarily with revenues from sales of NUPLAZID and DAYBUE since their approvals, and through sales of our equity securities and interest income.

We anticipate that the level of cash used in our operations will fluctuate in future periods depending on the levels of spending required for our ongoing and planned commercial activities for NUPLAZID and DAYBUE, our ongoing and planned development activities for pimavanserin for the negative symptoms of schizophrenia, ACP-101 as a treatment for Prader-Willi syndrome and ACP-204 as a treatment for ADP, studies to be conducted pursuant to our post-marketing commitments, our ongoing and planned development activities for other early-stage pipeline programs and strategic business development to further expand our portfolio.

We expect that our cash, cash equivalents, and investment securities will be sufficient to fund our planned operations through and beyond the next 12 months.

We have funded our operations primarily with revenues from sales of our products since their approvals, and through sales of our equity securities and interest income.

We anticipate that the level of cash used in our operations will fluctuate in future periods depending on the levels of spending required for our ongoing and planned commercial activities for our products, our ongoing and planned development activities for pimavanserin for the negative symptoms of schizophrenia, ACP-101 as a treatment for PWS and ACP-204 as a treatment for ADP, studies to be conducted pursuant to our PMRs, our ongoing and planned development activities for other early- and late-stage product candidates and strategic business development to further expand our portfolio.

We expect that our cash, cash equivalents and investment securities, as well as funds generated by anticipated sales of our products, will be sufficient to fund our planned operations through and beyond the next 12 months.

We may require additional financing in the future to fund our operations.

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• our ability to enter into new collaboration and license agreements;

• the progress in, and the costs of, our ongoing and planned development activities for pimavanserin, post-marketing studies for DAYBUE to be conducted over the next several years, and ongoing and planned commercial activities for NUPLAZID and DAYBUE;

• the costs of our development activities for our early-stage pipeline programs;

• the costs of commercializing NUPLAZID and DAYBUE, including the maintenance and development of our sales and marketing capabilities;

• the costs of our development activities for our product candidates;

• the costs of commercializing our products, including the maintenance and development of our sales and marketing capabilities;

• the costs of establishing, or contracting for, sales and marketing capabilities for our product candidates;

• the amount of U.S.

product sales from NUPLAZID and DAYBUE;

product sales from our products;

• the costs of preparing applications for regulatory approvals for DAYBUE in jurisdictions other than the U.S., for NUPLAZID in additional indications other than PDP and for other product candidates, as well as the costs required to support review of such applications;

• the costs of manufacturing and distributing NUPLAZID and DAYBUE for commercial use in the U.S.;

• the costs of manufacturing and distributing our products for commercial use in the U.S.;

• our ability to obtain regulatory approval for, and subsequently generate product sales from, NUPLAZID for the negative symptoms of schizophrenia, or from DAYBUE, and our product candidates;

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• the costs of maintaining or securing manufacturing arrangements for clinical or commercial production of pimavanserin, trofinetide or other product candidates;

• the costs associated with litigation, including the costs incurred in defending against any product liability claims that may be brought against us related to NUPLAZID or DAYBUE.

Unless and until we can generate significant cash from our operations, we expect to satisfy our future cash needs through our existing cash, cash equivalents and investment securities, public or private sales of our securities, debt financings, or strategic collaborations.

• the costs associated with litigation, including the costs incurred in defending against any product liability claims that may be brought against us related to our products.

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, including the Ukraine-Russia military conflict and related sanctions, the ongoing conflicts in the Middle East, tariffs and trade tensions, 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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As of December 31, 2024, we may be required to make milestone payments up to $4.0 billion in the aggregate.

These payments are contingent upon achieving future development, regulatory and commercial milestones.

We are also required to make royalty payments in connection with the sale of products developed under those agreements.

$1.1 billion payments are contingent upon achieving future development and regulatory milestones, and $2.9 billion payments are contingent upon achieving future commercial milestones.

Of the total $4.0 billion milestone payments, we are required to make milestone payments of $50.0 million within 60 days following Neuren’s invoice delivery after December 31, 2024 as our aggregate net revenue of trofinetide in North America for the treatment of Rett syndrome exceeded $250.0 million in 2024.

We also paid Neuren $48.8 million for one third of the net proceeds from sale of PRV in February 2025.

We expect to receive our first invoice for rebates under the IRA from Medicare Part D unit sales in 2025.

Payment is due 30 days after receiving such invoice;

the payment will be set off against the allowance for such rebate that we have accrued up to the date of payment.

At December 31, 2024, we had $756.0 million in cash, cash equivalents, and investment securities, compared to $438.9 million at December 31, 2023.

This $22.1 million increase in cash, cash equivalents, and investment securities during 2023 was primarily due to net cash provided by operating activities and increased cash proceeds from the exercise of employee stock options.

Net cash provided by operating activities was $16.7 million in 2023 compared to net cash used in operating activities of $114.0 million in 2022 and $125.7 million in 2021.

This $317.1 million increase in cash, cash equivalents, and investment securities during 2024 was primarily due to net cash provided by operating activities, including the sale of the PRV.

Net cash provided by operating activities was $157.7 million in 2024 compared to net cash provided by operating activities of $16.7 million in 2023 and net cash used in operating activities of $114.0 million in 2022.

The increase in net cash provided by operating activities in 2024 relative to 2023 was primarily due to an increase in our net revenues, decreased research and development costs and proceeds from sale of a non-financial asset , partially offset by increased sales and marketing costs .

The increase in net cash provided by operating activities in 2023 relative to 2022 was primarily due to an increase in our net revenues and decreased research and development costs , partially offset by increased sales and marketing costs .

The decrease in net cash used in operating activities in 2022 relative to 2021 was primarily due to an increase in our net revenues as well as decreased sales and marketing costs, partially offset by increased research and development costs.

Net cash provided by investing activities totaled $32.0 million in 2023 compared to net cash provided by investing activities of $73.2 million in 2022 and net cash used in investing activities of $71.1 million in 2021.

Net cash used in investing activities totaled $30.5 million in 2024 compared to net cash provided by investing activities of $32.0 million in 2023 and net cash provided by investing activities of $73.2 million in 2022.

The increase in net cash used in investing activities in 2024 compared to 2023 was primarily due to increased net purchases of investment securities.

The decrease in net cash provided by investing activities in 2023 compared to 2022 was primarily due to milestone payment of $40 million to Neuren and decreased net sale and maturities of investment securities.

The increase in net cash provided by investing activities in 2022 compared to 2021 was primarily due to increased net maturities of investment securities.

Net cash provided by financing activities increased to $25.1 million in 2023 compared to $8.2 million in 2022 and $18.2 million in 2021.

Net cash provided by financing activities decreased to $6.8 million in 2024 compared to $25.1 million in 2023 and $8.2 million in 2022.

This decrease in net cash provided by financing activities in 2024 relative to 2023 was attributable primarily to a decrease in proceeds resulting from the exercise of employee stock options.

The increase in net cash provided by financing activities in 2023 relative to 2022 was primarily due to an increase in proceeds resulting from the exercise of employee stock options.

The decrease in net cash provided by financing activities in 2022 relative to 2021 was primarily due to a decrease in proceeds resulting from the exercise of employee stock options.

Off-Balance Sheet Arrangements

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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-K

Item 7. Management’s Discussion and Analysis