What changed in this filing

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Item 1. Financial Statements

2020-08-03 compared with 2020-05-06 · 227 added, 163 removed, 348 unchanged (53% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)

(in millions, except per share data) June 30,

2020 December 31,

Current assets:

Cash and cash equivalents $ 415.1 $ 112.3

Debt securities available-for-sale, at fair value (amortized cost $ 584.1 million at

March 31, 2020 and $ 557.3 million at December 31, 2019)

Debt securities available-for-sale, at fair value (amortized cost $ 530.3 million at June 30, 2020 and $ 557.3 million at December 31, 2019)

Accounts receivable 148.4 126.6

Inventories 22.0 17.3

Other current assets 27.5 16.6

Total current assets 1,146.2 831.0

Debt securities available-for-sale, at fair value (amortized cost $ 237.8 million at

March 31, 2020 and $ 299.3 million at December 31, 2019)

Debt securities available-for-sale, at fair value (amortized cost $ 193.5 million at June 30, 2020 and $ 299.3 million at December 31, 2019)

Right-of-use assets 72.1 74.3

2 unchanged sentences

Restricted cash 3.2 3.2

Other long-term assets 3.6 —

Total assets $ 1,515.6 $ 1,306.0

Liabilities and Stockholders' Equity

4 unchanged sentences

Total current liabilities 573.0 565.3

Convertible senior notes

Operating lease liabilities 84.3 86.7

4 unchanged sentences

5.0 shares authorized;

no shares issued

and outstanding at March 31, 2020 and December 31, 2019

no shares issued and outstanding at June 30, 2020 and December 31, 2019

Common stock, $ 0.001 par value;

220.0 shares authorized;

outstanding shares were 92.8 at March 31, 2020 and 92.3 at December 31, 2019

issued and outstanding shares were 93.2 at June 30, 2020 and 92.3 at December 31, 2019

Additional paid-in capital 1,842.2 1,768.1

Accumulated other comprehensive (loss) income

Accumulated other comprehensive income 4.6 1.4

Accumulated deficit ( 1,015.7 ) ( 1,132.7 )

6 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in millions, except per share data) 2020 2019 2020 2019

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Operating income (loss) 76.6 34.4 135.5 ( 66.6 )

Other (expense) income:

Other income (expense):

Interest expense ( 8.3 ) ( 7.9 ) ( 16.5 ) ( 15.8 )

Unrealized losses (gains) on equity securities

Unrealized gain (loss) on equity securities 11.3 21.0 ( 5.2 ) 22.7

Investment income and other, net 3.6 4.6 8.3 9.2

Total other expense, net

Income (loss) before provision for (benefit from) income taxes

Provision for (benefit from) income taxes

Total other income (expense), net 6.6 17.7 ( 13.4 ) 16.1

Income (loss) before provision for income taxes 83.2 52.1 122.1 ( 50.5 )

Provision for income taxes 3.6 0.8 5.1 0.3

Net income (loss) 79.6 51.3 117.0 ( 50.8 )

Unrealized (loss) gain on debt securities available-for-sale, net of tax

Unrealized gain on debt securities available-for-sale, net of tax 6.0 0.9 3.2 2.6

Comprehensive income (loss) $ 85.6 $ 52.2 $ 120.2 $ ( 48.2 )

5 unchanged sentences

NEUROCRINE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Accumulated Other Comprehensive Income (Loss)

Common Stock Additional Paid-In Capital Accumulated Deficit

(in millions) Shares Amount Total

Balances at March 31, 2020 92.8 $ 0.1 $ 1,796.9 $ ( 1.4 ) $ ( 1,095.3 ) $ 700.3

Net income — — — — 79.6 79.6

Unrealized gain on debt securities available-for-sale, net of tax — — — 6.0 — 6.0

Share-based compensation expense — — 29.5 — — 29.5

Issuance of common stock for vested restricted stock options 0.1 — — — — —

Issuance of common stock for stock options 0.3 — 15.8 — — 15.8

Balances at June 30, 2020 93.2 $ 0.1 $ 1,842.2 $ 4.6 $ ( 1,015.7 ) $ 831.2

Balances at March 31, 2019 91.3 $ 0.1 $ 1,681.3 $ ( 0.3 ) $ ( 1,271.8 ) $ 409.3

Net income — — — — 51.3 51.3

Unrealized gain on debt securities available-for-sale, net of tax — — — 0.9 — 0.9

Share-based compensation expense — — 17.9 — — 17.9

Issuance of common stock for stock options 0.2 — 4.3 — — 4.3

Balances at June 30, 2019 91.5 $ 0.1 $ 1,703.5 $ 0.6 $ ( 1,220.5 ) $ 483.7

Balance at December 31, 2019 92.3 $ 0.1 $ 1,768.1 $ 1.4 $ ( 1,132.7 ) $ 636.9

Net income — — — — 117.0 117.0

Unrealized gain on debt securities available-for-sale, net of tax — — — 3.2 — 3.2

Share-based compensation expense — — 52.3 — — 52.3

Issuance of common stock for vested restricted stock options 0.5 — — — — —

Issuance of common stock for stock options 0.4 — 19.1 — — 19.1

Issuance of common stock for employee stock purchase plan — — 2.7 — — 2.7

Balances at June 30, 2020 93.2 $ 0.1 $ 1,842.2 $ 4.6 $ ( 1,015.7 ) $ 831.2

Balance at December 31, 2018 90.8 $ 0.1 $ 1,660.4 $ ( 2.0 ) $ ( 1,177.7 ) $ 480.8

Net loss — — — — ( 50.8 ) ( 50.8 )

Unrealized gain on debt securities available-for-sale, net of tax — — — 2.6 — 2.6

Share-based compensation expense — — 33.7 — — 33.7

Issuance of common stock for vested restricted stock options 0.4 — — — — —

Issuance of common stock for stock options 0.3 — 6.9 — — 6.9

Issuance of common stock for employee stock purchase plan — — 2.5 — — 2.5

Cumulative-effect adjustment to equity due to adoption of ASU 2016-02 — — — — 8.0 8.0

Balance at June 30, 2019 91.5 $ 0.1 $ 1,703.5 $ 0.6 $ ( 1,220.5 ) $ 483.7

See accompanying notes to the condensed consolidated financial statements.

NEUROCRINE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

(in millions) 2020 2019

3 unchanged sentences

Share-based compensation expense 52.3 33.7

Depreciation 4.2 3.4

Amortization of debt discount 10.0 9.3

1 unchanged sentence

Change in fair value of equity security investments 5.2 ( 22.7 )

Other 0.7 ( 0.6 )

Change in operating assets and liabilities:

Accounts receivable ( 21.8 ) ( 39.1 )

Inventory ( 4.7 ) ( 1.2 )

Accounts payable and accrued liabilities ( 5.1 ) 7.7

Other current assets and liabilities, net

Other assets and liabilities, net ( 1.4 ) 11.3

Net cash provided by (used in) operating activities 157.1 ( 48.3 )

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Non-cash capital expenditures $ 0.9 $ 0.9

See accompanying notes to the condensed consolidated financial statements.

NEUROCRINE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Comprehensive

Stockholders’

(in millions)

Income (Loss)

Balance at December 31, 2019

Unrealized loss on debt securities available-for-sale, net of tax

Share-based compensation expense

Issuance of common stock for vested restricted stock units

Issuance of common stock for stock option exercises

Issuance of common stock for employee stock purchase plan

Balance at March 31, 2020

Balance at December 31, 2018

Unrealized gain on debt securities available-for-sale, net of tax

Share-based compensation expense

Cumulative-effect adjustment to equity due to adoption of

Issuance of common stock for vested restricted stock units

Issuance of common stock for stock option exercises

Issuance of common stock for employee stock purchase plan

Balance at March 31, 2019

Cash paid for interest $ 5.8 $ 5.8

Cash paid for income taxes $ — $ 0.4

See accompanying notes to the condensed consolidated financial statements.

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We also have two wholly owned Irish subsidiaries, Neurocrine Therapeutics, Ltd.

and Neurocrine Europe, Ltd.

both of which were formed in December 2014 and are inactive.

and Neurocrine Europe, Ltd., both of which were formed in December 2014 and are inactive.

We are a commercial-stage biopharmaceutical company focused on discovering and developing innovative and life-changing treatments for patients with serious, challenging and under-addressed neurological, endocrine and psychiatric disorders.

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In April 2020, we received FDA approval for ONGENTYS ® (opicapone) as an adjunctive therapy to levodopa/DOPA decarboxylase inhibitors in adult Parkinson's disease patients.

Our late-stage pipeline includes crinecerfont (NBI-74788) for the treatment of congenital adrenal hyperplasia, or CAH, in adult patients, elagolix for the treatment of heavy menstrual bleeding, or HMB, associated with uterine fibroids in women, valbenazine for the treatment of chorea in adult patients with Huntington’s disease, or HD, and NBIb-1817 (VY-AADC) for the treatment of advanced Parkinson’s disease patients with motor fluctuations that are refractory to medical management.

Our product candidates for uterine fibroids and advanced Parkinson’s disease are partnered with AbbVie and Voyager Therapeutics, Inc., or Voyager, respectively.

Our early-stage clinical pipeline includes crinecerfont for the treatment of CAH in pediatric patients, elagolix for the treatment of polycystic ovary syndrome, or PCOS, in women, a vesicular monoamine transporter 2, or VMAT2, inhibitor with potential use in the treatment of neurologic and psychiatric disorders and NBI-921352 (XEN901), a clinical-stage candidate with potential in epilepsy.

FDA approval for ONGENTYS for Parkinson’s disease triggered a milestone payment of $ 20.0 million, which was expensed as research and development, or R&D, in the second quarter of 2020.

In May 2020, AbbVie received approval from the FDA for ORIAHNN TM (elagolix) for the management of heavy menstrual bleeding associated with uterine fibroids in pre-menopausal women.

FDA approval for ORIAHNN for uterine fibroids resulted in the achievement of a $ 30.0 million regulatory milestone, which was recognized as collaboration revenue in the second quarter of 2020.

We are entitled to receive royalties at tiered percentage rates on any net sales of ORIAHNN.

Our late-stage pipeline includes crinecerfont (NBI-74788) for the treatment of congenital adrenal hyperplasia, or CAH, in adult patients, valbenazine for the treatment of chorea in adult patients with Huntington’s disease, or HD, and NBIb-1817 (VY-AADC) for the treatment of advanced Parkinson’s disease patients with motor fluctuations that are refractory to medical management.

Our product candidate for advanced Parkinson’s disease is partnered with Voyager Therapeutics, Inc., or Voyager.

Our early-stage clinical pipeline includes crinecerfont for the treatment of CAH in pediatric patients, elagolix for the treatment of polycystic ovary syndrome, or PCOS, in women, NBI-921352 (XEN901), a clinical-stage candidate with potential in epilepsy, and NBI-827104 (ACT-709478), a T-type calcium channel blocker in clinical development for the treatment of a rare pediatric epilepsy.

Our product candidate for PCOS is partnered with AbbVie.

In January 2020, we announced a collaboration and optional licensing agreement with Idorsia Pharmaceuticals Ltd, granting us an option to license ACT-709478, a potent, selective, orally active and brain penetrating T-type calcium channel blocker, in clinical development for the treatment of a rare pediatric epilepsy.

The option also includes a research collaboration to discover, identify and develop additional novel T-type calcium channel blockers.

In May 2020, we entered into a collaboration and licensing agreement with Idorsia Pharmaceuticals Ltd, or Idorsia.

In connection with the agreement, we paid Idorsia $ 45.0 million upfront to gain a license to NBI-827104 (ACT-709478), a potent, selective, orally active and brain penetrating T-type calcium channel blocker, in clinical development for the treatment of a rare pediatric epilepsy.

The agreement includes a research collaboration to discover and identify up to two additional novel T-type calcium channel blockers as development candidates.

In June 2020, we entered into an exclusive license agreement with Takeda Pharmaceutical Company Limited, or Takeda, to develop and commercialize certain compounds in Takeda’s early to mid-stage psychiatry pipeline.

The agreement became effective in July 2020, upon expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

In connection with the agreement, we paid Takeda $ 120.0 million upfront (less an earnest money deposit paid by us to Takeda in the first quarter of 2020) to gain an exclusive license to seven of Takeda’s pipeline programs, including three clinical-stage assets for schizophrenia, treatment-resistant depression, and anhedonia.

The collaboration also includes a cost-sharing arrangement for associated collaboration activities.

Basis of Presentation .

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information and with the instructions of the Securities and Exchange Commission, or SEC, on Form 10-Q and Rule 10-01 of Regulation S-X.

and with the instructions of the Securities and Exchange Commission, or SEC, on Form 10-Q and Rule 10-01 of Regulation S-X.

Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements.

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Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income or loss, as applicable.

Accrued interest receivables on debt securities available-for-sale totaled $ 4.7 million at March 31, 2020.

Accrued interest receivables on debt securities available-for-sale totaled $ 3.7 million at June 30, 2020.

We do not measure an allowance for credit losses for accrued interest receivables.

1 unchanged sentence

Uncollectible accrued interest receivables associated with an impaired debt security are reversed against interest income upon identification of the impairment.

No accrued interest receivables were written off during the three months ended March 31, 2020.

No accrued interest receivables were written off during the six months ended June 30, 2020.

Fair Value of Financial Instruments.

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We estimate the fair value of debt securities available-for-sale by utilizing third-party pricing services.

These pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value.

These pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either

directly or indirectly, to estimate fair value.

Such inputs include market pricing based on real-time trade data for similar instruments, issuer credit spreads, benchmark yields, broker/dealer quotes and other observable inputs.

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In June 2010, we entered into an exclusive worldwide collaboration with AbbVie to develop and commercialize elagolix and all next-generation gonadotropin-releasing factor antagonists for women’s and men’s health.

In connection with the agreement, AbbVie made an upfront payment of $ 75.0 million and agreed to make additional development and regulatory event-based milestone payments of up to $ 480.0 million, of which $ 135.0 million has been earned, and up to an additional $ 50.0 million in commercial event-based milestone payments.

AbbVie received approval of ORILISSA for the management of moderate to severe endometriosis pain in women from the FDA in July 2018 and Health Canada in October 2018.

In May 2020, AbbVie received approval from the FDA for ORIAHNN for the management of heavy menstrual bleeding associated with uterine fibroids in pre-menopausal women.

FDA approval for ORIAHNN for uterine fibroids resulted in the achievement of a $ 30.0 million regulatory milestone, which was recognized as collaboration revenue in the second quarter of 2020.

Since inception of the agreement, we have recognized revenue of $ 75.0 million associated with the delivery of a technology license and existing know-how and $ 165.0 million associated with the achievement of certain development and regulatory milestones.

Pursuant to the terms of the agreement, we may also be entitled to receive payments of up to $ 366.0 million upon the achievement of certain development, regulatory and commercial milestones.

Under the terms of the agreement, AbbVie is responsible for all third-party development, marketing, and commercialization costs.

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As part of our evaluation of the constraint, we considered numerous factors, including that achievement of the milestones is outside of our control and contingent upon success in future clinical trials and the licensee’s efforts.

Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to AbbVie and therefore have also been excluded from the transaction price.

Any consideration

related to sales-based milestones (including royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to AbbVie and therefore have also been excluded from the transaction price.

We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

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In the first quarter of 2017, we entered into an exclusive license agreement with BIAL – Portela & Ca, S.A., or BIAL, for the development and commercialization of ONGENTYS for the treatment of human diseases and conditions, including Parkinson’s disease, in the US and Canada.

In connection with the agreement, we paid BIAL an upfront license fee of $ 30.0 million and agreed to make additional regulatory event-based milestone payments of up to $ 40.0 million, of which $ 20.0 million has been paid, and up to an additional $ 75.0 million in commercial event-based milestone payments.

In April 2020, we received FDA approval for ONGENTYS as an adjunctive therapy to levodopa/DOPA decarboxylase inhibitors in adult Parkinson's disease patients.

FDA approval of ONGENTYS for Parkinson’s disease triggered a milestone payment of $ 20.0 million.

FDA approval for ONGENTYS for Parkinson’s disease triggered a milestone payment of $ 20.0 million, which was expensed as R&D in the second quarter of 2020.

Pursuant to the terms of the agreement, BIAL may also be entitled to receive up to $ 75.0 million upon the achievement of certain commercial milestones.

Under the terms of the agreement, we are responsible for the commercialization of ONGENTYS in the US and Canada.

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In connection with the agreement, we paid Voyager $ 115.0 million upfront and purchased $ 50.0 million of Voyager’s common stock at $ 11.9625 per share, representing approximately 4.2 million shares.

Pursuant to the terms of the agreement, Voyager may also be entitled to an additional $ 1.7 billion in development, regulatory, and commercial milestone payments, as well as royalties on net sales of any collaboration product.

Pursuant to the terms of the agreement, Voyager may also be entitled to receive payments of up to $ 1.7 billion upon the achievement of certain development, regulatory and commercial milestones, as well as receive royalties on the net sales of any collaboration product.

We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business.

Our equity investment in Voyager was recorded at a fair value of $ 54.7 million after considering Voyager’s stock price on the date of closing and certain lock-up and voting provisions applicable to the acquired shares.

The remaining $ 113.1 million of the purchase price, which includes the applicable transaction costs, was expensed as in-process research and development, or IPR&D, in the first quarter of 2019.

The remaining $ 113.1 million of the purchase price, which includes the applicable transaction costs, was expensed as in-process research and development, or IPR&D, in the second quarter of 2019.

In June 2019, we entered into an amendment to the collaboration and license agreement with Voyager.

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Further, upon the occurrence of a specified event for each program, we will assume responsibility for the development, manufacturing, and commercialization activities of such program.

We may terminate the collaboration and license agreement with Voyager upon 180 days’ written notice to Voyager prior to the first commercial sale of any collaboration product or upon one year after the date of notice if such notice is provided after the first commercial sale of any collaboration product.

the first commercial sale of any collaboration product.

Unless terminated earlier, the agreement will continue in effect until the expiration of the last to expire royalty term with respect to any collaboration product or the last expiration or termination of any exercised co-development and co-commercialization rights by Voyager as provided for in the agreement.

3 unchanged sentences

In connection with the agreement, we paid Xenon $ 30.0 million upfront and purchased $ 20.0 million of Xenon’s common stock at $ 14.196 per share, representing approximately 1.4 million shares.

Pursuant to the terms of the agreement, Xenon may also be entitled to an additional $ 1.7 billion in development, regulatory and commercial milestone payments, as well as royalties on net sales of any collaboration product.

Pursuant to the terms of the agreement, Xenon may also be entitled to receive payments of up to $ 1.7 billion upon the achievement of certain development, regulatory and commercial milestones, as well as receive royalties on the net sales of any collaboration product.

We accounted for the transaction as an asset acquisition as the set of acquired assets did not constitute a business.

Our equity investment in Xenon was recorded at a fair value of $ 14.1 million after considering Xenon’s stock price on the date of closing and certain lock-up and voting provisions applicable to the acquired shares.

The remaining $ 36.2 million of the purchase price, which includes the applicable transaction costs, was expensed as IPR&D in the fourth quarter of 2019.

Unless earlier terminated, the term of the license and collaboration agreement will continue on a product-by-product and country-by-country basis until the expiration of the royalty term for such product in such country.

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In March 2015, we entered into a collaboration and license agreement with Mitsubishi Tanabe Pharma Corporation, or MTPC, for the development and commercialization of INGREZZA for movement disorders in Japan and other select Asian markets.

In connection with the agreement, MTPC made an upfront payment of $ 30.0 million and agreed to make an additional $ 85.0 million in development and regulatory event-based milestone payments, payments for the manufacture of pharmaceutical products and royalties on product sales in select territories in Asia.

In the first six months of 2020, we recognized revenue of $ 1.3 million in connection with the ongoing KINECT-HD study, a placebo-controlled Phase III study of valbenazine in adult Huntington’s disease patients with chorea.

In accordance with our continuing performance obligations, $ 8.1 million of the $ 30.0 million upfront payment received from MTPC in connection with the agreement is being deferred and will be recognized as revenue over the study period using an input method according to costs incurred to-date relative to estimated total costs associated with the study.

Since inception of the agreement, we have recognized revenue of $ 19.8 million associated with the delivery of a technology license and existing know-how, $ 15.0 million associated with the achievement of a certain development milestones, and $ 2.1 million associated with our performance of the ongoing KINECT-HD study.

Pursuant to the terms of the agreement, we may also be entitled to receive payments of up to $ 70.0 million upon the achievement of certain regulatory and commercial milestones, receive payments for the manufacture of certain pharmaceutical products, as well as receive royalties on the net sales of collaboration products in select territories in Asia.

Under the terms of the agreement, MTPC is responsible for all third-party development, marketing, and commercialization costs in Japan and other select Asian markets and we would be entitled to a percentage of sales of INGREZZA in Japan and other select Asian markets for the longer of ten years or the life of the related patent rights.

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None of the development or regulatory milestones have been included in the transaction price, as all milestone amounts were fully constrained.

As part of our evaluation of the constraint, we considered numerous factors, including that achievement of the milestones is outside of our control

and contingent upon success in future clinical studies and the licensee’s efforts.

Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to MTPC and therefore have also been excluded from the transaction price.

1 unchanged sentence

Under the terms of the agreement, any payment we receive is generally non-refundable.

Since inception of the agreement, we have recognized revenue of $ 21.9 million associated with the delivery of a technology license and existing know-how and $ 15.0 million in development event-based payments resulting from MTPC’s initiation of Phase II/III development of INGREZZA in TD in Asia.

In the first quarter of 2020, we recognized revenue of $ 1.3 million in connection with the ongoing KINECT-HD study, a placebo-controlled Phase III study of valbenazine in adult Huntington’s disease patients with chorea.

In accordance with our continuing performance obligations, $ 8.1 million of the $30.0 million upfront payment received is being deferred and will be recognized as revenue over the KINECT-HD study period using an input method according to research and development, or R&D, costs incurred to date relative to estimated total R&D costs.

In January 2020, we announced a collaboration and optional licensing agreement with Idorsia, granting us an option to license NBI-827104, a potent, selective, orally active and brain penetrating T-type calcium channel blocker, in clinical development for the treatment of a rare pediatric epilepsy.

The option also included a research collaboration to discover and identify up to two additional novel T-type calcium channel blockers as development candidates.

In May 2020, we exercised the option to license the global rights to NBI-827104.

In connection with the exercise of the option, we paid Idorsia $ 45.0 million upfront, which was expensed as IPR&D in the second quarter of 2020.

Further, as part of the research collaboration, we provided Idorsia with an incremental $ 7.2 million in funding, which was recorded as a prepaid asset to be expensed over the two-year research collaboration term.

Pursuant to the terms of the agreement, upon the achievement of certain development and regulatory milestones, Idorsia may be entitled to receive payments of up to $ 365.0 million with respect to NBI-827104 and up to $ 620.0 million with respect to the development candidates.

In addition, Idorsia may also be entitled to receive payments of up to $ 750.0 million upon the achievement of certain commercial milestones, as well as receive royalties on the net sales of any collaboration product.

Further, we will be responsible for all manufacturing, development and commercialization costs of any collaboration product.

We may terminate the collaboration and licensing agreement, in its entirety or with respect to a particular compound or development candidate, by providing 90 days’ written notice to Idorsia.

Further, in the event a party commits a material breach and fails to cure such material breach within 90 days after receiving written notice thereof, the non-breaching party may terminate the agreement in its entirety immediately upon written notice to the breaching party.

Debt Securities

The following table summarizes the amortized cost, unrealized gain and loss recognized in accumulated other comprehensive loss, allowance for credit losses, and fair value of debt securities available-for-sale at March 31, 2020, aggregated by major security type and contractual maturity:

(in millions)

Allowance for Credit Losses

Commercial paper

Within 1 year

Corporate debt securities

Within 1 year

The following table summarizes the amortized cost, unrealized gain and loss recognized in accumulated other comprehensive loss, allowance for credit losses, and fair value of debt securities available-for-sale at June 30, 2020, aggregated by major security type and contractual maturity:

(in millions) Contractual

Maturity Amortized

Cost Unrealized

Gain Unrealized

Loss Allowance for Credit Losses Fair

Commercial paper Within 1 year $ 140.0 $ 0.1 $ — — $ 140.1

Corporate debt securities Within 1 year 287.8 2.0 — — 289.8

Securities of government-sponsored entities

Within 1 year 102.5 0.8 — — 103.3

Corporate debt securities

$ 530.3 $ 2.9 $ — $ — $ 533.2

Corporate debt securities 1 to 2 years $ 173.5 $ 1.7 $ — — $ 175.2

Securities of government-sponsored entities

1 to 2 years 20.0 — — — 20.0

$ 193.5 $ 1.7 $ — $ — $ 195.2

The following table summarizes the amortized cost, unrealized gain and loss recognized in accumulated other comprehensive income, and fair value of debt securities available-for-sale at December 31, 2019, aggregated by major security type and contractual maturity:

(in millions)

Commercial paper

Within 1 year

Corporate debt securities

Within 1 year

Securities of government-sponsored entities

Within 1 year

Corporate debt securities

Securities of government-sponsored entities

The following table summarizes debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded at March 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position:

Less Than 12 Months

12 Months or Longer

(in millions)

Commercial paper

Corporate debt securities

At March 31, 2020, our security portfolio consisted of 187 securities, of which 107 were in an unrealized loss position, related to investments in debt securities available-for-sale, as discussed below:

Commercial paper.

Our investments in commercial paper are of high credit quality (rated A1 or higher).

Unrealized losses on these investments were primarily due to changes in interest rates.

We do not intend to sell these investments and it is not more likely than not that we will be required to sell these investments before recovery of their amortized costs basis.

Corporate debt securities.

Our investments in corporate debt securities are of high credit quality (rated AA- or higher).

(in millions) Contractual

Maturity Amortized

Cost Unrealized

Gain Unrealized

Commercial paper Within 1 year $ 144.5 — — $ 144.5

Corporate debt securities Within 1 year 270.5 0.5 — 271.0

Securities of government-sponsored entities Within 1 year 142.3 0.4 — 142.7

$ 557.3 $ 0.9 $ — $ 558.2

Corporate debt securities 1 to 2 years $ 250.5 $ 0.5 $ ( 0.1 ) $ 250.9

Securities of government-sponsored entities 1 to 2 years 48.8 — — 48.8

$ 299.3 $ 0.5 $ ( 0.1 ) $ 299.7

At June 30, 2020, debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses had not been recorded were not significant.

Further, at June 30, 2020, our security portfolio consisted of 158 securities related to investments in debt securities available-for-sale, of which 17 securities were in an unrealized loss position.

Our investments in commercial paper, corporate debt securities and securities of government-sponsored entities are of high credit quality (rated A1, A- and AA+ or higher, respectively).

Unrealized losses on these investments were primarily due to changes in interest rates.

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The following table summarizes debt securities available-for-sale in an unrealized loss position at December 31, 2019, aggregated by major security type and length of time in a continuous unrealized loss position:

Less Than 12 Months

12 Months or Longer

(in millions)

Less Than 12 Months 12 Months or Longer Total

(in millions) Fair

Value Unrealized

Corporate debt securities $ 186.1 $ ( 0.1 ) $ — $ — $ 186.1 $ ( 0.1 )

Fair Value Measurements

Investments at March 31, 2020, which were measured at fair value on a recurring basis, consisted of the following:

Investments at June 30, 2020, which were measured at fair value on a recurring basis, consisted of the following:

Fair Value Measurements Using

(in millions)

(in millions) Fair Value Level 1 Level 2 Level 3

Cash and cash equivalents:

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Fair Value Measurements Using

(in millions)

(in millions) Fair Value Level 1 Level 2 Level 3

Cash and cash equivalents:

13 unchanged sentences

Total recurring fair value measurements $ 1,029.3 $ 115.5 $ 857.9 $ 55.9

The following table presents a reconciliation of equity securities for the three months ended March 31, 2020, which were measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

The following table presents a reconciliation of equity security investments, which were measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

Three Months Ended

June 30, Six Months Ended

(in millions) 2020 2019 2020 2019

Equity Securities

Fair value at December 31, 2019

Unrealized losses included in earnings

Fair value at March 31, 2020

At March 31, 2020, the discount for lack of marketability used in the valuation analysis of equity securities ranged from 18.5 % to 30.0 % (weighted average of 26.2 %).

The discount for lack of marketability was weighted by the relative fair value of the instruments.

Balance at beginning of period $ 39.4 $ 56.4 $ 55.9 $ —

Purchases — — — 54.7

Unrealized gains (losses) included in earnings 11.3 21.0 ( 5.2 ) 22.7

Balance at end of period $ 50.7 $ 77.4 $ 50.7 $ 77.4

At June 30, 2020, the discount for lack of marketability used in the valuation analysis of equity securities ranged from 17.5 % to 31.5 % (weighted average of 27.5 %).

The discount for lack of marketability was weighted by the relative fair value of the

A significant increase (decrease) in the discount for lack of marketability in isolation would result in a significantly lower (higher) fair value measurement.

Unrealized gains and losses on equity securities are included in other expense, net.

The following table presents a r econciliation of equity securities for the three months ended March 31, 2019, which were measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

(in millions)

Equity Securities

Fair value at December 31, 2018

Unrealized gains included in earnings

Fair value at March 31, 2019

Unrealized gains and losses on equity securities are included in other income (expense), net.

Inventories consisted of the following:

(in millions)

(in millions) June 30,

2020 December 31, 2019

Raw materials $ 15.8 $ 14.1

4 unchanged sentences

The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows.

(in millions)

(in millions) June 30,

2020 December 31,

Cash and cash equivalents $ 415.1 $ 112.3

Restricted cash 3.2 3.2

Total cash, cash equivalents and restricted cash

At March 31, 2020, our operating leases consisted of the following:

Commencement Date

Expiration Date

Total cash and cash equivalents and restricted cash $ 418.3 $ 115.5

At June 30, 2020, our operating leases consisted of the following:

Address Type Square Feet Commencement Date Expiration Date

12780 El Camino Real (1)

Office/Laboratory

August 7, 2019

July 31, 2031

Office/Laboratory 141,000 August 7, 2019 July 31, 2031

12790 El Camino Real, Suite 130 (1)

December 1, 2019

July 31, 2031

Office 2,000 December 1, 2019 July 31, 2031

12790 El Camino Real, Suite 150 (1)

August 7, 2019

July 31, 2031

Office 8,000 August 7, 2019 July 31, 2031

12790 El Camino Real, Suite 300 (1)

December 1, 2019

July 31, 2031

12777 High Bluff Drive (2)

July 31, 2029

Office 28,000 December 1, 2019 July 31, 2031

12777 High Bluff Drive Office 45,000 July 1, 2018 July 31, 2029

12790 El Camino Real, Suite 200 (1)

February 1, 2021

July 31, 2031

Office 28,000 February 1, 2021 July 31, 2031

12790 El Camino Real, Suite 100 (1)

February 1, 2021

July 31, 2031

Office 17,000 February 1, 2021 July 31, 2031

______________

(1) Under the terms of the lease, we have two options to extend the term of the lease for a period of ten years each.

(1) Under the terms of the 12780/12790 El Camino Real master lease, we have two options to extend the term of the lease for a period of ten years each.

We were not reasonably certain to exercise either of these options at lease commencement.

As such, neither option was recognized as part of the associated operating lease right-of-use asset or liability.

In connection with the lease, in lieu of a cash security deposit, Wells Fargo Bank, N.A., or Well Fargo, issued a $ 3.0 million letter of credit on our behalf, which is secured by a deposit of equal amount.

(2) Under the terms of the lease, we do not have the option to extend the lease.

In lieu of a cash security deposit, Wells Fargo issued a $ 1.0 million letter of credit on our behalf, which is secured by a deposit of $ 0.2 million .

Our operating lease cost was $ 2.5 million and $ 1.9 million for the three months ended March 31, 2020 and 2019, respectively.

Cash paid for amounts in the measurement of lease liabilities for operating cash flows from operating leases was $ 2.1 million and $ 1.6 million for the three months ended March 31, 2020 and 2019, respectively.

Our operating leases had a weighted average remaining lease term of 11.0 years and 11.4 years at March 31, 2020 and December 31, 2019, respectively, and a weighted average discount rate of 5.8 % at March 31, 2020 and December 31, 2019, respectively.

At March 31, 2020, the approximate future minimum lease payments under operating leases were as follows:

(in millions)

In connection with our operating leases, in lieu of cash security deposits, Wells Fargo Bank, N.A., issued letters of credit on our behalf, which are secured by deposits totaling $ 3.2 million.

Our operating lease cost was $ 5.0 million and $ 3.9 million for the six months ended June 30, 2020 and 2019, respectively.

Cash paid for amounts in the measurement of lease liabilities for operating cash flows from operating leases was $ 4.3 million and $ 3.3 million for the six months ended June 30, 2020 and 2019, respectively.

Our operating leases had a weighted average remaining lease term of approximately 11 years and 10 years at June 30, 2020 and December 31, 2019, respectively, and a weighted average discount rate of 5.8 % at June 30, 2020 and December 31, 2019, respectively.

Approximate future minimum lease payments under operating leases were as follows:

(in millions) June 30,

Year ending December 31, 2020 (6 months remaining) $ 4.3

Year ending December 31, 2021 10.6

2020 (9 months remaining)

Year ending December 31, 2022 10.9

Year ending December 31, 2023 11.2

Year ending December 31, 2024 11.6

Thereafter 79.7

Total operating lease payments 128.3

11 unchanged sentences

Holders of the 2024 Notes may convert the 2024 Notes at any time prior to the close of business on the business day immediately preceding May 15, 2024, only under the following circumstances:

during any calendar quarter (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130 % of the conversion price on each applicable trading day;

during the five business-day period immediately after any five consecutive trading-day period (the measurement period) in which the trading price (as defined in the 2024 Indenture) per $ 1,000 principal amount of the 2024 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;

upon the occurrence of specified corporate events, including a merger or a sale of all or substantially all of our assets;

if we call the 2024 Notes for redemption, until the close of business on the business day immediately preceding the redemption date.

(i) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130 % of the conversion price on each applicable trading day;

(ii) during the five business-day period immediately after any five consecutive trading-day period (the measurement period) in which the trading price (as defined in the 2024 Indenture) per $ 1,000 principal amount of the 2024 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;

(iii) upon the occurrence of specified corporate events, including a merger or a sale of all or substantially all of our assets;

(iv) if we call the 2024 Notes for redemption, until the close of business on the business day immediately preceding the redemption date.

On or after January 15, 2024, until the close of business on the scheduled trading day immediately preceding May 15, 2024, holders may convert their 2024 Notes at any time.

As the conditional conversion feature described under (i) above had been triggered as of June 30, 2020, holders of the 2024 Notes may convert the 2024 Notes at any time during the period beginning on July 1, 2020 and ending at the close of business on September 30, 2020.

Accordingly, the 2024 Notes have been classified as a current liability as of June 30, 2020.

The future conditional convertibility of the 2024 Notes will be monitored at each quarterly reporting date and analyzed dependent upon market prices of our common stock during the prescribed measurement periods.

Upon conversion, holders will receive the principal amount of their 2024 Notes and any excess conversion value, calculated based on the per share volume-weighted average price for each of the 30 consecutive trading days during the observation period (as more fully described in the 2024 Indenture).

For both the principal and excess conversion value, holders may receive cash, shares of our common stock or a combination of cash and shares of our common stock, at our option.

It is our intent and policy to settle conversions through combination settlement, which essentially involves repayment of an amount of cash equal to the “principal portion” and delivery of the “share amount” in excess of the principal portion in shares of common stock or cash.

of common stock or cash.

In general, for each $ 1,000 in principal, the “principal portion” of cash upon settlement is defined as the lesser of $ 1,000 , and the conversion value during the 25 -day observation period as described in the 2024 Indenture.

15 unchanged sentences

The 2024 Notes are our general unsecured obligations that rank senior in right of payment to all of our indebtedness that is expressly subordinated in right of payment to the 2024 Notes, and equal in right of payment to our unsecured indebtedness.

While the 2024 Notes are currently classified as a long-term liability, the future convertibility and associated balance sheet classification will be monitored at each quarterly reporting date and analyzed dependent upon market prices of our common stock during the prescribed measurement periods.

In the event that the holders of the 2024 Notes have the election to convert the 2024 Notes at any time during the prescribed measurement period, the 2024 Notes would then be considered a current obligation and classified as such.

We are not aware of any current events or market conditions that would allow holders of the 2024 Notes to convert the 2024 Notes.

We are required to separately account for the liability and equity components of the 2024 Notes as they may be settled entirely or partially in cash upon conversion in a manner that reflects our economic interest cost.

4 unchanged sentences

The equity component is not re-measured as long as it continues to meet the conditions for equity classification.

At March 31, 2020, the remaining period over which the discount on the liability component will be amortized was approximately 4.1 years.

At June 30, 2020, the remaining period over which the discount on the liability component will be amortized was approximately 4 years.

We allocated the total transaction costs of approximately $ 14.7 million related to the issuance of the 2024 Notes to the liability and equity components of the 2024 Notes based on their relative values.

3 unchanged sentences

The 2024 Notes, net of discounts and deferred financing costs, consisted of the following:

(in millions)

(in millions) June 30,

2020 December 31,

Principal $ 517.5 $ 517.5

Deferred financing costs ( 6.2 ) ( 6.9 )

2 unchanged sentences

The 2024 Notes were recorded at the estimated value of a similar non-convertible instrument on the date of issuance and accretes to the face value of the 2024 Notes over their seven-year term.

The fair value of the 2024 Notes, which was estimated utilizing market quotations from an over-the-counter trading market (Level 2), was $ 677.2 million at March 31, 2020 and $ 596.8 million at December 31, 2019.

The fair value of the 2024 Notes, which was estimated utilizing market quotations from an over-the-counter trading market (Level 2), was $ 845.3 million at June 30, 2020 and $ 596.8 million at December 31, 2019.

Net Income (Loss) Per Share

Net income per share was calculated as follows:

Net income (loss) per share was calculated as follows:

Three Months Ended

June 30, Six Months Ended

(in millions, except per share data) 2020 2019 2020 2019

1 unchanged sentence

Weighted-average common shares outstanding:

Basic 93.0 91.4 92.8 91.2

Effect of dilutive securities:

1 unchanged sentence

Restricted stock 0.5 0.3 0.5 —

Net income per share:

2024 Notes 2.1 0.5 1.8 —

Diluted 98.2 94.8 97.6 91.2

Net income (loss) per share:

Basic $ 0.86 $ 0.56 $ 1.26 $ ( 0.56 )

Diluted $ 0.81 $ 0.54 $ 1.20 $ ( 0.56 )

Convertible debt instruments that may be settled entirely or partly in cash (such as the 2024 Notes) may, in certain circumstances where the borrower has the ability and intent to settle in cash, be accounted for under the treasury stock method.

1 unchanged sentence

As a result, of the approximately 6.8 million shares underlying the 2024 Notes, only the shares required to settle the excess of the principal portion are considered under the treasury stock method.

Shares which have been excluded from diluted per share amounts because their effect would have been anti-dilutive include the following:

Three Months Ended

(in millions)

Stock options, restricted stock units and convertible senior notes

Shares which have been excluded from diluted per share amounts because their effect would have been anti-dilutive were 2.2 million and 1.4 million for the three and six months ended June 30, 2020, respectively, and 2.3 million and 8.5 million for the three and six months ended June 30, 2019, respectively.

Subsequent Events

In June 2020, we entered into an exclusive license agreement with Takeda to develop and commercialize certain compounds in Takeda’s early to mid-stage psychiatry pipeline.

Specifically, Takeda granted us an exclusive license to the following seven assets:

(i) NBI-1065844 (TAK-831) for schizophrenia, or the Phase II Asset, (ii) NBI-1065845 (TAK-653) for treatment-resistant depression, (iii) NBI-1065846 (TAK-041) for anhedonia (which together with the NBI-1065845 are referred to as the Phase II Ready Assets), and (iv) four non-clinical stage assets, or the Non-Clinical Assets.

The agreement became effective in July 2020, upon expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

The Phase II Asset is deemed a royalty-bearing product under the license agreement pursuant to which we will be responsible for all costs and expenses associated with the development, manufacture, and commercialization of such asset, subject to certain exceptions, and Takeda will be eligible to receive development and commercial milestones and royalties with respect to such asset, or a Royalty-Bearing Product, and Takeda will retain the right to opt-in to a profit sharing arrangement pursuant

to which we and Takeda will equally share in the operating profits and losses related to such asset, subject to certain exceptions, in lieu of receiving milestones and royalties, or a Profit-Share Product.

Subject to specified conditions, Takeda may elect to exercise such opt-in right for the Phase II Asset before we initiate a Phase III clinical trial for such Phase II Asset.

Each of the Phase II Ready Assets is deemed a Profit-Share Product and Takeda will retain the right to opt-out of the profit-sharing arrangement for such asset pursuant to which such asset would become a Royalty-Bearing Product.

Takeda may elect to exercise such opt-out rights with respect to a Phase II Ready Asset immediately following the completion of the second Phase II clinical trial for such Phase II Ready Asset.

In addition, under certain circumstances related to the development and commercialization activities to be performed by us, Takeda may elect to opt-out of the profit-sharing arrangement for a Profit-Share Product before the initiation of a Phase III clinical trial for such product.

Each of the Non-Clinical Assets will be Royalty-Bearing Products pursuant to which we will be responsible for all costs and expenses associated with the development, manufacture, and commercialization of such assets, subject to certain exceptions.

In connection with the agreement, we paid Takeda $ 120.0 million upfront (less an earnest money deposit paid by us to Takeda in the first quarter of 2020) .

Pursuant to the terms of the agreement, Takeda may also be entitled to receive payments of up to $ 1.9 billion upon the achievement of certain development and commercial milestones associated with Royalty-Bearing Products, as well as receive royalties on future net sales of Royalty-Bearing Products.

On a country-by-country and product-by-product basis, royalty payments would commence on the first commercial sale of a Royalty-Bearing Product and terminate on the later of (i) the expiration of the last patent covering such Royalty-Bearing Product in such country, (ii) a number of years from the first commercial sale of such Royalty-Bearing Product in such country and (iii) the expiration of regulatory exclusivity for Royalty-Bearing Product in such country.

Unless earlier terminated, the license agreement will continue on a licensed product-by-licensed product and country-by-country basis until the date on which, (i) for any Royalty-Bearing Product, the royalty term has expired in such country;

and (ii) for any Profit-Share Product, for so long as we continue to develop, manufacture, or commercialize such licensed product.

We may terminate the license agreement for convenience in its entirety or in one or more (but not all) of the United States, Japan, the European Union, and the United Kingdom, or the Major Markets, on 6 months’ written notice to Takeda (i) with respect to all licensed products prior to the first commercial sale of the first licensed product for which first commercial sale occurs, or (ii) with respect to all licensed products in one or more given target classes, as defined in the agreement, prior to the first commercial sale of the first licensed product in such target class(es) for which first commercial sale occurs.

We may terminate the license agreement for convenience in its entirety or in one or more (but not all) of the Major Markets on 12 months’ written notice to Takeda (i) with respect to all licensed products following the first commercial sale of the first licensed product for which first commercial sale occurs, or (ii) with respect to all licensed products in one or more given target classes following the first commercial sale of the first licensed product in such target class(es) for which first commercial sale.

Takeda may terminate the license agreement, subject to specified conditions, (i) if we challenge the validity or enforceability of certain Takeda intellectual property rights or (ii) on a target class-by-target class basis, in the event that we do not conduct any material development or commercialization activities with respect to any licensed product within such target class for a specified continuous period.

Subject to a cure period, either party may terminate the license agreement in the event of any material breach, solely with respect to the target class of a licensed product to which such material breach relates, or in its entirety in the event of any material breach that relates to all licensed products.

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

What changed 10-Q

Item 1. Financial Statements