What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-16 compared with 2021-02-11 · 187 added, 230 removed, 317 unchanged (57% of the section changed)

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A detailed discussion of our 2019 financial condition and results of operations, and of 2020 year-over-year changes as compared to 2019, can be found in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 11, 2021.

We earn revenue on net sales of VIVITROL, ARISTADA and ARISTADA INITIO, which are proprietary products that we manufacture, market and sell in the U.S., and manufacturing and/or royalty revenues on net sales of products commercialized by our licensees.

Our key marketed products are expected to generate significant revenues for us in the near‑ and medium‑term and we believe are singular or competitively advantaged products in their classes.

In 2020, these key marketed products consisted of VIVITROL;

ARISTADA and ARISTADA INITIO;

INVEGA SUSTENNA/XEPLION;

INVEGA TRINZA/TREVICTA;

and RISPERDAL CONSTA.

We have a portfolio of proprietary products that we manufacture, market and sell in the U.S.

—VIVITROL, ARISTADA, ARISTADA INITIO and most recently, LYBALVI, which we launched commercially in October 2021.

We also earn manufacturing and/or royalty revenues on net sales of products commercialized by our licensees, the most significant of which in 2021 were the long-acting INVEGA products and VUMERITY.

We expect VIVITROL, ARISTADA, ARISTADA INITIO, LYBALVI and VUMERITY to generate significant revenues for us in the near‑ and medium‑term as we believe these products are singular or competitively advantaged products in their classes.

In 2021, we incurred an operating loss of $29.3 million, as compared to $112.4 million in 2020.

Revenues decreased by 11% in 2020, as compared to 2019, which was primarily due to revenue earned in 2019 under our license and collaboration agreement with Biogen for VUMERITY and reduced net sales of VIVITROL in 2020 due to the impact of COVID-19.

This was partially offset by increased net sales of ARISTADA in 2020.

Also contributing to the decrease in our operating loss in 2020 as compared to 2019, was a 15% decrease in operating expenses, which was primarily due to a $60.6 million decrease in SG&A expense in 2020, a $86.6 million charge related to the IPR&D acquired as part of the acquisition of Rodin Therapeutics, Inc.

(“Rodin”) in 2019 and a $13.4 million charge in 2019 related to the Restructuring.

The decrease in the operating loss was primarily due to an increase in revenues of $135.0 million, partially offset by an increase in expenses of $51.9 million.

These items are discussed in further detail within the “Results of Operations” section below.

In December 2020, we announced a value enhancement plan designed to drive growth, improve operational and financial performance and enhance shareholder value.

The value enhancement plan includes a commitment to certain multi-year profitability targets, a review and optimization of our cost structure, potential monetization of our non-core assets, and continued governance enhancements.

A newly formed committee of our board of directors is responsible for overseeing achievement of the profitability targets and the potential monetization of our non-core assets.

We have already undertaken several important initiatives to support this plan, including a reorganization of our commercial infrastructure in November 2020 and an ongoing review of our operations and cost structure, both internally and with external advisors, to identify potential areas for improved efficiencies.

We are also exploring a broad range of strategic opportunities, including potential strategic collaborations for nemvaleukin and monetization of our non-core assets, whether through divestment or other means.

Any such collaboration or monetization, if effected, may impact our financial condition and operating results and may result in impairment charges related to our long-lived assets and/or adverse impacts on our liquidity.

In November 2021, we received notice of the partial termination by Janssen of our license agreement in respect of INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA, which termination is expected to impact know-how royalties related to sales of INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA in the U.S.

beginning in February 2022.

In 2021, we recognized $192.2 million in royalty revenue related to net sales of INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA in the U.S.

For more information about our agreement with Janssen in respect of the long-acting INVEGA products, see “Collaborative Arrangements—Janssen” in “Item 1—Business” in this Annual Report.

For information about risks relating to this notice of partial termination and our collaborative arrangements more broadly, see “Item 1A—Risk Factors” in this Annual Report and specifically that section entitled “We rely heavily on our licensees in the commercialization and continued development of products from which we receive revenue and, if our licensees are not effective, or if disputes arise in respect of our contractual arrangements, our revenues could be materially adversely affected.”

COVID-19 Update

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To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns and/or shutdowns in affected areas.

states, and many local jurisdictions and countries around the world, including Ireland, have, at times during the pandemic, issued “shelter-in-place” orders, quarantines, executive orders and similar government orders, restrictions, and recommendations for their residents to control the spread of COVID-19.

Such orders, restrictions and/or recommendations, and/or the perception that additional orders, restrictions or recommendations could occur, have resulted in widespread closures of businesses, including healthcare systems that serve people living with opioid dependence, alcohol dependence and schizophrenia, work stoppages, slowdowns and/or delays, work-from-home policies and travel restrictions, among other effects.

We continue to closely monitor and rapidly respond to the ongoing impact of COVID-19 on our employees, our communities and our business operations.

We have adopted a series of precautionary measures and will continue to do so as the circumstances warrant, in an effort to protect our employees and mitigate the potential spread of COVID-19 in a community setting.

For example, we instituted a global remote work policy for those of our employees who are able to work remotely.

Certain of our field-based employees have since resumed in-person interactions, as appropriate and on a voluntary basis, in accordance with location-specific guidance.

At the same time, we have worked to continue our critical business functions, including continued operation of our manufacturing facilities and our laboratories, and have continued to conduct our discovery efforts and supply our medicines.

of our employees who work in our manufacturing facilities and laboratories or who otherwise enter any of our sites, we have instituted, and will continue to institute as we deem appropriate and as required, additional safety precautions, including increased sanitization of our facilities, use of personal protective equipment, implementation of a daily health screening application and physical distancing practices to help protect their health and safety.

We have also taken actions to support people living with schizophrenia, opioid dependence and alcohol dependence to help assure that they have access to the information, resources and medicines that may assist in their treatment.

The marketed products from which we derive revenue, including manufacturing and royalty revenue, are primarily injectable medications administered by healthcare professionals.

Given developments that have transpired to date, and may continue to transpire, in response to the pandemic, including the implementation of “shelter-in-place” policies, social distancing requirements and other restrictive measures, commercial sales of these marketed products have been adversely impacted to varying degrees and we expect commercial sales of these marketed products to continue to be adversely impacted while the pandemic persists.

As it relates to our proprietary marketed products, during the three months ended December 31, 2020, we saw a decrease of 5% in the number of VIVITROL units sold compared to the three months ended September 30, 2020.

ARISTADA units sold during the three months ended December 31, 2020 increased 12% compared to the three months ended September 30, 2020.

During the three months ended December 31, 2020, we continued to take actions to support uninterrupted access to our proprietary marketed products.

However, we currently expect commercial sales of our marketed products, particularly VIVITROL, to continue to be impacted by the COVID-19 pandemic over the next few quarters.

These items are discussed in greater detail later in the “Results of Operations” section in this “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.

While we continue to conduct R&D activities, including our ongoing clinical trials, the COVID-19 pandemic has impacted, and may continue to impact, the timelines of certain of our early-stage discovery efforts and clinical trials.

We are working with our internal teams, our clinical investigators, R&D vendors and critical supply chain vendors to continually assess, and mitigate, the potential impact of COVID-19 on our manufacturing operations and R&D activities.

Due to numerous uncertainties surrounding the ongoing COVID-19 pandemic, the actual impact on our financial condition and operating results resulting from the pandemic may differ from our current projections.

These uncertainties include, among other things, the ultimate severity and duration of the pandemic;

governmental, business or other actions that have been, are being, or will be, taken in response to the pandemic, including restrictions on travel and mobility, business closures and operating restrictions and imposition of social distancing measures;

impacts of the pandemic on our employees, the vendors or distribution channels in our supply chain and on our ability to continue to manufacture our products;

Ireland, all U.S.

states, and many local jurisdictions and countries around the world have, at times during the pandemic, issued and implemented quarantines, vaccine and masking mandates, restrictive executive orders and other similar government orders, restrictions, and recommendations for their residents to help control the spread of COVID-19, and may continue to do so while the pandemic persists.

Such orders, mandates, restrictions and/or recommendations, and/or the perception that additional orders, mandates, restrictions or recommendations could occur, have, at times during the pandemic, resulted in widespread interruptions and closures of businesses, including healthcare systems that serve people living with addiction and serious mental illness, work stoppages, slowdowns and/or delays, remote work policies and travel restrictions, among other effects.

We continue to closely monitor and respond to the ongoing impact of COVID-19 on our employees, our communities and our business operations, and have adopted, and adapted as needed, a series of precautionary measures in an effort to protect our employees and mitigate the potential spread of COVID-19 in a community setting.

For example, at the start of the pandemic, we instituted a global remote work policy for those of our employees who were able to work remotely.

At the same time, we worked to continue our critical business functions, including operation of our manufacturing facilities and our laboratories, and continued to conduct our discovery efforts and supply our medicines.

For those of our employees who continued to work on-site in our laboratories and manufacturing facilities, we instituted additional safety precautions, including increased sanitization of our facilities, use of personal protective equipment, implementation of a daily health screening application and physical distancing practices.

We provided employees with COVID-19 vaccine information and sponsored vaccine clinics in Massachusetts and Ohio for our employees and their families.

We also took actions to support people living with opioid dependence, alcohol dependence, schizophrenia and bipolar I disorder to help facilitate their access to information, resources and medicines that may assist in their treatment.

Certain of our field-based employees have resumed in-person interactions, and certain of our office-based employees have returned to the office, in each case on a voluntary basis and in accordance with location-specific guidance.

We are planning for a larger-scale return to the office and have developed flexible work arrangement guidelines to help balance business needs, employee

health, wellbeing and safety and the evolving work environment.

We will continue to monitor guidance from local health authorities as we increase in-person interactions.

A number of the marketed products from which we derive revenue, including manufacturing and royalty revenue, are injectable medications administered by healthcare professionals.

Given developments that have transpired to date, and may continue to transpire, in response to the pandemic, including business closures, travel restrictions, quarantine, testing and/or vaccine mandates and other protocol, labor shortages, and other restrictive measures, commercial sales of these marketed products have been adversely impacted to varying degrees during the pandemic and may continue to be adversely impacted while the pandemic persists.

The COVID-19 pandemic has caused, and we expect may continue to cause, varying degrees of disruption to our employees and our business operations.

While we have continued to operate our manufacturing facilities and supply our medicines without interruption throughout the pandemic, we have at times during the pandemic experienced labor or supply chain disruptions at our manufacturing facilities, and may continue to experience such disruptions while the pandemic persists.

In addition, while we have continued to conduct R&D activities, including our ongoing clinical trials, the COVID-19 pandemic has at times impacted the timelines of certain of our early-stage discovery efforts and clinical trials, and may continue to impact such timelines while the pandemic persists.

We work with our internal teams, our clinical investigators, R&D vendors and critical supply chain vendors to continually assess, and mitigate, the potential impact of COVID-19 on our manufacturing operations and R&D activities.

Due to numerous uncertainties surrounding the ongoing COVID-19 pandemic, the actual impact of the pandemic on our financial condition and operating results may differ from our current projections.

These uncertainties include, among other things, the ultimate severity and duration of the pandemic and the manner in which it continues to evolve, including the emergence, prevalence and severity of new COVID-19 variants, and future developments in response thereto, which are highly uncertain and cannot be predicted as of the date of this Annual Report and which may include, among other things, governmental, business or other actions that have been, are being, or will be, taken in response to the pandemic, including restrictions on travel and mobility, business closures and operating restrictions, including the imposition of vaccine and masking mandates and/or mandatory testing policies;

impacts of the pandemic and of imposition of such mandates and protocols in response to the pandemic on our employees, including with regard to their health, safety, wellbeing and job performance, on the labor market more broadly and on our ability to attract and retain employees;

impacts of the pandemic on the vendors or distribution channels in our supply chain and on our ability to continue to manufacture our products;

impacts of the pandemic on the conduct of our clinical trials, including with respect to enrollment rates, availability of investigators and clinical trial sites, and monitoring of data;

impacts of the pandemic on healthcare systems that serve people living with opioid dependence, alcohol dependence and schizophrenia;

impacts of the pandemic on healthcare systems that serve people living with opioid dependence, alcohol dependence, schizophrenia and bipolar I disorder;

impacts of the pandemic on the regulatory agencies with which we interact in the development, review, approval and commercialization of our medicines;

impacts of the pandemic on reimbursement for our products, including our Medicaid rebate liability, and for services related to the use of our products;

and impacts of the pandemic on the U.S., Irish and global economies more broadly.

and impacts of the pandemic on the Irish, U.S.

and global economies more broadly.

For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, our financial condition or our results of operations, see “Item 1A—Risk Factors” in this Annual Report and specifically the section entitled “Our business, financial condition and results of operations have been, and may continue to be, adversely affected by the ongoing COVID-19 pandemic or other similar outbreaks of contagious diseases.”

Results of Operations

Product Sales, Net

Our product sales, net consist of sales of VIVITROL, ARISTADA and ARISTADA INITIO in the U.S., primarily to wholesalers, specialty distributors and pharmacies.

The following table presents the adjustments deducted from product sales, gross to arrive at product sales, net for sales of VIVITROL, ARISTADA and ARISTADA INITIO in the U.S.

Our product sales, net consist of sales in the U.S.

of VIVITROL, ARISTADA, ARISTADA INITIO, and following its commercial launch in October 2021, LYBALVI, primarily to wholesalers, specialty distributors and pharmacies.

The following table presents the adjustments deducted from product sales, gross to arrive at product sales, net for sales of VIVITROL, ARISTADA, ARISTADA INITIO and LYBALVI in the U.S.

during the years ended December 31, 2021 and 2020:

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Product sales, net

Our product sales, net for VIVITROL and ARISTADA and ARISTADA INITIO in 2020 were $310.7 million and $241.0 million, respectively, as compared to $335.4 million and $189.1 million in 2019, respectively.

The increase in product sales, gross was due to a 39% increase in ARISTADA and ARISTADA INITIO gross sales, partially offset by a 4% decrease in VIVITROL gross sales.

The increase in ARISTADA and ARISTADA INITIO gross sales was due to a 30% increase in the number of ARISTADA and ARISTADA INITIO units sold and a 6% price increase that went into effect in April 2020.

The decrease in VIVITROL gross sales was due to an 8% decrease in the number of VIVITROL units sold, primarily as a result of COVID-19-related disruptions, partially offset by a 6% increase in the selling price of VIVITROL, which went into effect in June 2020.

The increase in Medicaid rebates, as a percentage of sales, is primarily due to factors related to the COVID-19 pandemic.

A number of companies, including us, are working to develop products to treat addiction, including alcohol and opioid dependence, that may compete with, and negatively impact, future sales of VIVITROL.

Our product sales, net for VIVITROL, ARISTADA and ARISTADA INITIO, and LYBALVI in 2021 were $343.9 million, $275.4 million, and $8.2 million, respectively, as compared to $310.7 million, $241.1 million and none in 2020, respectively.

VIVITROL product sales, gross, increased by 14 % in 2021, as compared to 2020 , primarily due to a 10 % increase in the number of VIVITROL units sold due, in part, to a reduction in COVID-19-related disruptions that began in the second quarter of 2020 and a 2% increase in the selling price of VIVITROL that went into effect in April 2021.

ARISTADA and ARISTADA INITIO product sales, gross, increased by 15 % in 2021, as compared to 2020 , primarily due to a n 11% increase in the number of ARISTADA and ARISTADA INITIO units sold and a 3% increase in the selling price of ARISTADA and ARISTADA INITIO that went into effect in April 2021.

A number of companies are working to develop products to treat addiction, including alcohol and opioid dependence, that may compete with, and negatively impact, future sales of VIVITROL.

Increased competition may lead to reduced unit sales of VIVITROL and increased pricing pressure.

The latest to expire of our patents covering VIVITROL in the U.S.

will expire in 2029 and the latest to expire of our patents covering VIVITROL in Europe will expire in 2021.

will expire in 2029 and the latest to expire of our patents covering VIVITROL in Europe expired in 2021.

Under the terms of a settlement and license agreement, we granted Amneal a license under certain patents covering VIVITROL, including the latest to expire patent covering VIVITROL in the U.S., to market and sell a generic formulation of VIVITROL in the U.S.

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For a discussion of these legal proceedings, see Note 19, Commitments and Contingent Liabilities in the “Notes to Consolidated Financial Statements” in this Annual Report and for information regarding the risks relating to these legal proceedings, see “Risks Related to our Intellectual Property—We or our licensees may face claims against IP rights covering our products and competition from generic drug manufacturers”.

A number of companies, including us, currently market and/or are developing products to treat schizophrenia that may compete with and negatively impact future sales of ARISTADA and ARISTADA INITIO.

Increased competition may lead to reduced unit sales of ARISTADA and ARISTADA INITIO and increased pricing pressure.

The latest to expire of our patents covering ARISTADA and ARISTADA INITIO in the U.S.

will expire in 2035;

and, as such, we do not anticipate any generic versions of this product to enter the market in the near term.

We expect our product sales, net will continue to grow as VIVITROL continues to penetrate the opioid and alcohol dependence markets in the U.S., and as ARISTADA and ARISTADA INITIO continue to gain market share in the U.S.

A number of companies currently market and/or are developing products to treat schizophrenia and/or bipolar I disorder that may compete with and negatively impact future sales of ARISTADA, ARISTADA INITIO and LYBALVI.

Increased competition may lead to reduced unit sales of ARISTADA, ARISTADA INITIO and LYBALVI and increased pricing pressure.

The latest to expire of our patents covering ARISTADA, ARISTADA INITIO and LYBALVI in the U.S.

will expire in 2035, 2035 and 2032, respectively;

and, as such, we do not anticipate any generic versions of these products to enter the market in the near term.

We expect our product sales, net will continue to grow as VIVITROL continues to penetrate the opioid and alcohol dependence markets in the U.S., as ARISTADA and ARISTADA INITIO continue to gain market share in the U.S., and as we continue the commercial launch of LYBALVI.

Manufacturing and Royalty Revenues

Manufacturing revenues for third-party products using our proprietary technologies are mostly recognized over time as products move through the manufacturing process, using an input method based on costs as a measure of progress.

Manufacturing revenue from RISPERDAL CONSTA is recognized at the point in time the product has been fully manufactured.

Manufacturing revenue from RISPERDAL CONSTA and VUMERITY are recognized at the point in time the product has been fully manufactured.

Royalties earned on our licensees’ net sales of third-party products using our proprietary technologies are generally recognized in the period such products are sold by our licensees.

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Manufacturing and royalty revenues:

INVEGA SUSTENNA/XEPLION & INVEGA TRINZA/TREVICTA

Long-acting INVEGA products

RISPERDAL CONSTA

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Manufacturing and royalty revenues

Under our agreements with Janssen related to INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA, we earn tiered royalty payments, which consist of a patent royalty and a know-how royalty, both of which are determined on a country-by-country basis.

Our agreements with Janssen related to the long-acting INVEGA products provide for tiered royalty payments, which consist of a patent royalty and a know-how royalty, both of which are determined on a country-by-country basis.

The patent royalty, which equals 1.5% of net sales, is payable in each country until the expiration of the last of the patents with valid claims applicable to the product in such country.

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and 7.5% on calendar year net sales exceeding $500 million.

The know-how royalty rate resets to 3.5% at the beginning of each calendar year and is payable until 15 years from the first commercial sale of a product in each individual country, subject to the expiry of the license agreement.

The increase in INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA royalty revenues was due to an increase in Janssen’s end‑market net sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA.

Janssen’s end‑market net sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA were $3.7 billion and $3.3 billion during the years ended December 31, 2020 and 2019, respectively.

The know-how royalty rate resets to 3.5% at the beginning of each calendar year and is payable until 15 years from the first commercial sale of a product in each individual country.

The increase in royalty revenues from the long-acting INVEGA products was due to an increase in Janssen’s net sales of these products.

Janssen’s net sales of the long-acting INVEGA products were $4.0 billion and $3.7 billion during the years ended December 31, 2021 and 2020, respectively.

The latest of the patents subject to our license agreement with Janssen covering INVEGA SUSTENNA/XEPLION expires in 2030 in the U.S.

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and expires in 2036.

Each of INVEGA SUSTENNA and INVEGA

TRINZA are currently subject to Paragraph IV litigation in response to companies seeking to market generic versions of such products.

For a discussion of these legal proceedings, see Note 19, Commitments and Contingent Liabilities in the “Notes to Consolidated Financial Statements” in this Annual Report, and for information about risks relating to these legal proceedings, see “Item 1A—Risk Factors” in this Annual Report, and specifically the section entitled “Risks Related to Intellectual Property—We or our licensees may face claims against IP rights covering our products and competition from generic drug manufacturers.”

We recognize manufacturing revenue, equal to 7.5% of Janssen’s unit net sales price of RISPERDAL CONSTA, at the point in time when RISPERDAL CONSTA has been fully manufactured, which is deemed to have occurred when the product is approved for shipment by both us and Janssen.

We expect revenues from net sales of XEPLION, TREVICTA and BYANNLI to decrease over time.

The amount and timing of revenues from sales of INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA depend upon the outcome of our dispute with Janssen related to the basis for its partial termination of our license agreement in respect of these products.

In November 2021, we received notice of the partial termination of our license agreement with Janssen in respect of INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA, which termination is expected to impact the know-how royalty related to sales of INVEGA SUSTENNA, INVEGA TRINZA and INVEGA HAFYERA in the U.S.

beginning in February 2022.

For more information about the license agreement with Janssen in respect of the long-acting INVEGA products, see “Collaborative Arrangements—Janssen” in “Item 1—Business” in this Annual Report.

In addition, each of INVEGA SUSTENNA and INVEGA TRINZA are currently subject to Paragraph IV litigation in response to companies seeking to market generic versions of such products.

Increased competition from new products or generic versions of these products may lead to reduced unit sales of such products and increased pricing pressure.

For a discussion of these legal proceedings, see Note 19, Commitments and Contingent Liabilities in the “Notes to Consolidated Financial Statements” in this Annual Report, and for information about risks relating to these legal proceedings, see “Item 1A—Risk Factors” in this Annual Report, and specifically the section entitled “We or our licensees may face claims against IP rights covering our products and competition from generic drug manufacturers.”

We record manufacturing revenue, equal to 7.5% of Janssen’s unit net sales price of RISPERDAL CONSTA, at the point in time when RISPERDAL CONSTA has been fully manufactured, which is deemed to have occurred when the product is approved for shipment by both us and Janssen.

We record royalty revenue, equal to 2.5% of end-market net sales, in the period that the end-market sale of RISPERDAL CONSTA occurs.

The increase in RISPERDAL CONSTA revenue was due to a 13% increase in manufacturing revenue, partially offset by a 9% decrease in royalty revenue.

The increase in manufacturing revenue was primarily due to an increase in the number of units of RISPERDAL CONSTA manufactured for Janssen.

The decrease in RISPERDAL CONSTA revenue was due to a 29% decrease in manufacturing revenue and a 28% decrease in royalty revenue.

The decrease in manufacturing revenue was primarily due to a 35% decrease in the number of units of RISPERDAL CONSTA manufactured for Janssen.

The decrease in royalty revenue was due to a decline in Janssen’s end-market net sales of RISPERDAL CONSTA.

Janssen’s end‑market net sales of RISPERDAL CONSTA were $592.0 million and $642.0 million during the years ended December 31, 2021 and 2020, respectively.

The latest to expire patent covering RISPERDAL CONSTA will expire in 2021 in the EU and 2023 in the U.S.

For a discussion of legal proceedings related to patents covering RISPERDAL CONSTA, see Note 19, Commitments and Contingent Liabilities in the “Notes to Consolidated Financial Statements” in this Annual Report, and for risks relating to such legal proceedings, see “Item 1A—Risk Factors” in this Annual Report and specifically the section entitled “Risks Related to our Intellectual Property—We or our licensees may face claims against IP rights covering our products and competition from generic drug manufacturers.”

We expect revenues from our long‑acting, atypical franchise to decrease over time.

While we expect continued growth from sales of INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA in the near term, we are aware of potential generic competition for RISPERDAL CONSTA that may lead to reduced unit sales and increased pricing pressure in 2021.

We are also aware of generic challenges to INVEGA SUSTENNA/XEPLION and INVEGA TRINZA/TREVICTA.

For a discussion of legal proceedings related to RISPERDAL CONSTA, INVEGA SUSTENNA and INVEGA TRINZA, see Note 19, Commitments and Contingent Liabilities in the “Notes to Consolidated Financial Statements” in this Annual Report.

In addition, a number of companies, including us, are working to develop new products to treat schizophrenia and/or bipolar disorder that may compete with INVEGA SUSTENNA/XEPLION, INVEGA TRINZA/TREVICTA and RISPERDAL CONSTA.

Increased competition from new products or generic versions of INVEGA SUSTENNA/XEPLION, INVEGA TRINZA/TREVICTA or RISPERDAL CONSTA may lead to reduced unit sales of INVEGA SUSTENNA/XEPLION, INVEGA TRINZA/TREVICTA and RISPERDAL CONSTA, and increased pricing pressure.

We record manufacturing and royalty revenue for AMPYRA as the product is being manufactured, rather than when it is shipped to Acorda.

For FAMPYRA, we record manufacturing revenue as the product is being manufactured and record royalty revenue when the end-market sale of FAMPYRA occurs.

The increase in the amount of manufacturing and royalty revenue from AMPYRA and FAMPYRA was primarily due to an $11.3 million increase in AMPYRA revenue in 2020, $6.7 million of which was manufacturing revenue and $4.6 million of which was royalty revenue, in each case related to increased batches of AMPYRA manufactured in 2020, compared to 2019 in which we did not manufacture any batches of AMPYRA due to the entry of generic forms of AMPYRA into the U.S.

We expect revenue from RISPERDAL CONSTA to decrease over time.

The latest to expire patent covering RISPERDAL CONSTA expired in 2021 in the EU and will expire in 2023 in the U.S., and we are aware of potential generic competition for RISPERDAL CONSTA that may lead to reduced unit sales and increased pricing pressure.

For a discussion of legal proceedings related to patents covering RISPERDAL CONSTA, see Note 19, Commitments and Contingent Liabilities in the “Notes to Consolidated Financial Statements” in this Annual Report, and for risks relating to such legal proceedings, see “Item 1A—Risk Factors” in this Annual Report and specifically the section entitled “We or our licensees may face claims against IP rights covering our products and competition from generic drug manufacturers.”

We record manufacturing revenue for VUMERITY at cost plus 15% upon release for bulk batches of VUMERITY and upon shipment for packaged batches of VUMERITY.

We record a 15% royalty on worldwide net sales of VUMERITY when the end-market sale of VUMERITY occurs.

VUMERITY manufacturing revenue increased by 192%, which was primarily due to a 310% and 430% increase in the amount of bulk batches and packaged lots of VUMERITY, respectively, manufactured for Biogen.

Royalty revenues increased by 350%, which was primarily due to an increase in end-market sales of VUMERITY.

Net end-market sales of VUMERITY were $410.0 million in the year ended December 31, 2021, as compared to $64.0 million in the year ended December 31, 2020.

We record manufacturing revenue for FAMPYRA as the product is being manufactured and record royalty revenue when the end-market sale of FAMPYRA occurs.

We record both manufacturing and royalty revenue for AMPYRA as the product is being manufactured, rather than when it is shipped to Acorda.

FAMPYRA manufacturing and royalty revenues increased by 6% and 4%, respectively, primarily due to an increase in the amount of FAMPYRA manufactured and an increase in end-market sales.

AMPYRA manufacturing and royalty revenues both decreased by 10% primarily due to a decrease in AMPYRA demand due to the entry of generic forms of AMPYRA into the U.S.

market in 2018.

We expect revenues from AMPYRA to decline due to the availability of generic forms of AMPYRA in the U.S.

We expect revenues from AMPYRA to continue to decline due to the availability of generic forms of AMPYRA in the U.S.

The latest of the patents covering FAMPYRA expires in 2025 in the EU.

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and are denominated in currencies in which the product is sold.

See “Item 7A—Quantitative and Qualitative Disclosures about Market Risk” in this Annual Report for information on currency exchange rate risk related to our revenues and “Item 1A—Risk Factors” in this Annual Report, and specifically the section entitled “Risks Related to our Financial Condition and Tax Matters—Currency exchange rates may affect revenues and expenses” for risks related to currency exchange rates.

License Revenue

Year Ended December 31,

(In millions)

License revenue

The decrease in license revenue in 2020 was primarily due to the absence in 2020 of any milestone payments under our license and collaboration agreement with Biogen for VUMERITY, as compared to the $150.0 million milestone payment we received under such agreement in 2019 upon FDA approval of the NDA for VUMERITY, of which $145.8 million was allocated to the delivery of the license and the remaining $4.2 million was allocated to R&D services.

Research and Development Revenue

Year Ended December 31,

(In millions)

Research and development revenue

The decrease in R&D revenue was primarily due to a decrease in the revenue earned under our license and collaboration agreement with Biogen for VUMERITY, as discussed in further detail within the “Critical Accounting Estimates” section below.

R&D revenues earned under our license and collaboration agreement with Biogen for VUMERITY were $0.7 million and $50.0 million in the years ended December 31, 2020 and 2019, respectively, and the decrease in revenue was due to a decrease in services performed given FDA approval of VUMERITY in October 2019.

See “Item 7A—Quantitative and Qualitative Disclosures about Market Risk” in this Annual Report for information on currency exchange rate risk related to our revenues and “Item 1A—Risk Factors” in this Annual Report, and specifically the section entitled “Currency exchange rates may affect revenues and expenses” for risks related to currency exchange rates.

Costs and Expenses

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Cost of goods manufactured and sold

The decrease in cost of goods manufactured and sold was primarily due to a 6% decrease in cost of goods manufactured and sold related to VIVITROL, which was primarily due to a decrease in VIVITROL units sold, partially offset by a 10% increase in cost of goods manufactured and sold related to ARISTADA, primarily due to an increase in ARISTADA units sold, as described in the Product Sales, net section, above.

The increase in cost of goods manufactured and sold was primarily due to a 320% increase in VUMERITY cost of goods manufactured and a 24% increase in VIVITROL cost of goods manufactured and sold, partially offset by a decrease in RISPERDAL CONSTA cost of goods manufactured of 23%.

The increase in VUMERITY cost of goods manufactured was due to increased manufacturing activity, as discussed above.

The increase in VIVITROL cost of goods manufactured and sold was primarily due to an increase in the number of VIVITROL units sold, as discussed above.

The decrease in cost of goods manufactured for RISPERDAL CONSTA was due to a decrease in end-market sales for this product, as discussed above.

Research and Development Expenses

For each of our R&D programs, we incur both external and internal expenses.

External R&D expenses include clinical and non‑clinical activities performed by CROs, consulting fees, laboratory services, purchases of drug product materials and third‑party manufacturing development costs.

External R&D expenses include fees for clinical and non-clinical activities performed by CROs, consulting fees, and costs related to laboratory services, the purchase of drug product materials and third-party manufacturing development activities.

Internal R&D expenses include employee-related expenses, occupancy costs, depreciation and general overhead.

We track external R&D expenses for each of our development programs;

however, internal R&D expenses are not tracked by individual program as they benefit multiple programs or our technologies in general.

The following table sets forth our external R&D expenses for the years ended December 31, 2020 and 2019 listed by the nature of such expenses:

however, internal R&D expenses are not tracked by individual program as they can benefit multiple programs or our technologies in general.

The following table sets forth our external R&D expenses for the years ended December 31, 2021 and 2020 relating to our then-current development programs and our internal R&D expenses, listed by the nature of such expenses:

Year Ended December 31,

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Development programs:

IPR&D acquired from Rodin

Other external R&D expenses

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These amounts are not necessarily predictive of future R&D expenses.

In an effort to allocate our spending most effectively, we continually evaluate our products under development based on the performance of such products in preclinical and/or clinical trials and our expectations regarding the likelihood of their regulatory approval and commercial viability, among other factors.

The increase in expenses related to nemvaleukin was primarily due to the advancement of the ARTISTRY development program for the product.

The increase in expenses related to LYBALVI was primarily due to the write-off of approximately $7.7 million of inventory that was expected to be sold commercially but, in the fourth quarter of 2020 we determined that certain lots were no longer probable of being sold commercially, partially offset by a decrease in clinical activity across the LYBALVI program following original submission of the NDA in November 2019.

The decrease in expenses related to ALKS 5461 was primarily due to a

decrease in activity within the program following receipt in January 2019 of a CRL from the FDA relating to our NDA seeking marketing approval of ALKS 5461 for the adjunctive treatment of major depressive disorder, and subsequent winding down of ongoing clinical activity in the development program.

The decrease in expenses related to VUMERITY was primarily due to the completion of our elective, randomized, head-to-head phase 3 study in 2019 .

The FDA approved the NDA for VUMERITY in the fourth quarter of 2019.

For additional detail on the status of our key development programs, see “Item 1—Business” in this Annual Report and specifically the section entitled “ Key Development Programs ” .

Included in external R&D expenses in 2019 was a charge of $86.6 million related to IPR&D acquired when we acquired Rodin in the fourth quarter of 2019.

The acquisition of Rodin was treated as an asset acquisition and not a business combination for accounting purposes as substantially all of the fair value of the assets acquired in the acquisition of Rodin was tied to their IPR&D, which is largely in the preclinical stage.

As the IPR&D was determined to have no alternative future use, the value ascribed to the IPR&D was charged to R&D expense upon its acquisition.

The decrease in employee-related expenses was primarily due to a decrease in R&D headcount of 10% from December 31, 2019 to December 31, 2020, as a result of the Restructuring.

The increase in occupancy expenses in the year ended December 31, 2020, as compared to the year ended December 31, 2019, was primarily due to the commencement of the 900 Winter Street Lease in January 2020.

In an effort to allocate our spending most effectively, we continually evaluate our products under development, based on the performance of such products in preclinical and/or clinical trials, our expectations regarding the likelihood of their regulatory approval and our view of their future potential commercial viability, among other factors.

The increase in expenses related to nemvaleukin was primarily due to the advancement of the ARTISTRY development program for the product, including increased patient enrollment in ongoing clinical studies and the initiation of the ARTISTRY-6 and ARTISTRY-7 studies.

For additional detail on the status of the ARTISTRY development program for nemvaleukin, see “Item 1—Business” in this Annual Report and specifically the section entitled “Key Development Program – nemvaleukin alfa”.

The increase in expenses related to ALKS 1140, our novel CoREST-selective HDAC inhibitor candidate for the treatment of neurodegenerative and neurologic disorders, was primarily due to a $25.0 million development milestone payment made to the former shareholders of Rodin Therapeutics, Inc.

(“Rodin”) in 2021 related to the submission of an IND or equivalent for ALKS 1140.

The decrease in expenses related to LYBALVI was primarily due to the approval of the LYBALVI NDA by the FDA in May 2021 and its commercial launch in October 2021.

The decrease in employee-related expenses was primarily due to a decrease in R&D headcount of 7% from December 31, 2020 to December 31, 2021.

Selling, General and Administrative Expenses

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Selling, general and administrative expense

The decrease in selling and marketing expense was primarily due to a decrease in marketing expense of $40.4 million, a decrease in employee-related expenses of $7.6 million and a decrease in professional service fees of $4.2 million.

The decrease in marketing expense was primarily due to cost saving measures taken in 2020 and a reduction in the number of speaker programs and speaker trainings and a reduction in conference-related spend primarily due to the impacts of the COVID-19 pandemic.

The decrease in employee-related expenses was primarily due to a decrease in employee travel related to the impacts of the COVID-19 pandemic.

The decrease in professional service fees was primarily due to an overall reduction in external consultant-related fees in 2020, as compared to 2019.

The decrease in general and administrative expense was primarily due to a decrease in employee-related expenses of $14.1 million and a decrease in professional service fees of $4.0 million, partially offset by an increase in overhead costs of $9.5 million.

The decrease in employee-related expenses was primarily due to a decrease in share-based compensation expense and in salaries and benefits, due to a decrease in general and administrative headcount of 2% from December 31, 2019 to December 31, 2020 and the impact of the Restructuring, and due to a decrease in employee travel related to the impacts of the COVID-19 pandemic.

The decrease in professional service fees was primarily due to expense management measures taken in response to COVID-19-related disruptions to the business.

The increase in overhead expenses was primarily related to the commencement of the 900 Winter Street Lease and an increase in insurance costs.

The increase in selling and marketing expense was primarily due to a 22% increase in marketing expense and a 33% increase in professional service fees.

The increases in both marketing expense and professional service fees were primarily related to commercial launch activities for LYBALVI, including increases in consumer promotional materials and product samples.

The decrease in general and administrative expense was primarily due to a 59% decrease in new product planning activities following the commercial launch of LYBALVI in October 2021 and a 29% decrease in IT related costs, primarily due to decreases in external software license costs and maintenance costs.

Amortization of Acquired Intangible Assets

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We amortize our amortizable intangible assets using the economic use method, which reflects the pattern that the economic benefits of the intangible assets are consumed as revenue is generated from the underlying patent or contract.

Based on our most recent analysis, amortization of intangible assets included within our consolidated balance sheet at December 31, 2020 is expected to be approximately $40.0 million, $35.0 million, $35.0 million, $1.0 million and none in the years ending December 31, 2021 through 2025, respectively.

Restructuring

Year Ended December 31,

(In millions)

Restructuring expense

In the fourth quarter of 2019, our board of directors approved the Restructuring, which included a reduction in headcount of approximately 160 employees across the Company.

We recorded a charge of $13.4 million in the fourth quarter of 2019 as a result of the Restructuring, which consisted of one-time termination benefits for employee severance, benefits and related costs, all of which are expected to result in cash expenditures and substantially all of which were paid out by the end of 2020.

We paid $8.7 million and $4.2 million of the total $13.4 million accrued for the Restructuring during the years ended December 31, 2020 and 2019, respectively.

Other Income (Expense), Net

Based on our most recent analysis, amortization of intangible assets included within our consolidated balance sheet at December 31, 2021 is expected to be approximately $35.0 million, $35.0 million and $1.0 million in the years ending December 31, 2022 through 2024, respectively.

Other (Expense) Income, Net

Year Ended December 31,

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Other income, net

Total other income (expense), net

The decreases in interest income and interest expense in 2020, as compared to 2019, were primarily due to a decrease in interest rates.

Interest income consists primarily of interest earned on our available-for-sale investments.

Interest expense consists primarily of interest incurred on the 2023 Term Loans.

The 2023 Term Loans bear interest at a LIBOR of our choosing (one, three or six months), plus 2.25% with a 0% LIBOR floor.

During the years ended December 31, 2020 and 2019, the Company’s average LIBOR rates were 0.51% and 2.27%, respectively.

Total other (expense) income, net

The decrease in interest income was primarily due to a decrease in interest rates.

Interest income consists of interest earned on our available-for-sale investments.

The increase in interest expense was due to the Term Loan Refinancing completed in March 2021.

The Term Loan Refinancing is discussed in greater detail in Note 11, Long-Term Debt in the “Notes to Consolidated Financial Statements” in this Annual Report.

In April 2015, we sold certain of our business assets to Recro Pharma, Inc.

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In November 2019, Recro spun out its acute care segment to Baudax Bio, Inc.

(“Baudax”), a publicly-traded pharmaceutical company.

As part of this transaction, Recro’s obligations to pay certain contingent consideration from the Gainesville Transaction were assigned and/or transferred to Baudax.

We determined the fair value of the contingent consideration through three valuation approaches, which are described in greater detail in “Critical Accounting Estimates, Contingent Consideration”, later in “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.

At each reporting date, we update our assessment of the fair value of this contingent consideration and reflect any changes to the fair value within the consolidated statements of operations and comprehensive loss and will continue to do so until the milestones and/or royalties included in the contingent consideration have been settled.

During the years ended December 31, 2020 and 2019, we determined that the fair value of the contingent consideration increased by $3.9 million and decreased by $22.8 million, respectively.

The increase in the fair value of the contingent consideration in 2020, as compared to 2019, was primarily due to the approval by the FDA of ANJESO in February 2020, partially offset by an increase in the discount rate due to an increase in the risk of non-payment.

In Baudax’s Quarterly Report on Form 10-Q for the period ended September 30, 2020, Baudax included disclosures around its ability to continue as a going concern.

The increase in other income, net in the year ended December 31, 2020, as compared to the year ended December 31, 2019, was primarily due to an $8.3 million gain on our equity method investment as a result of the sale of two of the companies within the Fountain Healthcare Partners II (“Fountain”) portfolio.

(“Baudax”) and assigned and/or transferred to Baudax Recro’s obligations to pay certain contingent consideration from the Gainesville Transaction.

The change in the fair value of contingent consideration was primarily due to the approval of the NDA for ANJESO by the FDA in February 2020, which increased the probability of success in our valuation approach and increased the value of the contingent consideration.

In the fourth quarter of 2020, following Baudax’s disclosure regarding its ability to continue as a going concern, we modified our valuation model to incorporate a greater risk of non-payment.

The valuation approach used to determine the fair value of the contingent consideration is discussed in greater detail in Note 5, Fair Value , in the “Notes to Consolidated Financial Statements” in this Annual Report.

The decrease in other income, net was primarily due to $11.1 million of income in 2020 representing our proportional share of the proceeds from the sale of two companies within the Fountain Healthcare Partners II (“Fountain”) portfolio.

The transactions were

accounted for under the cumulative earnings approach whereby the return on investment of $8.3 million was recorded as a gain within “Other (expense) income, net” in the accompanying consolidated statements of operations and comprehensive loss and the return of investment of $2.8 million was recorded as a reduction in the net investment in Fountain.

Our investment in Fountain is discussed in greater detail in Note 4, Investments , in the “Notes to Consolidated Financial Statements” in this Annual Report .

Provision ( Benefit) for Income Taxes

Income Tax Provision

Year Ended December 31,

(In millions)

Income tax provision (benefit)

The income tax provision in 2020 and the income tax benefit in 2019 were primarily due to U.S.

federal and state taxes.

The unfavorable change in income taxes in 2020, as compared to 2019, was primarily due to a significant benefit recorded in 2019 related to the foreign derived intangible income (“FDII”) proposed regulations issued by the U.S.

Department of the Treasury and the U.S.

Internal Revenue Service in March 2019.

Income tax provision

The income tax provision in 2021 and 2020 were primarily due to U.S.

federal and state taxes on income earned in the U.S.

and the tax impact of employee equity activity.

No provision for income tax has been provided on undistributed earnings of the Company’s foreign subsidiaries because such earnings are indefinitely reinvested in the foreign operations.

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These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities and may be subject to limitations based upon changes in the ownership of the Company's ordinary shares.

As discussed in “Item 1A—Risk Factors” in this Annual Report and specifically the section entitled “Changes in tax rules and regulations, or interpretations thereof, may adversely affect our financial condition”, effective in 2022, the Tax Cuts and Jobs Act of 2017 requires us to capitalize, and subsequently amortize R&D expenses over five years for research activities conducted in the U.S.

and over fifteen years for research activities conducted outside of the U.S.

This will result in a material increase to our U.S.

income tax liability and net deferred tax assets and a material decrease to our cash flows provided from operations.

The actual impact will depend on multiple factors, including the amount of R&D expenses incurred and whether the research activities are performed within or outside of the U.S.

In 2021, Ireland joined the Organization for Economic Co-operation and Development’s (“OECD”) inclusive framework two-pillar solution to address the tax challenges arising from the digitalization of the economy.

The OECD’s draft Pillar Two legislation outlines the rules to assist in the implementation of an international tax system that would ensure that certain companies in the relevant jurisdictions are subject to a minimum tax rate of 15%.

Ireland may incorporate these rules into its domestic legislation, which may become effective in 2023.

We are assessing the application and potential impact of these proposed rules.

Liquidity and Capital Resources

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Investments—short-term available-for-sale

Investments—short-term held-to-maturity

Investments—long-term available-for-sale

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Sources and Uses of Cash

We generated $82.8 million and $72.0 million of cash from operating activities during the years ended December 31, 2020 and 2019, respectively.

We expect that our existing cash and investments will be sufficient to finance our anticipated working capital and other cash requirements, such as capital expenditures and principal and interest payments on our long‑term debt, for at least the twelve months following the date from which our financial statements were issued.

We generated $101.7 million and $82.8 of cash from operating activities during the years ended December 31, 2021 and 2020, respectively.

We expect that our existing cash, cash equivalents and investments will be sufficient to finance our anticipated working capital and other cash requirements, such as capital expenditures and principal and interest payments on our long‑term debt, for at least the twelve months following the date from which our financial statements were issued.

Subject to market conditions, interest rates and other factors, we may pursue opportunities to obtain additional financing in the future, including debt and equity offerings, corporate collaborations, bank borrowings, arrangements relating to assets or other financing methods or structures.

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We mitigate credit risk in our cash reserves by maintaining a well-diversified portfolio that limits the amount of investment exposure as to institution, maturity and investment type.

However, the value of these securities may be adversely affected by the instability of the global financial markets, which could, in turn, adversely impact our financial position and our overall liquidity.

Our available-for-sale investments consist primarily of short and long-term U.S.

government and agency debt securities and corporate debt securities.

We classify available‑for‑sale investments in an unrealized loss position, which do not mature within 12 months, as long‑term investments.

government and agency debt securities, corporate debt securities and debt securities issued and backed by non-U.S.

Our held-to-maturity investments consist of investments that are held as collateral under certain letters of credit related to certain of our lease agreements.

We classify available‑for‑sale investments in an unrealized loss position that do not mature within 12 months as long‑term investments.

We have the intent and ability to hold these investments until recovery, which may be at maturity, and it is more‑likely‑than‑not that we would not be required to sell these securities before recovery of their amortized cost.

At December 31, 2020, we performed an analysis of our investments with unrealized losses for impairment and determined that they were temporarily impaired.

At December 31, 2021, we performed an analysis of our investments with unrealized losses for impairment and determined that the loss on one of our corporate debt securities was other-than-temporary and, during the year ended December 31, 2021, recorded a $0.9 million impairment charge within “Other (expense) income, net” in the accompanying consolidated statements of operations and comprehensive loss.

We have no off-balance sheet arrangements that are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources in the next twelve months.

As discussed above, we made a $25.0 million development milestone payment to the former shareholders of Rodin in 2021.

We are obligated to make up to $825.0 million in future payments, $225.0 million of which would be triggered upon achievement of certain specified clinical milestones, $300.0 million of which would be triggered by the achievement of certain regulatory milestones and $325.0 million of which would be triggered upon the attainment of certain sales thresholds.

At December 31, 2021, we had not recorded a liability related to these milestone payments as none of the future events that would trigger a milestone payment were considered probable of occurring.

Information about our cash flows, by category, is presented in the accompanying consolidated statements of cash flows.

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Cash flows used in investing activities

Cash flows (used in) provided by financing activities

Cash flows provided by (used in) financing activities

Cash and cash equivalents, end of period

Operating Activities

The increase in cash flows provided by operating activities is primarily due to an increase in the cash provided from our net loss, net of adjustments to reconcile net loss to cash flows from operating activities.

This was partially offset by a decrease in the cash provided from working capital, primarily due to increases in receivables and inventory, partially offset by an increase in accounts payable and accrued expenses.

Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities.

We expect cash provided from operating activities will continue to be our primary source of funds to finance operating needs and capital expenditures for the foreseeable future.

Operating cash flow is derived by adjusting our net loss for non-cash operating items such as depreciation, amortization and share-based compensation as well as changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our results of operations.

The increase in cash flows provided by operating activities was primarily due to a decrease in our net loss of $62.7 million.

This was partially offset by a decrease in the cash provided from working capital, primarily due to a decrease in cash provided by receivables of $20.0 million and from accounts payable and accrued expenses of $20.7 million.

Investing Activities

The decrease in cash used in investing activities was primarily due to the net sale of investments of $23.5 million in 2020 as compared to the net purchase of investments of $52.9 million in 2019.

We also had a decrease in property, plant and equipment additions of $48.7 million in 2020 primarily due to a decrease in expenses related to leasehold improvements related to the 900 Winter Street Lease commencement in January 2020.

We expect to spend approximately $40.0 million during the year ended December 31, 2021 for capital expenditures.

We continue to evaluate our manufacturing capacity based on expectations of demand for our products and will continue to record such amounts within construction in progress until such time as the underlying assets are placed into service, or we determine we have sufficient existing capacity and the assets are no longer required, at which time we would recognize an impairment charge.

The increase in cash flows used in investing activities was primarily due to a $68.9 million increase in net purchase of investments, partially offset by a $14.2 million decrease in cash paid for property, plant and equipment and a $4.1 million increase in payments received in connection with the contingent consideration resulting from the Gainesville Transaction.

We expect to spend approximately $35.0 million to $40.0 million during the year ending December 31, 2022 for capital expenditures.

We continue to evaluate our manufacturing capacity based on expectations of demand for the products that we manufacture and will continue to record such amounts within construction in progress until such time as the underlying assets are placed into service, or we determine we have sufficient existing capacity and the assets are no longer required, at which time we would recognize an impairment charge.

We continue to periodically evaluate whether facts and circumstances indicate that the carrying value of these long‑lived assets to be held and used may not be recoverable.

In the fourth quarter of 2019, we acquired Rodin for an upfront cash payment of approximately $100.0 million and potential future milestone payments of up to $850.0 million.

We accounted for the transaction as an asset acquisition, as substantially all of the fair value of the assets acquired in the acquisition of Rodin were tied to their IPR&D, which was largely in the preclinical stage.

As the IPR&D was determined to have no alternative future use, the value ascribed to the IPR&D, $86.6 million, was charged to R&D expense upon its acquisition and was included in our net loss in 2019.

The remaining $8.9 million of net assets acquired, net of cash transferred as part of the acquisition of $2.7 million, was included as an investing activity in the 2019 cash flow statement.

Financing Activities

The change in cash flows from financing activities was due to an $8.9 million decrease in the net cash provided from stock option exercises by our employees.

The increase in cash flows provided by financing activities was primarily due to the $23.6 million in proceeds from the Term Loan Refinancing and an $8.1 million increase in the amount of cash we received upon exercises of employee stock options, net of employee taxes.

At December 31, 2021, our borrowings consisted of $295.8 million outstanding under the 2026 Term Loans.

The 2026 Term Loans bear interest at LIBOR plus 2.5%, with a LIBOR floor of 0.5%.

Principal payments of $0.8 million are made quarterly through 2025, with a final payment of $285.8 million due in March 2026.

Please refer to Note 11, Long‑Term Debt , in the “Notes to Consolidated Financial Statements” in this Annual Report for a discussion of our outstanding term loans.

Contractual Obligations

The following table summarizes our obligations to make future payments under our current contracts at December 31, 2020:

Contractual Obligations (In thousands)

(2022 - 2023)

(2024 - 2025)

2023 Term Loans—Principal

2023 Term Loans—Interest

Operating lease obligations

Purchase obligations ( 1)

Total contractual cash obligations

Purchase obligations represent open purchase orders for the acquisition of goods and services in the ordinary course of business and purchase orders for capital expenditures primarily related to certain planned capital spend.

Our obligation to pay certain of these amounts may be reduced based on certain future events.

As interest on the 2023 Term Loans is based on a one, three or six-month LIBOR rate of our choosing, for the purposes of this disclosure, we are using the one-month LIBOR rate, which was 0.16% at December 31, 2020 and is the rate we were using at December 31, 2020 for interest payments under the 2023 Term Loans.

This table excludes up to $850.0 million in milestone payments that we would be obligated to make upon achievement by the platform of development candidates acquired in the acquisition of Rodin of certain specified clinical and regulatory milestones, and attainment of certain sales thresholds, as we cannot make a reliable estimate of the period of payment.

At December 31, 2020, we have not recorded a liability related to these milestone payments, as none of the future events which would trigger a milestone payment are considered probable of occurring.

This table also excludes any liabilities pertaining to uncertain tax positions as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities.

At December 31, 2020, we had $7.7 million of net liabilities associated with uncertain tax positions.

We do not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months.

Off‑Balance Sheet Arrangements

At December 31, 2020, we were not a party to any off‑balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Estimates

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In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared.

On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP.

On a regular basis, we review these accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP.

However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

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Management judgment is required in determining the consideration to be earned under an arrangement and the period over which we are expected to complete our performance obligations under an arrangement.

Steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or

performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which we expect to complete our aggregate performance obligations.

Steering committee services that are not inconsequential or perfunctory and that are determined to be performance obligations are combined with other research services or performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which we expect to complete our aggregate performance obligations.

Product Sales, Net

Our product sales, net consist of sales of VIVITROL, ARISTADA and ARISTADA INITIO in the U.S.

primarily to wholesalers, specialty distributors and pharmacies.

Our product sales, net consist of sales in the U.S.

of VIVITROL, ARISTADA, ARISTADA INITIO and, following its commercial launch in October 2021, LYBALVI, primarily to wholesalers, specialty distributors and pharmacies.

Product sales, net are recognized when the customer obtains control of the product, which is when the product has been received by the customer.

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, health care providers or payers.

Our process for estimating reserves established for these variable consideration components does not differ materially from historical practices.

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers, healthcare providers or payers.

Our process for estimating reserves established for these variable

consideration components does not differ materially from historical practices.

The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period.

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Under the CGDP, patients reaching the annual coverage gap threshold are eligible for reimbursement coverage for out-of-pocket costs for covered prescription drugs.

Under an agreement with the Center for Medicare and Medicaid, manufacturers are responsible to reimburse prescription plan sponsors for the portion of out-of-pocket expenses not covered under their Medicare plans.

Our provisions for sales and allowances reduced gross product sales as follows:

Under an agreement with the Centers for Medicare and Medicaid Services, manufacturers are responsible for reimbursement of prescription plan sponsors for the portion of out-of-pocket expenses not covered under their Medicare plans.

A rollforward of our provisions for sales and allowances is as follows:

(In millions)

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We recognize manufacturing revenues from the sale of products we manufacture for resale by our licensees.

Manufacturing revenues for our partnered products, with the exception of those from Janssen related to RISPERDAL CONSTA, are recognized over time as products move through the manufacturing process, using a standard cost-based model as a measure of progress, which represents a faithful depiction of the transfer of control of the goods.

Manufacturing revenues for our partnered products, with the exception of those from Janssen related to RISPERDAL CONSTA and from Biogen related to VUMERITY, are recognized over time as products move through the manufacturing process, using a standard cost-based model as a measure of progress, which represents a faithful depiction of the transfer of control of the goods.

We recognize manufacturing revenue from these products over time as we determined, in each instance, that we would have a right to payment for performance completed to date if our customer were to terminate the manufacturing agreement for reasons other than our non-performance and the products have no alternative use.

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The manufacturing process is considered fully complete once the finished goods have been approved for shipment by both us and Janssen.

We record manufacturing revenue for VUMERITY at the point in time when control of the product passes to Biogen, since Biogen does not control the product during the manufacturing process and, in the event Biogen terminates the commercial supply agreement, we would only be reimbursed for costs incurred for performance completed to date for product not yet fully manufactured.

Control of the product passes to Biogen when the manufacturing process is considered fully complete, which is upon quality release for bulk batches of VUMERITY and upon shipment for packaged lots of VUMERITY.

The sales price for certain of our manufacturing revenues is based on the end-market sales price earned by our licensees.

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Differences between actual manufacturing revenues and estimated manufacturing revenues are reconciled and adjusted for in the period in which they become known, which is generally within the same quarter.

The differences between our actual and estimated manufacturing revenues has not been material to date.

The differences between our actual and estimated manufacturing revenues have not been material to date.

Royalty Revenue

We recognize royalty revenues related to the sale by our licensees of products that incorporate our technology.

Substantially all of our royalties qualify for the sales-and-usage exemption under Topic 606 as (i) royalties are based strictly on the sales-and-usage by the licensee;

Substantially all of our royalties qualify for the sales-and-usage exemption under Topic 606 as (i) such royalties are based strictly on the sales-and-usage by the licensee;

and (ii) a license of IP is the sole or predominant item to which such royalties relate.

Based on this exemption, these royalties are earned in the period the products are sold by our partner and we have a present right to payment.

Based on this exemption, such royalties are earned in the period the products are sold by our licensee and we have a present right to payment.

Certain of our royalty revenues are recognized based on information supplied to us by our licensees and require estimates to be made.

Differences between actual royalty revenues and estimated royalty revenues are reconciled and adjusted for in the period in which they become known, which is generally within the same quarter.

The difference between our actual and estimated royalty revenues has not been material to date.

The differences between our actual and estimated royalty revenues have not been material to date.

Research and Development Revenue and License Revenue

Under a license and collaboration agreement with Biogen, which we entered into in November 2017 and amended in October 2018, January 2019 and October 2019, we granted Biogen a worldwide, exclusive, sublicensable license to develop, manufacture and commercialize VUMERITY and other products covered by patents licensed to Biogen under the agreement.

Upon entering into the November 2017 license and collaboration agreement, we received an up-front cash payment of $28.0 million and were also eligible to receive additional payments upon achievement of developmental milestones with respect to VUMERITY.

In June 2018, we received an additional cash payment of $50.0 million following Biogen’s review of preliminary gastrointestinal tolerability data from the clinical development program for VUMERITY.

In November 2019, we received a payment of $150.0 million following FDA approval of the NDA for VUMERITY and transfer of such NDA to Biogen.

We are also eligible to receive additional payments upon achievement of developmental milestones with respect to the first two products other than VUMERITY covered by patents licensed to Biogen under the license and collaboration agreement.

Biogen paid a portion of the VUMERITY development costs we incurred in 2017 and, in January 2018, Biogen became responsible for all VUMERITY development costs we incurred, subject to annual budget limitations.

Under the November 2017 license and collaboration agreement, we received an up-front cash payment and additional payments upon achievement of certain milestones with respect to VUMERITY, including a payment of $150.0 million in November 2019 following FDA approval of the NDA for VUMERITY and transfer of such NDA to Biogen.

We are also eligible to receive additional payments upon achievement of other milestones, including development milestones with respect to the first two products other than VUMERITY covered by patents licensed to Biogen under the license and collaboration agreement.

In January 2018, Biogen became responsible for all VUMERITY development costs we incurred, subject to annual budget limitations.

Following FDA approval of the NDA for VUMERITY in October 2019, the NDA and any further development responsibilities with respect to VUMERITY were transferred to Biogen.

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To estimate the standalone selling price of the license, we assessed the likelihood of the FDA’s approval of VUMERITY and estimated the expected future cash flows assuming FDA approval and maintenance of the IP protecting VUMERITY.

We then discounted these cash flows using a discount rate of 8.0%, which we believe captures a market participant’s view of the risk associated with the expected cash flows.

We then discounted these cash flows using a discount rate of 8.0%, which we believed captured a market participant’s view of the risk associated with the expected cash flows.

The estimate of selling price of the development services and clinical supply were determined through third-party evidence.

We believe that a change in the assumptions used to determine our estimate of selling price for the license most likely would not have a significant effect on the allocation of consideration transferred.

Under Topic 606, we allocated the $28.0 million up-front payment and the $50.0 million June 2018 payment as follows:

$27.0 million and $48.3 million to the delivery of the license;

$0.9 million and $1.5 million to future development services;

and $0.1 million and $0.2 million to clinical supply, respectively.

We allocated the $150.0 milestone payment received in November 2019 to the relevant performance obligations as follows:

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In October 2019, we entered into a commercial supply agreement with Biogen for the commercial supply of VUMERITY, an amendment to such commercial supply agreement and an amendment to the November 2017 license and collaboration agreement with Biogen.

Under these agreements, Biogen has an option to assume responsibility, subject to a transition period, for the manufacture (itself or through a designee) of clinical supplies of VUMERITY and up to 100% of commercial supplies of VUMERITY in exchange for an increase in the royalty rate to be paid by Biogen to us on net sales of that portion of product that is manufactured by Biogen or its designee.

Under these agreements, Biogen has elected to initiate a technology transfer relating to the manufacture of VUMERITY (the “Tech Transfer”) and, following a transition period, assume responsibility for the manufacture (itself or through a designee) of clinical supplies of VUMERITY and up to 100% of commercial supplies of VUMERITY in exchange for an increase in the royalty rate to be paid by Biogen to us on net sales of that portion of product that is manufactured by Biogen or its designee.

We evaluated the commercial supply agreement and the related amendments under Topic 606 and determined that these agreements should be combined and accounted for as a separate contract since the commercial supply agreement and amendment to the November 2017 license and collaboration agreement were negotiated together to achieve a common economic objective and the additional performance obligations under the commercial supply agreement are considered distinct obligations priced at their standalone selling prices.

We determined that we had two separate performance obligations, the commercial supply of VUMERITY and, upon an election by Biogen to commence a transfer of technology relating to the manufacture of VUMERITY (the “Tech Transfer”), services to be performed by us in connection with such Tech Transfer.

We determined that we had two separate performance obligations, the commercial supply of VUMERITY and services to be performed by us in connection with the Tech Transfer.

There are other deliverables under the agreements that were determined to be perfunctory or immaterial.

In connection with the entry into the commercial supply agreement and the related amendments, we received payments in the aggregate amount of $5.8 million in the fourth quarter of 2019 and we will be eligible to receive an additional $5.0 million payment upon the earlier of successful completion of the Tech Transfer or a date in the fourth quarter of 2022.

The $5.8 million received in the fourth quarter of 2019 plus amounts received in connection with the Tech Transfer will be allocated to each of the performance obligations using the standalone selling prices based on our estimate of selling price for the commercial supply of VUMERITY and the services related to the Tech Transfer, and this additional arrangement consideration will be recognized as we deliver commercial supply of VUMERITY and/or provide services relating to the Tech Transfer.

The $5.8 million received in the fourth quarter of 2019 were allocated, and the amounts to be received in connection with the Tech Transfer will be allocated, to each of the performance obligations using the standalone selling prices based on our estimate of selling price for the commercial supply of VUMERITY and the services related to the Tech Transfer, and this additional arrangement consideration will be recognized as we deliver commercial supply of VUMERITY and/or provide services relating to the Tech Transfer.

We began performing under this commercial supply agreement in the first quarter of 2020.

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Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.

Our amortizable intangible assets include technology and collaborative arrangements that were acquired as part of the Business Combination.

These intangible assets are being amortized as revenue is generated from these products, which we refer to as the economic benefit amortization model.

Our amortizable intangible assets consist of IP and are being amortized as revenue is generated from products utilizing the IP, which we refer to as the economic benefit amortization model.

This amortization methodology involves calculating a ratio of actual current period sales to total anticipated sales for the life of the product and applying this ratio to the carrying amount of the intangible asset.

In order to determine the pattern in which the economic benefits of our intangible assets are consumed, we estimated the future revenues to be earned under our collaboration agreements and our NanoCrystal and OCR technology‑based intangible assets from the date of acquisition to the end of their respective useful lives.

In order to determine the pattern in which the economic benefits of our intangible assets are consumed, we estimated the future revenues to be earned by products utilizing the capitalized IP from the date of acquisition to the end of their respective useful lives.

The factors used to estimate such future revenues included:

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These factors involve known and unknown risks and uncertainties, many of which are beyond our control and could cause the actual economic benefits of these intangible assets to be materially different from our estimates.

Based on our most recent analysis, amortization of intangible assets included within our consolidated balance sheet at December 31, 2020, is expected to be approximately $40.0 million, $35.0 million, $35.0 million, $1.0 million and none in the years ending December 31, 2021 through 2025, respectively.

Based on our most recent analysis, amortization of intangible assets included within our consolidated balance sheet at December 31, 2021, is expected to be approximately $35.0 million, $35.0 million and $1.0 million in the years ending December 31, 2022 through 2024, respectively.

Although we believe such available information and assumptions are reasonable, given the inherent risks and uncertainties underlying our expectations regarding such future revenues, there is the potential for our actual results to vary significantly from such expectations.

If revenues are projected to change, the related amortization of the

intangible asset will change in proportion to the change in revenue.

If revenues are projected to change, the related amortization of the intangible asset will change in proportion to the change in revenue.

If there are any indications that the assumptions underlying our most recent analysis would be different than those utilized within our current estimates, our analysis would be updated and may result in a significant change in the anticipated lifetime revenue of the products associated with our amortizable intangible assets.

For example, the occurrence of an adverse event could substantially increase the amount of amortization expense associated with our acquired intangible assets as compared to previous periods or our current expectations, which may result in a significant negative impact on our future results of operations.

In the fourth quarter of 2020, we determined that an impairment triggering event occurred and evaluated certain of our long-lived assets for impairment under a held-and-used model.

We concluded that the long-lived assets evaluated for impairment were recoverable based on an analysis of the undiscounted net cash flows to be generated from the use of these assets.

We evaluate goodwill for impairment for our reporting units annually, as of October 31, and whenever events or changes in circumstances indicate its carrying value may not be recoverable.

We evaluate goodwill for impairment for our reporting units annually, as of October 31, and whenever events or changes in circumstances indicate the carrying value of the reporting units may not be recoverable.

A reporting unit is an operating segment, as defined by the segment reporting accounting standards, or a component of an operating segment.

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A goodwill impairment charge is now recognized for the amount by which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill.

On October 31, 2020, we elected to perform a quantitative impairment test and determined that the fair value of the reporting unit exceeded its carrying value.

On October 31, 202 1 , we elected to perform a qualitative impairment test and determined that based on the weight of all available evidence, the fair value of the reporting unit more-likely-than-not exceeded its carrying value.

Contingent Consideration

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The fair value of the contingent consideration was determined as follows:

We have received $13 .8 million in milestone payments to date and are due to receive an additional $1.

5 million in June 2021 related to the FDA approval in February 2020 of the NDA for ANJESO, the first Meloxicam Product , and $45.0 million in seven equal, annual installments beginning in February 2021, which is the first anniversary of such approval;

We have received $23.1 million in milestone payments to date related to the FDA approval in February 2020 of the NDA for ANJESO, the first Meloxicam Product, and we are due to receive an additional $38.6 million in six equal, annual installments on each anniversary of such approval from February 2022 through February 2027;

We are entitled to receive future royalties on net sales of Meloxicam Products;

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To employ this methodology, we used a risk-adjusted expected growth rate based on Baudax’s assessments of expected growth in net sales of the approved Meloxicam Product, adjusted by an appropriate factor capturing such assessment’s respective correlation with the market.

In order to address the substantial doubt about Baudax’s ability to continue as a going concern, we split our fair value analysis into two scenarios and applied an equal weighting to each.

In the first scenario, the amounts above were all discounted using a rate of 13%, which we believe captures a market participant’s view of the risk associated with the expected payments assuming Baudax is able to continue as a going concern.

In the second scenario, we used the undiscounted values derived from the amounts summarized above and applied a recovery rate of 18%, based on an analysis performed by Moody’s Investor Service regarding recoveries in a pandemic-driven default cycle.

In order to address the substantial doubt about Baudax’s ability to continue as a going concern, we split our fair value analysis into two scenarios.

In the first scenario, the amounts above were all discounted using a rate which we believe captures a market participant’s view of the risk associated with the expected payments assuming Baudax is able to continue as a going concern.

This scenario received a weighting of 45%.

In the second scenario, we used the undiscounted values derived from the amounts summarized above and applied a recovery rate of 18%, based largely on an analysis performed by Moody’s Investor Service regarding recoveries in a pandemic-driven default cycle.

This scenario received a weighting of 55%.

Significant judgment was employed in determining the appropriateness of these assumptions at the acquisition date and for each subsequent period.

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Changes in our current estimates, due to unanticipated events or otherwise, could have a material effect on our financial condition and results of operations.

For information related to risks surrounding our deferred tax assets, see “Item 1A—Risk Factors” in this Annual Report and specifically the section entitled “Risks Related to our Financial Condition and Tax Matters—Our deferred tax assets may not be realized.”

For information related to risks surrounding our deferred tax assets, see “Item 1A—Risk Factors” in this Annual Report and specifically the section entitled “Our deferred tax assets may not be realized.”

Recent Accounting Pronouncements

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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